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ADVANCED SEAL TECH. v. PERRY

October 26, 1994

ADVANCED SEAL TECHNOLOGY, INC., Plaintiff,
v.
WILLIAM PERRY, SECRETARY OF DEFENSE, Defendant.


PALLMEYER, Plunkett


The opinion of the court was delivered by: REBECCA R. PALLMEYER

REPORT AND RECOMMENDATION

Plaintiff Advanced Seal Technology, Inc. ("AST"), a manufacturer based in Elgin, Illinois, alleges that the Defense Industrial Supply Center ("DISC"), under the control of Defendant Secretary of Defense William Perry, failed to follow proper procurement procedures in considering Plaintiff's bid on a contract to manufacture seal assemblies for the U.S. Navy. Plaintiff seeks a preliminary injunction to force Defendant to terminate its contract with the successful bidder and to resolicit bids or reconsider the previous bids in accordance with relevant regulations and procedures. Defendant opposes Plaintiff's motion, both on the merits and for lack of subject matter jurisdiction.

 For the reasons set forth below, this court finds that it has jurisdiction over this matter but recommends that Plaintiff's motion be denied.

 FACTUAL BACKGROUND

 The following factual statement is based on the transcript of an evidentiary hearing held before Magistrate Judge Rebecca Pallmeyer on August 2-3, 1994, as well as Plaintiff's Amended Complaint for Preliminary Injunction (hereinafter "Amended Complaint"), Defendant's Answer to Amended Complaint ("Defendant's Answer"), and Defendant's Response to Plaintiff's Motion for Preliminary Injunction ("Defendant's Response"). *fn1"

 This case centers on a May 1993 solicitation by the Defense Industrial Supply Center to procure a specific type of spring-loaded mechanical seal assembly (the "seal") for use in certain U.S. Navy water pumps. (Amended Complaint P 4.) The seal is one of more than 900,000 types of military spare parts procured by DISC, an organization within the Department of Defense under the direction of Secretary William Perry. (Amended Complaint PP 3, 4; Defendant's Response, at 2.) The solicitation in question did not directly describe the specifications for the seal; rather, it identified the seal by its National Supply Number ("NSN") -- NSN 5330-01-164-1113 (hereinafter abbreviated "NSN 1113")-- and by the corresponding part numbers from two known suppliers of the seal -- Aqua-Chem, Inc. and John Crane, Inc. (Amended Complaint P 4; Transcript, at 17, 20-21.) DISC modified the solicitation in June 1993 to identify a third supplier, Calnevar Seal, Inc., which DISC had approved as a source for the seal sometime in 1992. *fn2" (Amended Complaint P 8; Transcript, at 24, 29.)

 Any seal manufacturer may bid on a proposed contract, regardless of whether the manufacturer is identified in the solicitation as a source for the product. (Transcript, at 29, 30.) A company may offer to provide DISC either the product actually specified in the solicitation (i.e., a seal manufactured by Aqua-Chem, John Crane, or Calnevar Seal) or an alternate product having the same form, fit, and function as the seal so specified. (Id. at 22.) In the latter case, DISC must follow a two-step process to approve the alternate product. (Id. at 85-86.) First, DISC must review technical data, drawings, and other information from the bidder to determine whether the alternate is in fact an acceptable substitute. *fn3" (Id. at 22-23, 85-86.) If DISC determines that the product is not suitable, DISC notifies the company that its bid is rejected. (Id. at 23, 25.) If, on the other hand, DISC determines that the drawings show that the product is technically adequate, then DISC proceeds with the second step of the approval process -- testing the alternate at an independent laboratory to determine whether it performs as it should. (Id. at 85-86.) For example, DISC added Calnevar Seal to the solicitation after the company's technical data package had been reviewed and approved by DISC and its seal had passed the requisite laboratory tests. (Id. at 88.) The solicitation did not name Plaintiff as a supplier because at that time DISC was unaware of any AST seal that had been approved as an alternate product for NSN 1113. *fn4" (Id. at 21.)

 In response to the solicitation, Plaintiff offered to supply DISC with an alternate seal of its own manufacture, which Plaintiff claims it sold to DISC on two occasions in 1986 and 1990 to satisfy orders for seal assembly NSN 5330-01-161-2563 (hereinafter abbreviated "NSN 2563"). (Amended Complaint PP 9, 12.) The specifications for NSN 2563 are identical to those for NSN 1113; *fn5" consequently, Plaintiff claims that approval of AST's seal as an alternate product for NSN 1113 should have required nothing more than verification that AST had previously filled two orders for NSN 2563 and that NSN 2563 was identical to NSN 1113. (Id.) Plaintiff offered to supply DISC with the seal for a price of $ 250 per item if 70 seals were ordered, $ 210 per item if 190 were ordered, and $ 200 per item if 220 were ordered. (Id. P 10.)

