B-154645, JUN. 9, 1967

B-154645, JUN. 9, 1967

TO THE SECRETARY OF THE ARMY:

WE HAVE CAREFULLY STUDIED YOUR REPORT OF APRIL 13, 1967, ON THE TRANSPORTATION PROCUREMENT FOR THE 1967 YUKON RIVER RESUPPLY PROGRAM. ASKED FOR THAT REPORT BECAUSE THE UNSUCCESSFUL CARRIER, INLAND RIVERWAYS, INC., PROTESTED THE AWARD TO A HIGHER BIDDER, YUTANA BARGE LINES, INC., AND BECAUSE SENATOR ERNEST GRUENING ASKED US TO REVIEW THE AWARD.

ALTHOUGH INLAND RIVERWAYS WAS THE LOW BIDDER BY SOME $37,000, U.S. ARMY, ALASKA (USARAL), PROCUREMENT OFFICIALS DETERMINED UPON MAKING THE AWARD TO YUTANA BARGE LINES, INC., WHICH HAD RECEIVED THE AWARD IN 1966, AT THAT TIME AS THE LOW BIDDER. THE ARMY'S POSITION IS THAT (1) INLAND IS NOT A RESPONSIBLE BIDDER BECAUSE IT FAILED TO SATISFACTORILY ESTABLISH ITS CAPABILITY OF 100 PERCENT PERFORMANCE; AND (2) INLAND'S BID WAS NOT RESPONSIVE BECAUSE OF ITS REFUSAL TO AMEND THE BID TO INCLUDE A CERTAIN GUARANTY CLAUSE.

WE HAVE DENIED INLAND'S PROTEST ON THE GROUND OF ITS FAILURE TO ESTABLISH CAPABILITY OF COMPLETE PERFORMANCE. WE ENCLOSE A COPY OF OUR LETTER OF TODAY TO INLAND RIVERWAYS, INC. HOWEVER, OUR REVIEW OF THE RECORD PROMPTS SOME COMMENTS WHICH SEEM APPROPRIATE FOR FUTURE CONSIDERATION.

IN TERMS OF THE ORDINARY AND USUAL PRACTICES ATTENDANT UPON PROCUREMENT OF THE GOVERNMENT'S SURFACE TRANSPORTATION NEEDS, A UNIQUE SITUATION HAS BEEN CREATED IN THE PROCUREMENT OF TRANSPORTATION FOR THE YUKON RIVER RESUPPLY PROGRAM. WE ARE NOT CONVINCED OF THE NEED FOR CERTAIN METHODS USED IN THIS PROCUREMENT.

LAST YEAR, AT SENATOR GRUENING'S REQUEST, WE REVIEWED THE TRANSPORTATION PROCUREMENT FOR THE 1966 PROGRAM, WHEN YUTANA, AS LOW BIDDER, RECEIVED THE BUSINESS. BECAUSE OF THE CONCLUSION WE REACHED IN OUR REPORT OF JUNE 30, 1966, TO SENATOR GRUENING, THAT THE DECISION TO MAKE THE AWARD TO YUTANA WAS WITHIN THE MANAGERIAL DISCRETION OF YOUR DEPARTMENT BUT ITS SOUNDNESS WAS QUESTIONABLE, YOU RE-EVALUATED THE MATTER. AFTER THIS RE-EVALUATION, YOU DETERMINED TO COMPLETE THE 1966 SEASON UTILIZING ONLY THE YUTANA BARGE SERVICE; THIS RE EVALUATION, HOWEVER, DID NOT SATISFY ALL OF OUR OBJECTIONS, AS WE POINTED OUT IN OUR LETTER TO YOU OF AUGUST 1, 1966, B- 154645.

REPRESENTATIVES OF YOUR DEPARTMENT MET WITH MEMBERS OF OUR STAFF ON SEPTEMBER 13, 1966, TO DISCUSS APPROACHES TO THE ESTABLISHMENT OF ACCEPTABLE CRITERIA FOR USE IN THE 1967 PROCUREMENT. AT A SUBSEQUENT MEETING IN 1967 WE WERE ADVISED OF THE PROCEDURE SET UP FOR 1967 AND TOLD OF INTERVIEWS WHICH A REPRESENTATIVE OF THE TRANSPORTATION DIVISION, DCS/LOG, DEPARTMENT OF THE ARMY, HELD IN ALASKA IN NOVEMBER 1966 WITH USARAL TRANSPORTATION OFFICIALS AND OFFICIALS OF THE TWO BARGE OPERATORS.

WE UNDERSTAND THAT THE ANNUAL YUKON RIVER RESUPPLY PROGRAM IS DIRECTED PRIMARILY TO SUPPLYING CERTAIN AIR FORCE INSTALLATIONS WITH THE FUELS ESSENTIAL TO THEIR OPERATIONS. MILITARY PETROLEUM (POL) PRODUCTS REACH FORT WAINWRIGHT, NEAR FAIRBANKS, VIA MILITARY PIPELINE FROM HAINES IN THE ALASKA PANHANDLE; FROM FORT WAINWRIGHT POL IS TRANSSHIPPED BY RAIL OR TRUCK TO THE DOCKS OF THE WATER CARRIERS, WHO THEN HAUL IT BY BARGE TO RIVER PORTS NEAR OR ACCESSIBLE TO THE REMOTE AIR FORCE SITES. TRANSPORTATION ARRANGEMENTS ARE MADE ON BEHALF OF THE AIR FORCE BY THE U.S. ARMY, ALASKA, TO WHICH TRANSPORTATION RESPONSIBILITY WAS ASSIGNED BY DOD INSTRUCTION 4500.2, DATED AUGUST 17, 1954.

YUTANA BARGE LINES, INC., IS THE LESSEE-OPERATOR OF THE BARGE SERVICE OWNED BY THE ALASKA RAILROAD; THE RAILROAD IS OWNED BY THE UNITED STATES AND ADMINISTERED AND OPERATED BY THE DEPARTMENT OF TRANSPORTATION, TO WHICH IT WAS TRANSFERRED FROM THE DEPARTMENT OF THE INTERIOR BY PUBLIC LAW 89-670, OCTOBER 15, 1966, 80 STAT. 931, 49 U.S.C.A. 1655 (I). INLAND RIVERWAYS, INC., IS AN AFFILIATE OF WEAVER BROTHERS, INC., AN ALASKAN MOTOR COMMON CARRIER. BOTH YUTANA AND INLAND HOLD OPERATING AUTHORITY FROM THE INTERSTATE COMMERCE COMMISSION AS COMMON CARRIERS BY WATER IN INTERSTATE COMMERCE.

