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Chemung County v. Dole

decided: October 28, 1986.


Appeal by Federal Aviation Administration (FAA) and intervenor Niagara Frontier Transportation Authority (NFTA), from a judgment of the United States District Court for the Western District of New York (Telesca, J.), which reversed a decision of the FAA to award a contract to build an Automated Flight Service Station to the NFTA on the ground that the decision was arbitrary and capricious and the result of improper political influence.

Lumbard, Oakes, and Miner, Circuit Judges. Miner, Circuit Judge, dissenting.

Author: Lumbard

LUMBARD, Circuit Judge:

This dispute, before us for the second time, involves two New York counties seeking to be designated as the site of a new Federal Aviation Administration (FAA) facility. The controversy grew out of the FAA's announcement, after a lengthy bidding process, that an Automated Flight Service Station (AFSS) would be located in Buffalo and built by the Niagara Frontier Transportation Authority (NFTA).

Following the FAA's May 29, 1985 announcement, Chemung County, a disappointed bidder for the flight station, filed suit against the FAA seeking a declaratory judgment that contract for the AFSS should be awarded to Chemung and an order to the FAA to enter into a contract with Chemung.*fn1 On July 29, 1985, the United States District Court for the Western District of New York (Telesca, J.) found the FAA's decision to build the flight station in Buffalo arbitrary and capricious and awarded the contract to Chemung County. On August 14, 1985, the NFTA moved to intervene, sought injunctive relief and requested the District Court to set aside its July 29 decision and order. On August 26, the District Court granted the NFTA's motion to intervene, but declined to change its earlier ruling. On appeal, we held that the District Court did have subject matter jurisdiction, but vacated its order and remanded for further fact finding. See Chemung County v. Dole, 781 F.2d 963 (2d Cir. 1986) (Chemung I). On remand, in a decision and order dated June 25, 1986, the District Court held that Buffalo area Congressmen had improperly influenced the FAA. As a result, the Court again held that the agency's decision to award the contract to the NFTA was arbitrary and capricious, and once more awarded the contract to Chemung County. The FAA and intervenor NFTA appeal the District Court's ruling. At the request of the parties, we granted an expedited hearing. Because we find that the FAA's decision to award the contract to NFTA to have been within its discretion and that the Congressional action was not improper, we reverse.


1. Background -- On December 1, 1982, the FAA issued a solicitation for offers for an Automated Flight Service Station to serve the Western New York and Northwestern Pennsylvania Flight Plan Area, as part of a nation-wide consolidation of flight service stations. Aircraft pilots use flight stations prior to their departures to obtain weather reports and other information and to report flight plans. The pilots communicate with the flight station by telephone, with the station -- that is, the FAA -- paying for the telephone calls. The FAA's solicitation instructed bidders to estimate the costs of a variety of factors relating to the construction and operation of the flight stations, but did not invite estimates of certain other costs. In these other areas, the FAA itself computed the costs and, when the bidding was completed, informed the bidders of its estimates. Among the costs of operating a flight station that the FAA computed were those relating to telecommunications.

The FAA received eleven bids by the January 31, 1984 deadline for "best and final" offers. Under the then applicable statute, 41 U.S.C. ยง 253(b) (1982), the FAA was required to award its contracts to the bidder submitting the proposal "most advantageous to the Government, prices and other factors considered[.]" Chemung County's submission of $7,451,716 to build and lease a flight station in Elmira, New York, was the lowest bid. NFTA's bid of $7,526,091 was second. The FAA accepted Chemung County's bid informally on November 30, 1984, but never executed a contract with Chemung. On December 4, 1984, the FAA, acting under statutory obligation notified the NFTA that Chemung had been selected. "Enclosed in the letter was a summary of the FAA's estimated life cycle costs for all offerors. This indicated that the NFTA had a telecommunications cost advantage over Chemung of $10,000 -- due to the large number of pilots residing in the Buffalo area who could utilize the services of the flight station within the local telephone calling area -- it concluded that an error had occurred in the evaluation of its offer." Chemung I, supra, 781 F.2d at 965.

