This case involves a suit by an unsuccessful bidder for a Government contract to have the contract awarded to a competitor set aside as being in violation of the regulations of the Department of Defense governing conflicts of interest in Federal procurement, § 1--113.2 and Appendix G of the Armed Services Procurement Regulations (ASPR), 32 C.F.R. § 1--113.2 and Part 141 (1971).1 The successful bidder, the Boeing Company, joined the suit as defendant-intervenor.

The district court originally issued a preliminary injunction enjoining the Secretary of the Air Force from taking any action pursuant to the contract awarded to Boeing; this Court on October 14, 1971, issued an order without opinion granting the Secretary of the Air Force's motion for a stay pending appeal. The plaintiff, Hayes International Corporation, then moved the district court to vacate the preliminary injunction and the matter proceeded to trial. Hayes stated that the reason it was requesting that its original preliminary injunction be vacated was that it was in the 'best interest of all the parties that this case proceed as quickly as possible to a judgment on the merits' inasmuch as the challenged contract was then scheduled to extend for as long as five years.

The case was tried without a jury. The trial court found that Boeing did not enjoy an unfair competitive advantage over Hayes, nor was it guilty of a conflict of interest which might have biased its judgment and accordingly held that the contract was valid. The plaintiff brings this appeal. We affirm.

The facts of this case are largely undisputed. While the expert witnesses at trial differed as to their view of the applicability of the organizational conflict of interest regulations, and to the extent of Boeing's actual advantage over other bidders seeking the contract in question, the case largely involves the legal issue of the extent to which the Armed Services Procurement Regulations apply to the facts of this case.

In March, 1971, the Secretary of the Air Force, acting through the United States Department of the Air Force, Air Force Logistics Command, Headquarters Oklahoma City Air Materiel Area, Tinker Air Force Base, issued 'Requests for Proposals' for the procurement of services to perform the 'inspection and repair as necessary' (IRAN), modifications and other related work on the worldwide Air Force Fleet of KC--135 Aerial Refueling Tankers. The Requests were issued pursuant to the authority delegated to the Secretary in 10 U.S.C. § 2304(a)(10)(1970). Pursuant to the Requests, on June 23, 1971, the Secretary awarded contract No. F34601--71--C--3366 to the Boeing Company, to take effect on July 2, 1971. Hayes International, the plaintiff in this suit, was one of the two unsuccessful bidders for this contract.2

Contract 3366 was awarded to Boeing by the Air Force in the amount of $12,294,894.16 for the first year of performance. The contract was designated to extend over a five-year period for substantially similar maintenance and repair work, based upon options available to the Government to make periodic work assignments. The five-year contract was thus valued at approximately $60,000,000.

The KC--135 is an aircraft originally manufactured by Boeing, and is used by the Air Force as a tanker for supplying fuel in mid-air to other aircraft.3 The IRAN/Modification contract, as contracts of this sort are referred to in the industry, provided for three classes of work to be performed. The successful bidder was first to perform periodic inspections of each aircraft. The proposal submitted by each of the bidders described the procedures the bidder would follow on each aircraft and offered a per unit price for this work. Secondly the bidder agreed to perform such modifications as prescribed by the Air Force. Modifications might be performed only on individual aircraft, as each suffered individual wear and fatigue following use, or as modifications might be prescribed for each aircraft in the KC--135 fleet. No estimate of total costs was possible because at the time the proposal was submitted it was not known how many aircraft would need modification, or precisely what modifications would be required. The third part of the work contracted for by the Air Force under contract 3366 was unscheduled maintenance at the time the IRAN work was being performed. Following the inspection of each aircraft there might be a variety of different types of repairs which needed to be performed. Each bid set out a formula by which payment could be estimated. This entails largely a designation of a set fee per man hour of work. Using this formula, the Air Force would be able to estimate the total costs of any particular repair on any given number of aircraft.

Hayes International had been awarded a similar contract for the forty months preceding the issuance of the Boeing contract, but lost the 1971 contract for its bid was several million dollars higher than that submitted by Boeing.