INLAND AND WEAVER BROTHERS PUBLISH JOINT THROUGH POL RATES FROM FORT WAINWRIGHT TO THE DOWNRIVER SITES IN INLAND RIVERWAYS TARIFF NO. 1 A,WF- I.C.C. NO. 2, WF-APSC NO. 1. WHEN INLAND-WEAVER SHARED IN THE POL TRAFFIC, WEAVER POSITIONED ITS TANK TRUCKS FOR LOADING DIRECT FROM THE FILLSTAND AT THE END OF THE PIPELINE INSIDE THE FORT WAINWRIGHT RESERVATION. THE LOADED TRUCKS WERE THEN DRIVEN ABOUT FIVE MILES TO THE INLAND DOCKS ON THE CHENA RIVER, ABOVE ITS CONFLUENCE WITH THE TANANA, WHERE THE POL WAS TAKEN ABOARD INLAND'S BARGES FOR DELIVERY TO THE DOWNRIVER SITES.

THE ALASKA RAILROAD PUBLISHES A POL RAIL RATE OF 35 CENTS PER HUNDRED POUNDS FROM FORT WAINWRIGHT TO NENANA IN ALASKA RAILROAD TARIFF NO. 8-C, EFFECTIVE JANUARY 11, 1965. YUTANA BARGE LINES, INC., TARIFF NO. 3, I.C.C. NO. 3, EFFECTIVE MAY 28, 1964, CONTAINS POL RATES IN CENTS PER HUNDRED POUNDS FROM NENANA TO THE RIVER PORTS. IN COMBINATION, THESE RATES ARE COMPARABLE TO THE JOINT THROUGH TRUCK BARGE RATES PUBLISHED BY INLAND-WEAVER.

WHEN THE DOWNRIVER BARGE SERVICE IS PROVIDED BY YUTANA CERTAIN REQUIRED SWITCHING SERVICES ARE PERFORMED BY THE ALASKA RAILROAD UNDER A SWITCHING CONTRACT WITH USARAL WHICH BECAME EFFECTIVE JANUARY 1, 1961. A SWITCH LOCOMOTIVE SPOTS ARMY-OWNED TANK CARS FOR LOADING FROM THE FILLSTAND AND SHIFTS THE LOADED TANK CARS OUTSIDE THE MILITARY RESERVATION TO THE FORT WAINWRIGHT INTERCHANGE. HERE THEY ARE RECEIVED BY THE ALASKA RAILROAD AND TAKEN IN LINE-HAUL SERVICE APPROXIMATELY 50 MILES TO NENANA ON THE TANANA RIVER. THERE THE POL IS OFF-LOADED ACROSS GOVERNMENT-OWNED DOCKS USED BY YUTANA TO THE LATTER'S BARGES FOR DELIVERY TO THE DOWNRIVER SITES.

PRIOR TO THE 1966 SEASON, POL TRANSPORTATION ON THE RIVER WAS SHARED BETWEEN YUTANA AND INLAND. IT WAS THEN THE OPINION OF THE USARAL TRANSPORTATION OFFICIALS THAT THE TWO-CARRIER SYSTEM ON THE RIVER ACTED AS A RATE STABILIZER AND PROVIDED THE MILITARY WITH NEEDED FLEXIBILITY AT TIMES WHEN WATER CONDITIONS REQUIRED INCREASED TRIP CAPACITY TO ASSURE TIMELY COMPLETION OF DELIVERIES. THIS VIEW WAS EXPRESSED IN 1965 TO REPRESENTATIVES OF OUR OFFICE WHO WERE IN ALASKA TO INQUIRE INTO THE ALASKA RAILROAD BARGE OPERATION AT THE REQUEST OF SENATOR GRUENING. THEY WERE ALSO TOLD THAT IF INLAND RIVERWAYS INCREASED ITS TRANSPORTATION CAPABILITY, ITS SHARE OF THE POL TRAFFIC WOULD BE INCREASED UP TO 50 PERCENT OF THE TOTAL, BUT THAT INCREASED CAPABILITY OF YUTANA WOULD NOT RESULT IN AN INCREASED SHARE OF TRAFFIC FOR THAT CARRIER.

ALTHOUGH THE TERMS OF THE ALASKA RAILROAD LEASE TO YUTANA DO NOT REQUIRE THE RAILROAD TO REPLACE WORN OUT EQUIPMENT OR SUPPLY ADDITIONAL EQUIPMENT, THE RAILROAD HAS MADE A SUBSTANTIAL QUANTITY OF ADDITIONAL EQUIPMENT AVAILABLE TO YUTANA IN THE INTEREST OF MAINTAINING ITS OWNERSHIP OF THE BARGE OPERATION. THIS CONTINUED OWNERSHIP PERMITS THE RAILROAD TO PROTECT ITS OWN REVENUES BY ENGAGING IN JOINT RAIL-WATER HAULS WITH YUTANA, TO EXERCISE SOME DEGREE OF CONTROL OVER THE LEVEL OF RATES ON THE YUKON RIVER SYSTEM, THE PRIMARY AVENUE OF SUMMER TRANSPORTATION IN THE INTERIOR OF ALASKA, AND TO GUARANTEE MINIMUM BARGE SERVICE OF TWO TRIPS PER SEASON TO ALL POINTS ON THE YUKON AND THE TANANA BETWEEN NENANA ON THE TANANA, FORT YUKON ON THE UPPER RIVER AND MARSHALL ON THE LOWER RIVER.