Believing the FAA computations to be incorrect, the NFTA contacted the Congressmen representing the Buffalo area, Jack Kemp and Henry Nowak, who, on December 6, 1984, requested the General Accounting Office to investigate the FAA decision. In response to this letter, the GAO assigned an investigator familiar with the AFSS selection process to examine the award of the contested Western New York-Northwestern Pennsylvania facility. Once the GAO investigation began, the Congressmen wrote to the FAA to request that it not enter into a lease with Chemung County while the investigation was underway. The investigator, Thomas Hubbs, met with the staffs of the two Congressmen and stated that he would limit his investigation of the telecommunications cost estimates to Buffalo (and no other bidders) so that his work could be completed quickly.

2. The Computation of Telecommunications Costs -- When Hubbs began his investigation, the GAO had already examined the FAA procedures regarding computation of telecommunications costs. The GAO had, in fact, already investigated the accuracy of FAA determinations of telecommunications costs while the contested AFSS project was up for bid. In a letter to the chairman of the FAA dated June 21, 1983, the first GAO report expressed concern about "lack of guidance in [AFSS] bid applications which could result in higher costs to FAA." Specifically, the GAO report revealed that some existing flight stations had widely varying telecommunications costs depending on the type of phone services they used. The report thus questioned the FAA's assumptions that all the new flight stations would use only toll-free telephone lines and that all the flight stations would have substantially similar telecommunications costs. In short, the GAO found that a mixture of local, foreign exchange ("FX") and In-WATS lines might be less expensive than In-WATS alone. The cost of a foreign exchange line between two locations is dependent solely on the distance between the locations. An In-WATS line, or "800" number, allows a pilot to call the station toll-free from any location within the geographic area. In response to this report, the FAA sent a memo on August 17, 1983 to all of its Regional Directors informing them that the FAA would now be considering a mix of telephone services; but the memo did not instruct the local FAA offices to notify existing bidders of the change in policy, or to offer them the opportunity to change their bids.

The August 17 memo did not satisfy GAO, and on October 13, 1983, the FAA issued new, more specific guidelines regarding the computation of telecommunications costs. The new guidelines called for the FAA to use "the most economical mix of lines (i.e., foreign exchanges, In-WATS, local)," and established a formula -- based principally on the number of "services" a flight station provided -- to compare bidders' respective telecommunications costs. On March 3, 1984, the GAO expressed satisfaction with the new FAA guidelines.

When the telecommunications costs for the AFSS for Western New York and Northwestern Pennsylvania were computed on April 18, 1984, however, the "mix of lines" approach was not used; Richard Rearick, who performed the analysis for the FAA, computed the figures assuming that each facility would only use In-WATS lines. He did so because he understood the FAA regulations to require FAA employees to "use what you know" and the latest information available to him from New York Telephone was that FX rates were about to "skyrocket." He relied on computations provided by one Sammie Stover, but the FAA never produced those computations at trial.

It was against this background that Hubbs began his investigation in January 1985. Chemung County officials were not informed of Hubbs' investigation and did not participate in it. Hubbs met with one A.P. Bona, Jr., who was the FAA project officer for the AFSS and a defendant in this case, and spoke by telephone with Rearick. This is how Hubbs learned that Rearick had used the all In-WATS computation. A memo by Bona to his own file indicated that Hubbs' investigation had concluded that even if FX line costs were to triple, the FAA had still overestimated costs in Buffalo by using all In-WATS. Hubbs' notes indicate his conclusion that the all In-WATS computation had significantly overstated Buffalo's costs. This view is not surprising, of course, because a densely populated area like Buffalo would certainly have a significant percentage of its calls come in over local -- that is, low-cost -- lines. Informed by Hubbs of this deficiency in the original calculations, Kemp and Nowak wrote to the head of the FAA to inform him of this purported error and request that the bids be re-evaluated.

As a result of the Hubbs investigation, Rearick was instructed by his superiors at FAA to re-figure the telecommunications costs for all bidders, this time with a mix of lines. Our remand order of earlier this year instructed the District Court to decide "whether the FAA improperly considered two new factors in its re-evaluation, revised estimates of the volume of traffic at Buffalo and figures based on services required for Syracuse, New York, or whether the FAA properly ...

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