For a number of years before contract 3366 was awarded Boeing had been under contract to the Air Force to supply sustaining engineering and related support services for the KC--135 fleet. Pursuant to these contracts Boeing had made specific recommendations as to what maintenance and modifications were required on the entire fleet of more than 700 KC--135 aircraft. Boeing continues to operate under these sustaining engineering and related support services contracts. These were awarded to Boeing on a 'sole source' basis without competition or open bidding,4 as was customary in awarding sustaining engineering contracts to the original manufacturer of a given aircraft.5 The trial court found that Boeing's relationship under the sustaining engineering and related support services contracts was essentially as the 'engineering arm' of the Air Force for the KC--135 fleet.

Among its findings of fact, the trial court found: (1) as the contractor responsible for sustaining engineering for the KC--135 fleet, Boeing proposed a number of different modifications and improvements in the KC--135 design; (2) Boeing as part of its duties under the sustaining engineering contracts conducted a series of tests, evaluating fatigue, stress, and other factors which affect the durability and usefulness of each aircraft; and (3) Boeing was thus privy to technical data it generated as well as that provided by the Air Force. It was undisputed that Boeing was responsible for recommending to the Air Force what priority should be placed on any particular set of repairs.

The repairs and modifications which Boeing recommended to the Air Force comprised in part the work the IRAN/Modification contractor would perform. Boeing was thus in a position to recommend changes and modifications to aircraft which would enhance the value of the IRAN/Modification contract it subsequently was awarded.

Hayes argues as a consequence of Boeing's sustaining engineering contracts it violated those D.O.D. regulations outlawing organizational conflicts of interest--both because in its dual role as both technical advisor and IRAN/Modification contractor Boeing was in a position to recommend work which it eventually performed, thereby raising the possibility of unneeded repairs being recommended to increase its own profits, and in addition because Boeing's competitive position was superior to all others bidding for the IRAN/Modification contract. This latter facet of its alleged violation of D.O.D. procurement regulations was due to Boeing's acknowledged superior opportunity to obtain and assess information--thereby enabling it to know with greater assurance what types of modifications and repairs would be performed under the IRAN/Modification contract. Because it alone knew what modifications could be expected, something which no other competitor knew with equal certainty,6 Hayes alleges Boeing could submit a lower bid for work all bidders knew was to be performed, and recoup its profits on the additional work assignments it alone knew would be forthcoming.

At trial Hayes proved that Boeing recommended three specific sets of modifications which had the effect of greatly increasing the value of the IRAN/Modification contract it obtained, information which neither of its competitors possessed at the time of bidding. These three sets of repairs involved alterations to the aerial boom,7 and two sets of wing modifications. One of the wing modifications is actually being performed by Boeing under its IRAN/Modification contract, as is the aerial boom modification, but the most substantial repair, Wing Fatigue Package V (which was valued as being in excess of $200,000,000) was awarded to Boeing subsequent to the filing of this litigation on a sole source basis.8 Beyond these specific instances of advance knowledge of modifications to be performed, Hayes argues that Boeing's general responsibility for proposing modifications and repairs which were to be performed under the IRAN/Modification agreement constitutes the type of organizational conflict of interest which is barred by 32 C.F.R. § 1--113.2 and Part 141 (1971).

The district court found that while Boeing had access to vital information concerning the KC--135 fleet it also found that the Air Force evaluated all recommendations made by Boeing, and that Boeing was not in a position to make final decisions on its own recommendations for modifications and repairs. The district court further found that Boeing was only one source of ideas for improvement, although it did not specify what sources other than those within the Air Force itself affected work specifications and modifications for the KC--135.