IN 1964, THE ALASKA RAILROAD PURCHASED A NEW STEEL BULK PETROLEUM BARGE AND TURNED IT OVER TO YUTANA FOR USE. ACQUISITION OF THIS BARGE APPARENTLY AUGMENTED YUTANA'S FLEET TO THE EXTENT THAT ITS CAPACITY BECAME ADEQUATE FOR TRANSPORTATION OF THE ENTIRE MILITARY POL TRAFFIC. AS YOUR DEPARTMENT HAS INFORMED US, THE MAIN RIVER TRAFFIC CONSISTS OF MILITARY POL; UNDOUBTEDLY ECONOMIC UTILIZATION OF THE ADDITIONAL BARGE MOTIVATED YUTANA TO ACTIVELY SEEK A GREATER SHARE AND ULTIMATELY ALL OF THE MILITARY TRAFFIC MOVED UNDER THE ANNUAL YUKON RIVER RESUPPLY PROGRAM.

EFFECTIVE APRIL 15, 1965, YUTANA-ALASKA RAILROAD AMENDED ITS TENDER NO. 4, ISSUED TO THE DEPARTMENT OF DEFENSE IN 1964,"PURSUANT TO SECTION 22 OF THE INTERSTATE COMMERCE ACT OR OTHER APPROPRIATE STATUTORY AUTHORITY," TO HOLD OUT COMBINATION RAIL-BARGE SERVICE AT JOINT THROUGH RATES. UNDER THE AMENDMENT, FIRST REVISED PAGE 6, THE BASIC RATES WERE THE EQUIVALENT OF THE COMBINATION OF LOCAL RATES AND ACCESSORIAL CHARGES IN THE TWO CARRIERS' PUBLISHED TARIFFS, AND THUS IDENTICAL TO THE INLAND-WEAVER TARIFF RATES. HOWEVER, FIRST REVISED PAGE 6 OFFERED A REDUCTION OF 10 CENTS PER HUNDRED POUNDS "FOR ALL BILLED GALLONAGE SHIPPED TO RIVER PORTS DURING ANY ONE SEASON IN EXCESS OF 4,000,000 GALLONS.'

THIS OFFER SEEMINGLY INDUCED NO INCREASE IN THE POL BUSINESS AWARDED TO THE OFFERORS, SINCE YOUR DEPARTMENT INFORMED US, IN CONNECTION WITH OUR STUDY OF THE 1966 TRANSPORTATION PROCUREMENT, THAT PRIOR TO 1966, THE POL TRAFFIC, GENERALLY BETWEEN 5 AND 6 MILLION GALLONS, WAS DIVIDED BETWEEN YUTANA AND INLAND; YUTANA RECEIVED APPROXIMATELY 55 PERCENT AND 45 PERCENT WENT TO INLAND.

IN EARLY 1966, HOWEVER, WHEN USARAL PROVIDED THE SEVERAL CARRIERS WITH INFORMATION CONCERNING THE PROJECTED POL GALLONAGE TO BE MOVED, YUTANA- ALASKA SUBMITTED A THIRD REVISION OF PAGE 6, TENDER NO. 4, IN WHICH THE BASIS THROUGH RATES WERE UNCHANGED FROM THE TARIFF LEVEL BUT WHICH OFFERED A 20-CENT PER HUNDRED-WEIGHT REDUCTION FROM THOSE RATES CONDITIONED UPON RECEIPT OF 100 PERCENT OF THE POL TRAFFIC. INLAND, OFFERED THE OPPORTUNITY TO SUBMIT A TENDER MAKING THE SAME REDUCED RATE OFFER, FAILED TO DO SO BECAUSE OF INABILITY AT THAT TIME TO INCREASE ITS CARRYING CAPACITY. USARAL THEN DETERMINED TO, AND DID, UTILIZE ONLY THE RAIL-BARGE SERVICE OF THE ALASKA RAILROAD AND YUTANA BARGE LINES IN FULFILLING THE POL COMMITMENTS OF THE 1966 PROGRAM.

GENERALLY THE GOVERNMENT'S TRANSPORTATION NEEDS ARE NOT PROCURED FROM COMMON CARRIERS THROUGH FORMAL CONTRACTING PROCEDURES AND SECTION 321 (A) OF THE TRANSPORTATION ACT OF 1940, 54 STAT. 954, 49 U.S.C. 65 (A), SPECIFICALLY EXCLUDES THE PROCUREMENT OF TRANSPORTATION SERVICES AVAILABLE FROM A COMMON CARRIER FROM THE FORMAL ADVERTISING REQUIREMENTS OF 41 U.S.C. 5. THE RATIONALE UNDERLYING THIS EXCLUSION IS THAT COMMON CARRIERS HOLD THEMSELVES OUT TO PERFORM THE SERVICES FOR WHICH THEY ARE CERTIFICATED, AT PUBLISHED RATES, FOR ALL WHO APPLY, INCLUDING THE UNITED STATES.

PROCUREMENT OFFICIALS OF THE UNITED STATES HAVE GREATER LATITUDE THAN DO PRIVATE PARTIES IN ARRANGING WITH INTERESTED CARRIERS FOR REDUCED RATES OR FOR SERVICES NOT OFFERED TO THE GENERAL PUBLIC BECAUSE OF SPECIFIC PROVISIONS IN THE INTERSTATE COMMERCE ACT AUTHORIZING SERVICE TO THE GOVERNMENT FREE OR AT REDUCED RATES, 49 U.S.C. 22 (1), 317 (B), 906 (C). THE SAME SITUATION PREVAILS AS TO THE GOVERNMENT'S INTRASTATE TRAFFIC (SEE UNITED STATES V. GEORGIA PUBLIC SERVICE COMMISSION, 371 U.S. 285 (1963)

THE USUAL PRACTICE, THEN, IS THAT THE CARRIER OR CARRIERS WILLING TO PROVIDE THE SPECIAL SERVICE OR THE REDUCED RATE SOUGHT BY THE UNITED STATES MAKES A CONTINUING OFFER OF SUCH SERVICE AND RATE. THIS CONTINUING OFFER IS ACCEPTED AND RIPENS INTO A CONTRACT, AS TO A PARTICULAR SHIPMENT, WHEN THE OFFEREE ELECTS TO AND DOES UTILIZE THE SERVICE DESCRIBED IN THE OFFER AND SETTLES THE CHARGES IN ACCORDANCE WITH ITS TERMS. 45 COMP. GEN. 118, 121 (1965). AND THE GOVERNMENT BILL OF LADING ISSUED TO COVER THE INDIVIDUAL SHIPMENT REPRESENTS THE CONTRACT MADE BY THE PARTIES.