 In a letter to Plaintiff in August 1993, DISC noted that Plaintiff's two previous seal contracts had probably involved an earlier version of the seal design, which Plaintiff had revised in January 1992. (Amended Complaint P 11; Letter from M.K. Lewis, Contract Specialist, DISC, to Thomas Doepker, President, AST, of August 5, 1993, Ex. 4 to Complaint.) DISC requested that Plaintiff submit test results for its revised seal; alternatively, DISC would submit Plaintiff's technical package to its experts for qualification testing. (Amended Complaint P 11.) Plaintiff responded that the seal designs were identical and provided DISC with technical data to support its proposal. (Id. P 13; Transcript, at 25, 48.) DISC admits that it did not evaluate Plaintiff's drawings and technical data prior to awarding the contract, although it should have done so. (Defendant's Response, at 2-3, 10.)

 On May 26, 1994, DISC awarded the contract to Calnevar Seal. *fn6" The contract required DISC to purchase 220 of Calnevar's seals for a total price of $ 52,800, or $ 240 per seal, a price that is 20% higher than Plaintiff's bid price of $ 200 per seal. *fn7" (Amended Complaint P 16.) Plaintiff filed a Motion for Preliminary Injunction in July 1994, asserting that DISC's award of the contract to Calnevar Seal is "unreasonable, arbitrary and unlawful" because Plaintiff's proposal offered the lowest price and complied totally with DISC's solicitation. (Id. PP 17, 18.) Plaintiff also charged that as a result of DISC's failure to evaluate or approve its seal in a timely manner, AST will suffer "irreparable loss of business, income and profit, which may not be remedied in an ordinary action at law." (Id. PP 17, 19.) Calnevar Seal has completed approximately 90% of the order but has halted production pursuant to a stop-work order issued by DISC. (Transcript, at 26.) DISC asserts that it currently has no more seals of this type in its inventory. (Id.)

 On August 2-3, 1994, this court held an evidentiary hearing on Plaintiff's motion. Contrary to Plaintiff's contentions, government officials testified that prior award of a contract to a supplier does not necessarily guarantee that the supplier will be awarded a contract for the same item in the future. (Id. at 36, 60.) Instead, when a manufacturer claims to have previously supplied a product to DISC, DISC will look closely at what particular product has been supplied; whether it was properly evaluated and approved; what those evaluations and approvals stated; the subsequent quality deficiency history of the item; and whether the part supplied was in fact the part for which DISC had contracted. (Id. at 36, 60, 63-64, 164.) In short, DISC's determination that an alternate product is acceptable is based on whether DISC has full confidence that the part will work, not necessarily on whether a particular supplier has provided that item in the past. (Id. at 63-64.)

 In this case, the parties disagree whether DISC ever purchased or approved for purchase Plaintiff's seal to fill orders for NSN 2563. As stated above, Plaintiff claims that it was awarded two contracts in 1986 and 1990 to supply seals of the type NSN 2563, which is identical to NSN 1113. (Id. at 119.) Defendant, however, contends that in the case of the 1990 procurement, DISC's purchase order cited part numbers from Aqua-Chem and John Crane, not AST. (Id. at 68-69, 76, 179-181.) Defendant asserts that if Plaintiff sent its own part in response to this order, then Plaintiff improperly substituted its own part for the one that the government had actually ordered. (Id. at 76, 212-213.) Neither party provided any documentation regarding the 1986 procurement, nor does DISC have any record that AST ever supplied a seal of its own manufacture in the past. (Transcript, at 77.)

 The government's witnesses also explained that if DISC had procured Plaintiff's seal without having properly evaluated or approved it, then that procurement was made in error. (Id. at 36.) DISC has no record that it ever approved Plaintiff's seal as an alternate for either NSN 2563 or NSN 1113. (Transcript, at 117, 148; Memorandum from Commander, NAVSEA, to Commander, DISC of 07/27/94, Government Ex. 1.) In preparation for the evidentiary hearing, DISC did inspect Plaintiff's seal design by comparing the dimensions of Plaintiff's seal with the seal that had been produced by the original manufacturer, as well as with the pump into which the seal would be installed. (Transcript, at 88, 98-99.) Two defense witnesses -- Ted Krokus and Donald Haun, mechanical engineers with NAVSEA and Westinghouse Marine Technology Division, respectively -- testified that they had evaluated Plaintiff's seal and concluded that it was too large to fit into the pump properly. (Id. at 90, 95, 112, 125-26, 129-30.) Mr. Haun explained that the seal would have to be deformed or damaged in order to fit it inside the pump, which would then completely destroy the seal once the pump was turned on. (Id. at 126-27.) Government witnesses testified that in order to produce an acceptable alternate, Plaintiff would have to redesign its seal by resizing its components in order to get the seal to fit into the pump properly. (Id. at 127.) On this basis, ...


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