The district court found that the Air Force has made a practice of awarding sustaining engineering services contracts substantially identical to those with Boeing with the manufacturers of several other aircraft in its inventory. Some of these manufacturers have subsequently competed for IRAN/Modification contracts on the aircraft they were supplying with sustaining engineering services--at times being successful, and at times unsuccessful in bidding for the modifications which they in part proposed. The court noted that Hayes itself had competed occasionally against the holder of a sustaining engineering contract--winning some IRAN/Modification contracts, and losing others. The court found that one such example was the C--130 Lockheed built aircraft, in which competition Hayes was successful; the court noted that subsequent to the granting of contract 3366, Hayes and Boeing also competed for work on the KC--135 A aircraft, where the contract was awarded ultimately to LTV Corporation.

The district court concluded that 'Service Engineering Contracts with the Air Force do not result in the contractor being in a conflicting role which might bias its judgment nor do such contracts result in the contractor obtaining an unfair competitive advantage in bidding on future contracts for work on the aircraft involved.' The court further found that the award of contract 3366 was 'not contrary to public policy and the public interest in maintaining the integrity of the procurement system.' The court made no specific finding as to the applicability of 32 C.F.R. § 1--113.2 and Part 141 to sustaining engineering contracts, but appears to have assumed if an actual conflict of interest was shown, or if it could be proven that Boeing enjoyed a superior competitive position due to its sustaining engineering contract, the resulting contract might be voidable.

The district court found that Hayes had standing to challenge the award of contract 3366. We agree.

The Secretary of the Air Force is required to follow procedures and practices prescribed by Congress in making procurement contracts. Foremost among these statutes is the Armed Services Procurement Act, 10 U.S.C. §§ 2301--23149 and it was under the authority of this Act that the contract in question was let. Contract 3366 was awarded following 'Requests for Proposals' which is a procurement procedure available to the Secretary under 10 U.S.C. § 2304(a)(10) by which he had authority to by-pass formal competitive bidding if it is impracticable to obtain competition.

Congressional limitations on discretionary awards of procurement contracts have been held to be enacted for the benefit of the public, not disappointed bidders, American Smelting & Refining Co. v. United States, 259 U.S. 75, 42 S. Ct. 420, 66 L. Ed. 833 (1922); United States v. New York & Puerto Rico S.S. Co., 239 U.S. 88, 36 S. Ct. 41, 60 L. Ed. 161 (1915), and accordingly under the 'legal interest' theory of standing, Tennessee Electric Power Co. v. Tennessee Valley Authority, 306 U.S. 118, 59 S. Ct. 366, 83 L. Ed. 543 (1939); Alabama Power Co. v. Ickes, 302 U.S. 464, 58 S. Ct. 300, 82 L. Ed. 374 (1938); Massachusetts v. Mellon, 262 U.S. 447, 43 S. Ct. 597, 67 L. Ed. 1078 (1923), it was thought until recently that no litigable rights are conferred on unsuccessful bidders by the statutory standards. Thus they were thought to lack standing to seek to remedy even a blatant irregularity in the procurement procedures followed by a Government agency. The leading case for this view is Perkins v. Lukens Steel Co., 310 U.S. 113, 60 S. Ct. 869, 84 L. Ed. 1108 (1940), and the Government urges us to follow it as controlling precedent.

While Perkins has not been expressly overruled by the Supreme Court,10 the 'legal interest' test for standing has largely been abandoned. See Sierra Club v. Morton, 405 U.S. 727, 92 S. Ct. 1361, 31 L. Ed. 2d 636 (1972); Data Processing Service v. Camp, 397 U.S. 150, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970); Barlow v. Collins, 397 U.S. 159, 90 S. Ct. 832, 25 L. Ed. 2d 192 (1970); Flast v. Cohen, 392 U.S. 83, 88 S. Ct. 1942, 20 L. Ed. 2d 947 (1967). While the Supreme Court has recognized that earlier cases did establish that standing would be denied 'unless the right invaded is a legal right,--one of property, one arising out of contract, one protected against tortious invasion, or one founded on a statute which confers a privilege,' Tennessee Electric Power Co. v. T.V.A., 306 U.S. at 137--38, 59 S. Ct. at 369, in Data Processing Service v. Camp, supra, the Court stated unambiguously that 'the 'legal interest' test goes to the merits. The question of standing is different. It concerns, apart from the 'case' or 'controversy' test, the question whether the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.' 397 U.S. at 153, 90 S.Ct. at 830.