REPLYING TO OUR QUERIES RELATIVE TO OUR STUDY OF THE 1966 TRANSPORTATION PROCUREMENT, OFFICIALS OF YOUR DEPARTMENT MAINTAINED THAT THEIR ARRANGEMENTS WITH YUTANA-ALASKA DID NOT INVOLVE AN OVERALL CONTRACT BUT RATHER A NORMAL TENDER OF FREIGHT AS OUTLINED IN MILITARY TRAFFIC MANAGEMENT REGULATION DSAR 4500.3, WITH A GOVERNMENT BILL OF LADING ISSUED TO COVER EACH BARGE LOAD OF POL. THAT REGULATION APPARENTLY IS NOT APPLICABLE IN ALASKA; IT APPLIES WITHIN THE CONTINENTAL UNITED STATES (PARAGRAPH 101001), DEFINED IN APPENDIX I AS "UNITED STATES TERRITORY, * * *, LOCATED WITHIN THE NORTH AMERICAN CONTINENT BETWEEN CANADA AND MEXICO.' AND THE ARMED SERVICES PROCUREMENT REGULATION DOES NOT APPLY TO TRANSPORTATION SERVICES PROCURED BY BILLS OF LADING AND SIMILAR FORMS. ASPR, PARAGRAPH 1.102. ON THE BASIS OF THE RECORD THEN BEFORE US, WE AGREED WITH YOUR DEPARTMENT THAT THE 1966 PROCUREMENT WAS NOT MADE UNDER AN OVERALL CONTRACT BUT REPRESENTED THE USUAL TYPE OF TRANSPORTATION ARRANGEMENT WHICH WE ASSUMED WAS INTENDED TO BE MADE, AS FAR AS POSSIBLE, IN THE LIGHT OF THE GUIDING PRINCIPLES SET OUT IN THE MILITARY TRAFFIC MANAGEMENT REGULATION.

THIS YEAR THE TRANSPORTATION PROCUREMENT PROCEDURE HAS INVOLVED A MORE EXTENSIVE PRELIMINARY STATEMENT OF REQUIREMENTS IN THE NOTICE GIVEN TO THE TWO PROSPECTIVE BIDDERS, WITH FURTHER DEVELOPMENT OF PARTICULARS IN SEVERAL STAGES.

FOLLOWING A PREVIOUSLY PREPARED "PLANNED PROCEDURES FOR 1967," SOLICITATION LETTERS DATED JANUARY 16, 1967, WERE DISPATCHED BY REGISTERED MAIL TO THE INTERESTED CARRIERS, ADVISING OF THE ESTIMATED VOLUME OF POL TO BE MOVED, SETTING FEBRUARY 1, 1967, AS THE TIME LIMIT FOR THE SUBMISSION OF TENDERS OR TARIFF CHANGES, SPECIFYING SEVERAL CONDITIONS TO BE AGREED TO, AND FURNISHING OTHER NECESSARY INFORMATION. WE NOTE HERE IN PARTICULAR THE STATEMENT, REQUIRED TO BE INCORPORATED IN THE CARRIERS' TENDER OR TARIFF, THAT "NOTIFICATION BY THE GOVERNMENT THAT ALL OF THE POL TONNAGE WILL BE RELEASED TO THE CARRIER FOR MOVEMENT COMMITS THE SHIPPER TO TENDER ALL AVAILABLE CARGO.' THE CARRIERS SUBMITTED RATE TENDERS BY THE REQUIRED DATE AND THE EVALUATION PROCESS COMMENCED. IN THE COURSE OF THIS PROCESS, THERE WERE WRITTEN NEGOTIATIONS LOOKING TOWARD THE INCLUSION OF AN ADDITIONAL DEFAULT OR GUARANTY CLAUSE IN THE TENDERS, THE SUBMISSION OF EQUIPMENT LISTS, AND DATES AND PLACES OF AVAILABILITY FOR INSPECTION. FINALLY, ON MARCH 10, 1967, INLAND RIVERWAYS WAS NOTIFIED THAT ITS OFFER FOR 100 PERCENT OF THE BUSINESS, ALTHOUGH AFFORDING THE LOWEST COST SERVICE, COULD NOT BE ACCEPTED BECAUSE OF INLAND'S REFUSAL TO ACCEDE TO THE REQUEST FOR AN ADDITIONAL GUARANTY CLAUSE AND BECAUSE SOME OF THE EQUIPMENT PROPOSED TO BE USED HAD BEEN EVALUATED AS UNAVAILABLE. ON THE SAME DAY THE ALASKA RAILROAD WAS NOTIFIED THAT, IN ACCORDANCE WITH YUTANA BARGE LINES-ALASKA RAILROAD TENDER NO. 4, FOURTH REVISED PAGE 6 AND FIRST REVISED PAGE 8,"100 PERCENT OF PETROLEUM PRODUCTS TO BE MOVED WILL BE TENDERED TO YOU.'

A "MEMORANDUM OF UNDERSTANDING" WAS SIGNED APRIL 13, 1967, FOR THE ALASKA RAILROAD, YUTANA BARGE LINES, AND THE UNITED STATES ARMY, ALASKA. THIS DOCUMENT REPEATS THAT USARAL "HAS ACCEPTED" THE YUTANA ALASKA OFFER OF A REDUCED RATE CONDITIONED UPON THE RECEIPT OF THE TOTAL VOLUME OF POL TO BE MOVED IN THE 1967 SEASON. THE MEMORANDUM CONTAINS SUPPLEMENTAL INFORMATION RELATIVE TO TRIP SCHEDULES, TRIP REPORTING, RAIL TANK CAR CONTROL, AND THE GENERAL MECHANICS OF THE OPERATION. IN A TELEPHONE CALL FROM YOUR DEPARTMENT ON MAY 9, 1967, WE WERE ADVISED THAT USARAL TRANSPORTATION OFFICIALS WOULD BEGIN ISSUING GOVERNMENT BILLS OF LADING COVERING THE MOVEMENT OF POL TO YUTANA-ALASKA BY MAY 11, 1967.

ON THESE FACTS, WE THINK A FIRM CONTRACT HAS BEEN MADE BETWEEN THE PARTIES. IF THE GOVERNMENT WISHED TO VARY OR AMEND OR ABANDON ITS UNDERTAKING FOR ANY REASON OTHER THAN A CHANGE IN THE POL REQUIREMENTS, WHICH IS SPECIFICALLY PROVIDED FOR, IT WOULD BE LIABLE TO RESPOND IN DAMAGES FOR BREACH OF THE CONTRACT SO MADE. WE APPRECIATE THAT THE REQUIREMENTS OF THE YUKON RIVER RESUPPLY PROGRAM, THE RATHER LIMITED COMMON CARRIER TRANSPORTATION SERVICE AVAILABLE TO OR NEAR THE AIR FORCE INSTALLATIONS, AND THE BRIEF DURATION OF THE NAVIGATION SEASON ALL COMBINE TO MAKE IT HIGHLY DESIRABLE TO USARAL OFFICIALS THAT THEY BE ASSURED OF THE CONTINUED AVAILABILITY OF THE EQUIPMENT NEEDED TO MOVE THE POL. AND WE REALIZE THAT READYING AND MANNING THE VESSELS USED REQUIRES SOME TIME AND EXPENSE. WE ALSO RECOGNIZE THAT THE DECISION TO ENTER INTO A CONTRACT SUCH AS THIS IS WITHIN THE DISCRETION OF YOUR DEPARTMENT, WHICH BEARS THE ULTIMATE RESPONSIBILITY FOR ITS SOUNDNESS FROM THE MANAGEMENT STANDPOINT. THE EXERCISE OF THIS MANAGERIAL DISCRETION IS SUBJECT TO POSSIBLE QUESTION BASED UPON A CLEAR SHOWING OF BAD FAITH, OF FAILURE TO OBSERVE THE LAW AND APPLICABLE REGULATIONS, OR OF LACK OF A REASONABLE FACTUAL BASIS FOR THE DETERMINATION MADE.

WE HAVE NO QUESTION CONCERNING THE "PLANNED PROCEDURES FOR 1967," WHICH WERE DEVISED TO SET UP A TIME TABLE AND A PLAN OF ACTION FOR PROCURING THIS SEASON'S TRANSPORTATION NEEDS. WHEN THE WRITTEN PROCEDURES WERE FURNISHED AND EXPLAINED TO US AT THE JANUARY 1967 MEETING WITH REPRESENTATIVES OF YOUR DEPARTMENT, WE THOUGHT THEM FAIR AND EQUITABLE. HOWEVER, THE RECORD SUGGESTS THAT WHILE THE PROCEDURES WERE FOLLOWED GENERALLY, THE MANNER IN WHICH ADDITIONAL REQUIREMENTS WERE IMPOSED DOES NOT SEEM TO HAVE PROVIDED THE BIDDERS WITH AS FULL AN UNDERSTANDING AS MIGHT HAVE BEEN FURNISHED.

WE WERE INFORMED THAT AT THE MEETINGS IN ALASKA IN NOVEMBER 1966, ATTENDED BY A REPRESENTATIVE OF YOUR DEPARTMENT AND BY USARAL AND CARRIER OFFICIALS, BOTH BARGE OPERATORS VOICED THE INTENTION TO BID FOR 100 PERCENT OF THE BUSINESS. INLAND ASKED FOR 120 DAYS' NOTICE, IF IT WERE THE SELECTED CARRIER, IN WHICH TO OBTAIN THE ADDITIONAL EQUIPMENT NEEDED TO TRANSPORT THE TOTAL VOLUME OF POL. BECAUSE POL REQUIREMENTS FOR 1967 COULD NOT BE FORECAST SO FAR IN ADVANCE, USARAL OFFICIALS COULD AGREE TO ONLY 90 DAYS' NOTICE. THUS, THE PROCEDURES PROVIDED THAT THE SELECTED CARRIER OR CARRIERS WOULD BE NOTIFIED OF THE DETAILS OF TONNAGE, ETC., "BY 28 FEBRUARY 1967.'

SIMILAR SOLICITATION LETTERS DATED JANUARY 16, 1967, WERE SENT THE INTERESTED CARRIERS, STATING THAT CHANGES IN TARIFFS OR TENDERS MUST BE SUBMITTED BY A SPECIFIED HOUR ON FEBRUARY 1 AND THAT NOTIFICATION OF SELECTED CARRIERS WOULD BE MADE "ON OR ABOUT" FEBRUARY 28, 1967; NOTIFICATION WAS IN FACT MADE BY LETTERS DATED MARCH 10, 1967.

AMONG THE OBJECTIONS WE EXPRESSED CONCERNING THE 1966 PROGRAM WERE THESE: IN THE EVENT OF CARRIER DEFAULT, THE GOVERNMENT WAS NOT PROTECTED AGAINST A CARRIER DEMAND FOR REIMBURSEMENT OF THE DIFFERENCE BETWEEN THE REDUCED RATE PAID ON THE 100 PERCENT BASIS AND THE RATE APPLICABLE TO THE VOLUME ACTUALLY CARRIED; AGAIN, IN THE EVENT OF CARRIER DEFAULT AND DELIVERY OF THE REMAINING POL BY OTHER MEANS AT INCREASED COST, WE POINTED OUT THE LACK OF A PROVISION FOR THE DEFAULTING CARRIER TO BEAR THAT PART OF THE INCREASED COST CAUSED BY FAILURE TO HANDLE 100 PERCENT OF THE SHIPMENTS.