Where, as here, the plaintiff cannot rely on any specific statute authorizing judicial review of administrative decision-making, the question of standing hinges on whether the party has alleged such a 'personal stake in the outcome of the controversy,' Baker v. Carr, 369 U.S. 186, 204, 82 S. Ct. 691, 703, 7 L. Ed. 2d 663 (1962) as to guarantee that 'the dispute sought to be adjudicated will be presented in an adversary context and in a form historically viewed as capable of judicial resolution.' Flast v. Cohen, 392 U.S. at 101, 88 S.Ct. at 1953. As the Supreme Court noted in Sierra Club v. Morton, '[w]here, however, Congress has authorized public officials to perform certain functions according to law, and has provided by statute for judicial review of those actions under certain circumstances, the inquiry as to standing must begin with a determination of whether the statute in question authorizes review at the behest of the plaintiff.' 405 U.S. at 732, 92 S.Ct. at 1365. Recognizing that '[c]learly the momentum of recent Supreme Court decisions is in the direction of finding standing whenever 'the plaintiff alleges that the challenged action has caused him injury in fact, economic or otherwise' and that 'the interest sought to be protected by the complainant is arguably within a zone of interests to be protected or regulated by the statute or constitutional guarantee in question," Allen Campbell Co. General Contractors, Inc. v. Lloyd Wood Construction Co., 446 F.2d 261, 264 n. 5 (5th Cir. 1971), we believe these are the two tests the plaintiff must meet in order to establish standing to sue.11

A. Injury in Fact.

Unlike the type of delicate question which arises when a plaintiff alleges an injury of a non-economic nature to interests which are widely shared, see, e.g., Sierra Club v. Morton, supra; United States v. Students Challenging Regulatory Procedures (S.C.R.A.P.), 412 U.S. 669, 93 S. Ct. 2405, 37 L. Ed. 2d 254 (1973), the economic injury suffered by a losing bidder in seeking a government procurement contract is manifest. No serious doubt exists that Hayes International suffered economic loss by virtue of its inability to obtain the contract at issue in this case.B. The Zone of Interest.

Early cases which applied the 'legal interest' test of standing also made the general finding that government procurement statutes were 'not intended to be a bestowal of litigable rights upon those desirous of selling to the Government. . . .' Perkins v. Lukens Steel Co., 310 U.S. at 127, 60 S.Ct. at 877; American Smelting & Refining Co. v. United States, supra; Goldberg v. Daniels, 231 U.S. 218, 34 S. Ct. 84, 58 L. Ed. 191 (1913); Edelman v. Federal Housing Administration, 382 F.2d 594, 597 (2d Cir. 1967); United States v. Gray Line Water Tours of Charleston, 311 F.2d 779 (4th Cir. 1962). These authorities do not, however, directly answer the question whether the interests of a disappointed bidder fall within the zone of interests arguably protected by a statute or regulation, for even if the plaintiff is unable to assert a violation of a legal right which the court may remedy, 'once review is properly invoked, that person may argue the public interest in support of his claim that the agency has failed to comply with its statutory mandate.' Sierra Club v. Morton, 405 U.S. at 737, 92 S.Ct. at 1367. It was indeed largely on this premise that a disappointed bidder is uniquely suited to assert a public interest in the Government's compliance with relevant statutes regulating procurement that led the D.C. Circuit to hold a losing bidder has standing to contest an arguably illegal Government contract--despite the fact it may not necessarily be able to assert a 'legal right' to the contract. Scanwell Laboratories, Inc. v. Shaffer, 137 U.S.App.D.C. 371, 424 F.2d 859 (1970).