THE SOLICITATION LETTERS OF JANUARY 16, 1967, SET OUT THREE CONDITIONS REQUIRED TO BE MADE PART OF THE TARIFFS OR TENDERS OFFERED FOR 1967; AMONG THESE WAS THE CONDITION THAT IN THE EVENT OF DEFAULT BY THE CARRIER RECEIVING AWARD ON THE 100 PERCENT BASIS, THE GOVERNMENT WOULD NOT REIMBURSE THE CARRIER FOR THE DIFFERENCE BETWEEN THE 100 PERCENT RATE AND THE STEP RATE APPLICABLE TO THE VOLUME CARRIED PRIOR TO THE DEFAULT. THE SUBSTANCE OF THE SECOND CONDITION WAS THAT NOTIFICATION THAT ALL POL TONNAGE WOULD BE RELEASED TO THE CARRIER COMMITTED THE SHIPPER TO TENDER ALL AVAILABLE CARGO, BUT THAT PARTIAL CANCELLATION OF POL REQUIREMENTS WOULD NOT AFFECT APPLICABILITY OF THE 100 PERCENT RATE. THE THIRD CONDITION WAS THAT, SHOULD TONNAGE BE REDUCED BECAUSE OF CANCELLED REQUIREMENTS, THE GOVERNMENT WOULD NOT BE LIABLE FOR PREPARATION COSTS INCURRED BY THE CARRIER. THE FIRST CONDITION TOOK CARE OF ONE OF OUR TWO OBJECTIONS MENTIONED ABOVE; NO PROVISION WAS INITIALLY MADE FOR THE SECOND.

THE TENDERS OF BOTH YUTANA-ALASKA AND INLAND-WEAVER BROTHERS, SUBMITTED BY THE REQUIRED DATE, FEBRUARY 1, 1967, CONTAINED THESE THREE CONDITIONS, COPIED VERBATIM FROM THE SOLICITATION LETTERS. USARAL OFFICIALS THEN COMMENCED THE EVALUATION PROCESS, MAKING COST COMPARISONS, ETC.

ON FEBRUARY 8, USARAL WROTE TO THE ALASKA RAILROAD AND TO WEAVER BROTHERS ASKING FOR ADDITIONAL INFORMATION IN ORDER TO COMPLETE THE EVALUATION: A LIST OF EQUIPMENT TO BE USED, ITS LOCATION AND THE DATE OF AVAILABILITY FOR INSPECTION, AND A DETAILED PROPOSED OPERATING SCHEDULE FOR ALL SAILINGS PROPOSED BETWEEN MAY 22 AND SEPTEMBER 15, 1967. THE LETTERS ALSO ADVISED THAT SINCE BOTH CARRIERS HAD SUBMITTED 100 PERCENT OFFERS,"ACCEPTANCE AND USE OF THESE INCENTIVE TENDER RATES WILL BE SUBJECT TO THE FOLLOWING STIPULATIONS:

"CARRIER GUARANTEES THAT PETROLEUM PRODUCTS TENDERED FOR MOVEMENT BETWEEN 22 MAY 1967 AND 15 SEPTEMBER 1967 WILL BE DELIVERED TO DESTINATION BY WHATEVER MEANS NECESSARY DURING THE 1967 SHIPPING SEASON, UNLESS RELIEVED OF SUCH RESPONSIBILITY BY THE GOVERNMENT. THE CARRIER FURTHER AGREES THAT IN THE EVENT PETROLEUM PRODUCTS TENDERED ARE NOT DELIVERED AS A RESULT OF CARRIER FAILURE AND THAT IF ANOTHER MEANS OF TRANSPORTATION, WHETHER WATER, LAND OR AIR, IS USED BY THE GOVERNMENT TO EFFECT DELIVERY OF SAID PRODUCTS, THE CARRIER AGREES TO REIMBURSE THE GOVERNMENT FOR ANY DIFFERENCES IN COST THAT REPRESENT AN ADDITIONAL EXPENSE TO THE GOVERNMENT IN MOVING THE UNDELIVERED TENDERED PETROLEUM PRODUCTS.'

THIS PROVISO GAVE EFFECT TO THE SECOND OF THE TWO OBJECTIONS DISCUSSED ABOVE, AS HAVING BEEN AMONG THOSE WE RAISED CONCERNING THE EXCLUSIVE USE OF YUTANA IN 1966. OUR OBJECTION WAS KNOWN TO THE USARAL PROCUREMENT OFFICIALS PRIOR TO PREPARATION OF THE JANUARY 16 SOLICITATION LETTERS; THEY ALSO KNEW THAT BOTH CARRIERS HAD EXPRESSED THE INTENTION TO SUBMIT 100 PERCENT OFFERS FOR THE 1967 POL. ALSO, THE SOLICITATION LETTERS CLEARLY STATED THAT SUBMISSIONS OR ADJUSTMENTS (IN THE TENDERS OR TARIFFS) AFTER FEBRUARY 1, 1967, COULD NOT BE CONSIDERED FOR THE CURRENT SEASON. WE THINK THERE IS ATTACHED TO THIS STATEMENT AT LEAST AN IMPLICATION THAT THE GOVERNMENT WOULD NOT ASK FOR SUBSTANTIVE ADDITIONS OR CHANGES AFTER THAT DATE.

BOTH CARRIERS COMPLIED WITH THE REQUEST FOR EQUIPMENT LISTS AND OPERATING SCHEDULES, BUT INLAND REFUSED TO PROVIDE THE PERFORMANCE GUARANTEE AS REQUESTED BECAUSE THE GOVERNMENT WAS NOT MAKING A GUARANTEE OF ANY PARTICULAR VOLUME OF TRAFFIC. HOWEVER, THE PRELIMINARY FORECAST OF 5,900,000 GALLONS OF POL TO BE SHIPPED IN 1967 WAS MADE TO BOTH CARRIERS.

THE ALASKA RAILROAD SUBMITTED FIRST REVISED PAGE 8 TO YUTANA'S TENDER NO. 4, WHICH CONTAINED IN ITEM I SUBSTANTIALLY THE STIPULATIONS QUOTED ABOVE, BUT SUBJECTED THEM TO THIS PROVISO:

"PROVIDED THAT THE CARRIER SHALL NOT BE REQUIRED TO REIMBURSE THE GOVERNMENT FOR DIFFERENCES IN COST OF DELIVERY AS A RESULT OF CARRIER FAILURE IF THE REASON PREVENTING AND MAKING IMPOSSIBLE SUCH DELIVERY IS ONE OR MORE OF THE FOLLOWING:

1. ICE ON THE TANANA OR YUKON RIVERS.

2. LOW WATER ON THE TANANA OR YUKON RIVERS.

3. LOSS OF VESSEL OR DAMAGE TO TOW BOATS AND BARGES ON THE TANANA OR YUKON RIVERS FROM OTHER THAN NEGLIGENCE OF THE CARRIER.