Here we believe the interests of competitors are at least arguably within the zone of interests protected by the Department of Defense regulations against organizational conflicts of interest. Those regulations, under which this suit was brought, 32 C.F.R. § 1--113.2 and Part 141 (1971), set out rules which are intended to achieve two different but re-interest which bias a contractor's judgment, and avoiding situations where one contractor has an unfair competitive advantage over another. It seems probable that this latter goal is at least in part designed to protect the interests of competitors who are unable to obtain government contracts due to the superior competitive position of the successful bidder, whose competitive advantage is the result of its prior confidential relationship with the Government.

References to the goal of avoiding unfair competitive advantages for a contractor in a privileged position with the Government frequently occur in the legislative reports and hearings preceding drafting of the organizational conflicts of interest procurement regulation. See, e.g., Organization and Management of Missile Programs, H.R.Rep. No. 112, 86th Cong., 1st Sess., 88, 92, 95 (1959); House Comm. on Gov't Operations, Avoiding Conflicts of Interests in Defense Contracting and Employment, H.R.Rep. No. 917, 88th Cong., 1st. Sess., 4, 52 (1963). While these references draw no formal distinction between the Government's interest in free competition, and the interest of a competitor--these cited passages do express a broad concern that unfair competition may result, and the regulation subsequently drafted seems sufficiently broad to incorporate both the Government's interest in lower prices and higher quality through free competition, as well as the industry's interest in maximizing the opportunity for each competitor to bid on an equal footing.

C. Effect on Future Procurement.

While the Government urges this Court to dismiss the suit on authority of Perkins v. Lukens Steel, supra, and thus affirm the requirement that a formal legal interest must be found before a party has standing to challenge the grant of a Government contract, the Government also proposed larger grounds for refusing to review procurement decisions of the sort involved in this case.12 These concerns are both serious and important, and we do not feel we can ignore them. While we ultimately deny the relief the plaintiff requests, we do not do so on the basis that Hayes lacks standing to raise the issues presented, and we recognize we may thus occasion other challenges to Government procurement which necessarily will have effects on the manner in which the Government conducts military procurement.

In its seminal opinion of Scanwell Laboratories, Inc. v. Shaffer, supra, the D.C. Circuit Court took note that there were justifiable concerns that judicial review of procurement decisions may have a disastrous effect on the efficient operation of Government procurement. In matters such as the one before us in this case, where the procurement decision touches on weapons systems which may have a vital impact on national defense, the courts must be wary of intruding into areas where they have neither special competence nor the ability to act expeditiously.13 Despite these concerns, we feel we must follow the line of authority which began with Scanwell.

There is now a substantial body of case law in the D.C. Circuit which by now almost routinely applies Scanwell and grants judicial review of procurement decisions. See e.g., P.A.M. News Corp. v. Hardin, 142 U.S.App.D.C. 227, 440 F.2d 255 (1971); National Automatic Laundry and Cleaning Council v. Shultz, 143 U.S.App.D.C. 274, 443 F.2d 689 (1971); Blackhawk Heating and Plumbing Co. v. Driver, 140 U.S.App.D.C. 31, 433 F.2d 1137 (1970); Ballerina Pen Co. v. Kunzig, 140 U.S.App.D.C. 98, 433 F.2d 1204 (1970), cert. denied 401 U.S. 950, 91 S. Ct. 1186, 28 L. Ed. 2d 234 (1971); M. Steinthal and Co. v. Seamans, 147 U.S.App.D.C. 221, 455 F.2d 1289 (1971); Wheelabrator Corp. v. Chafee, 147 U.S.App.D.C. 238, 455 F.2d 1306 (1971); Kentron Hawaii, Ltd. v. Warner, 156 U.S.App.D.C. 274, 480 F.2d 1166 (1973). As that Court observed in M. Steinthal and Co., supra, the administration of suits involving military procurement has not been without its problems--frivolous suits are occasionally filed, and not infrequently the delay occasioned by judicial review has a harmful effect on the smooth and efficient operation of military procurement. Procurement decisions are frequently complex and involve factual issues courts are ill-equipped to settle. Obviously many procurement decisions involve delicate questions of policy which are better left to the expertise of an executive agency to answer.