4. FIRE ON TOW BOATS OR BARGES.'

THE SPECIFIED EVENTS ORDINARILY COULD BE VIEWED AS SOMETHING NOT THE "RESULT OF CARRIER LURE," AND NOT IN CONFLICT WITH THE GENERAL REQUIREMENTS OF THE GUARANTEE CLAUSE. INLAND'S FAILURE TO INCLUDE THE SPECIFIED GUARANTEE CLAUSE WAS CONSIDERED BY USARAL TO MAKE ITS BID UNRESPONSIVE, AND INLAND WAS INFORMED, IN THE LETTER OF MARCH 10, THAT ITS "REFUSAL TO SATISFY THIS PREREQUISITE REQUIRES THAT" ITS "TENDER FOR 100 PERCENT DELIVERY NOT BE USED.'

IN THE REPORT OF APRIL 4, 1967, FROM USARAL TO YOUR DEPARTMENT, IT IS STATED THAT THE "CARRIER GUARANTY" WAS NOT INCLUDED IN THE ORIGINAL SOLICITATION BECAUSE A GUARANTEE TO DELIVER IS USUALLY INCLUDED IN A TENDER OF SERVICE. RULE 15 OF YUTANA'S TENDER NO. 4 IS CITED IN SUPPORT. INLAND'S TENDER IS REPORTED TO HAVE HAD NO GUARANTEE TO DELIVER, AND THE SUBSEQUENT REQUEST FOR SUCH GUARANTEES IS SAID TO HAVE BEEN MADE TO EQUALIZE TENDER CONDITIONS, WITH THE REIMBURSEMENT PROVISION HAVING BEEN ADDED AS A FURTHER PROTECTION FOR THE GOVERNMENT.

WE ARE IN ACCORD WITH THE PRINCIPLE INVOLVED HERE AND WE AGREE WITH YOUR COMMENTS CONCERNING IT IN YOUR REPORT OF APRIL 13 WHERE YOU POINT OUT THAT WE SUGGESTED THE USE OF SUCH A CLAUSE. WE ARE CRITICAL OF THE FACT THAT IT WAS NOT INCLUDED IN THE ORIGINAL SOLICITATION. INLAND HAS INFORMED SENATOR GRUENING THAT THE ACCEPTANCE OF THESE CLAUSES BY USARAL GIVES YUTANA AN UNWARRANTED ADVANTAGE SINCE IT ALLOWS CONTINGENCIES UNDER WHICH YUTANA WOULD NOT BE LIABLE FOR THE REQUIRED REIMBURSEMENT OF EXCESS COSTS. INLAND INDICATES THAT HAD THE ORIGINAL REQUIREMENT, IN THE LETTER OF FEBRUARY 8, BEEN STATED IN THE TERMS ACCEPTED FROM YUTANA, IT WOULD HAVE AGREED TO THEM. THE PROCEDURE THUS FOLLOWED SEEMS TO BE PRODUCTIVE OF UNEQUAL TREATMENT AS BETWEEN COMPETING CARRIERS WHO SHOULD HAVE BEEN FULLY INFORMED OF WHAT WOULD BE EXPECTED OF THEM AND WHAT WOULD SATISFY REQUIREMENTS AS DESCRIBED IN THE SOLICITATION.

AS FOR THE GUARANTEE TO DELIVER WHICH USARAL REPORTS TENDERS OF SERVICE NORMALLY INCLUDE, CITING RULE 15 OF YUTANA'S TENDER NO. 4, AND WHICH INLAND'S TENDER REPORTEDLY DID NOT INCLUDE, IT APPEARS THAT INLAND'S OFFER WAS SUBJECT TO PROVISIONS SOMEWHAT SIMILAR TO YUTANA'S RULE 15. INLAND'S TENDER MF-ICC NO. 4, ISSUED FEBRUARY 1, 1967, IS MADE SUBJECT, BY ITEM 15, TO THE RULES IN INLAND RIVERWAYS TARIFF NO. 1 A,"UNLESS OTHERWISE SPECIFICALLY STATED" THEREIN. ITEM 220 THEREOF,"SEASON OF SERVICE," STATES THAT SHIPMENTS WILL BE ACCEPTED BETWEEN MAY 1 AND SEPTEMBER 1 OF EACH YEAR, AND THAT "SHIPMENTS ACCEPTED FOR THIS SEASON WILL BE COMPLETED WITHIN THIS SEASON, SUBJECT TO ALL PROVISIONS NAMED HEREIN.' THERE FOLLOW CERTAIN PROVISIONS CONCERNING LATE DELIVERIES AND DISCONTINUANCE OF SERVICE AT THESEASON'S CLOSE. TARIFF NO. 1-A IS SUBJECT TO INLAND'S BILL OF LADING TARIFF NO. 2, WHICH, IN TURN, SETS OUT THE STRAIGHT COMMERCIAL BILL OF LADING CONTAINING THE USUAL CLAUSES WHICH EXCUSE CARRIER DEFAULTS BECAUSE OF PERILS OF THE SEA, ETC. THUS THERE MAY BE SOME JUSTIFICATION FOR CONCLUDING THAT INLAND'S TENDER WAS SUBJECT TO A CARRIER GUARANTY EQUIVALENT TO THAT IN RULE 15 OF THE YUTANA BARGE LINE TENDER NO. 4.

WE ALSO HAVE DOUBTS CONCERNING THE COURSE OF DEALING WITH INLAND WHICH LED TO THE CONCLUSION THAT IT WAS NOT RESPONSIBLE BECAUSE IT LACKED 100 PERCENT CAPACITY. IN RESPONSE TO THE USARAL REQUEST FOR EQUIPMENT LISTS AND OPERATING SCHEDULES, INLAND, ON FEBRUARY 20, 1967, FURNISHED DATA WHICH SHOWED THAT IT CONTEMPLATED ACQUISITION OF AN ADDITIONAL TUG AND THREE BARGES. THIS ADDITIONAL EQUIPMENT WOULD ARRIVE AT NENANA READY FOR SERVICE ON JUNE 25, 1967, AFTER THE ICE CLEARED THE LOWER RIVER. LETTER OF FEBRUARY 27, 1967, USARAL ASKED INLAND FOR PROOF OF OWNERSHIP OF THE TUG AND TWO BARGES OR A NOTARIZED COPY OF THE LEASE OR CHARTER, AND U.S. COAST GUARD CERTIFICATES AUTHORIZING CARRIAGE OF FLAMMABLE LIQUIDS. FOR THE BARGE TO BE BUILT, USARAL ASKED FOR THE NAME OF THE SHIPYARD, THE NUMBER OF INLAND'S CONTRACT WITH THE BUILDER, AND THE DATE OF COMPLETION, AS WELL AS INFORMATION CONCERNING CAPACITY. INLAND FURNISHED, BY LETTER OF MARCH 2, THE REQUESTED INFORMATION AS TO CAPACITY, ETC., BUT STATED THAT IT HAD NOT MADE FIRM CONTRACTS SINCE IT HAD NOT BEEN ADVISED THAT IT WAS TO CARRY ALL OR ANY PART OF THE 1967 POL TRAFFIC. AS TO THE BARGE TO BE CONSTRUCTED, INLAND REPORTED THAT ORDERS HAD BEEN DISCUSSED AND AGREED UPON WITH TWO NAMED SHIPYARDS; IF A CONTRACT WERE MADE ON OR BEFORE MARCH 1, 1967, THE BARGE WOULD BE COMPLETED BY APRIL 15, 1967. INLAND WAS INFORMED BY USARAL, IN THE LETTER OF MARCH 10, 1967, OF THE DETERMINATION THAT IT WOULD BE UNABLE TO PROVIDE 100 PERCENT DELIVERY SERVICE, SINCE NO WRITTEN EVIDENCE HAD BEEN FURNISHED TO SHOW THE PRESENT OWNERS OR SHIPBUILDERS AS WILLING TO PUT THE ADDITIONAL EQUIPMENT UNDER INLAND'S CONTROL.

IT IS NOT UNUSUAL FOR BIDDERS TO MAKE REPRESENTATIONS WHICH GO TO THEIR ABILITY TO PERFORM, TO THE EXTENT THAT SUCH ABILITY IS DEPENDENT UPON THE EQUIPMENT AND FACILITIES NEEDED FOR SATISFACTORY PERFORMANCE. INLAND HAD BEEN GIVEN TO UNDERSTAND THAT, IF IT WERE SELECTED, IT WOULD HAVE 90 DAYS' NOTICE IN WHICH TO PROCURE ADDITIONAL EQUIPMENT; IT COULD BEGIN MOVING POL, WHEN THE SEASON OPENED, WITH THE EQUIPMENT ALREADY OWNED AND AVAILABLE.

IN VIEW OF THE UNIQUE CIRCUMSTANCES ATTENDANT UPON THE SERVICE NEEDED, THE USARAL QUITE PROPERLY WISHED ASSURANCE THAT INLAND, IF IT RECEIVED THE AWARD, WOULD HAVE THE CAPABILITY TO PERFORM. HOWEVER, THE LETTER OF FEBRUARY 27 SPECIFICALLY ASKED FOR PROOF OF OWNERSHIP, NOTARIZED COPIES OF LEASES OR CHARTERS, AND THE CONSTRUCTION CONTRACT NUMBER. IT WOULD SEEM THAT IT WOULD HAVE BEEN POOR BUSINESS PRACTICE FOR INLAND TO ACQUIRE ADDITIONAL EQUIPMENT WITH NO CERTAINTY THAT IT WOULD BE USED, WHEN EXISTING EQUIPMENT WAS IDLE IN 1966. IT WOULD HAVE BEEN MORE REALISTIC HAD THE USARAL ASKED INLAND FOR LETTERS OF INTENT WHICH, AS INLAND HAS INFORMED SENATOR GRUENING, IT WOULD HAVE BEEN ABLE TO SUPPLY.

THE REPORT OF APRIL 4, FROM USARAL TO YOUR DEPARTMENT, ALSO SPEAKS OF INLAND'S STATEMENT THAT CERTAIN OF THE NEW BARGES HAD BEEN INSPECTED BY THE COAST GUARD. UPON INQUIRY, THE COAST GUARD STATED THAT THEY HAD NOT BEEN. THE STATEMENT BY INLAND COULD WELL HAVE RESULTED FROM MISUNDERSTANDING OR MISINFORMATION FROM THE SUPPLIERS. APPARENTLY THE VESSELS COULD HAVE BEEN FAIRLY READILY INSPECTED, SEE 46 CFR 90.05 (U.S.C.G.-CG-257, RULES AND REGULATIONS FOR CARGO AND MISCELLANEOUS VESSELS). WE NOTE, IN PARAGRAPH 3 OF THE MEMORANDUM OF UNDERSTANDING, THAT COAST GUARD CERTIFICATES FOR 1967 FOR YUTANA'S VESSELS WERE NOT TO BE AVAILABLE UNTIL ABOUT MAY 15.

EVEN THOUGH INLAND WAS THE LOW BIDDER AND AGREED TO PERFORM THE SERVICE FOR SOME $37,000 LESS THAN IT WILL NOW COST, PERFORMANCE UNDER THE CONTRACT AS MADE SEEMS NECESSARY TO PROTECT THE GOVERNMENT'S INTEREST BECAUSE OF THE MILITARY REQUIREMENTS FOR THE PETROLEUM AND THE SHORT NAVIGATION SEASON. WE BELIEVE, HOWEVER, THAT ARRANGEMENTS FOR FUTURE YUKON RIVER RESUPPLY PROGRAMS SHOULD BE MORE FULLY EXPLAINED AT THE TIME OF THE INITIAL SOLICITATION SO THAT COMPLETE UNDERSTANDING OF FURTHER MATERIAL REQUIREMENTS IS HAD BY ALL INTERESTED PARTIES.