At least in part the problem has been to develop proper standards in determining when a discretionary injunction should issue. Many different factors are necessarily taken into account in making a decision of this sort, and the experience in the D.C. Circuit has shown that the grant of an injunction which has the effect of delaying possibly vital procurement may have grave effects on the national interest. Among the various factors which have been expressly recognized as proper to take into account in determining whether an injunction should issue are: (1) the importance to national defense of the item to be procured;14 (2) the availability of alternative remedies, either in the Court of Claims15 or a bid protest claim to the General Accounting Office;16 and (3) the substantial likelihood that statutory standards were in fact violated.17 Further the plaintiff has been held to bear a heavy burden of proving that a procurement officer's decision was genuinely arbitrary and unreasonable.18 We agree that there is a 'strong public interest in avoiding disruptions in procurement, and for withholding judicial interjection unless it clearly appears that the case calls for an assertion of an overriding public interest 'in having the agencies follow the regulations which control government contracting." M. Steinthal and Co., supra, 455 F.2d at 1300. At the same time, we do not believe that denying review altogether is the proper way to temper judicial discretion in granting injunctions which may have harmful effects on military and Government procurement.

The Administrative Procedure Act, 5 U.S.C. § 701(a) provides that the provisions of the Act authorizing judicial review apply 'except to the extent that--(1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law.' The Supreme Court has held that there is virtually a presumption in favor of judicial review, Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 S. Ct. 1507, 18 L. Ed. 2d 681 (1967) unless a contrary purpose is fairly discernible in the statutory scheme. Data Processing Service v. Camp, 397 U.S. 150, 157, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970). Agency action is normally found to be non-reviewable 'only upon a showing of 'clear and convincing evidence' of a contrary legislative intent.' Abbott Laboratories v. Gardner, 387 U.S. at 141, 87 S.Ct. at 1511.

32 C.F.R. § 1--113.2 and Part 141 do not expressly preclude judicial review, but neither do they mandate it. Clearly the absence of statutory language expressly authorizing judicial review is insufficient to offset the presumption that administrative action is reviewable. 'Indeed, judicial review of such administrative action is the rule, and nonreviewability an exception which must be demonstrated.' Barlow v. Collins, 397 U.S. 159, 166, 90 S. Ct. 832, 838, 25 L. Ed. 2d 192 (1970). However, '[a] clear command of the statute will preclude review; and such a command of the statute may be inferred from its purpose.' Id. at 167, 90 S.Ct. at 838.

The Government points to those provisions of the regulations which provide that '[a]ny of the prohibitions imposed by these rules may be waived by an Assistant Secretary of a military department or the Director of a defense agency if he determines that a failure to waive the prohibition will be prejudicial to the best interests of the Government,' 32 C.F.R. Part 141 (1971) as well as the repeated statement that '[a]ll prospective contractors will be advised of the applicability of the rules by a notice in solicitations and by a clause in resulting contracts,' Id., and '[t]he contracting officer shall not impose restrictions under the Appendix in follow-on procurements on any prospective contractor in the absence of a specific contractual agreement with that contractor,' 32 C.F.R. § 1--113.2(c) and argue that taken together they amount to such a 'clear command' that the regulations are meant to be applied only at the discretion of the agency.

That part of Appendix G which provides for 'Review and Waiver' seems to us to grant substantial discretion to procurement officers. Indeed, Hayes concedes that the Air Force could have made the decision to waive the application of the Rules on Avoidance of Organizational Conflicts of Interests. Implicitly the plaintiff also concedes that were such a decision made, it likely would be unreviewable as it would be one of those 'rare instances where 'statutes are drawn in such broad terms that in a given case there is no law to apply." Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 410, 91 S. Ct. 814, 821, 28 L. Ed. 2d 136 (1971). We do not pass on that question, however, as such a waiver decision was not made in this case. Rather, the Air Force has determined that the Rules on Avoidance of Organizational Conflicts of Interest are never applicable to the type of engineering contracts which Boeing held prior to the grant of IRAN/Modification contract 3366. In our view, this construction of the regulations is a decision other than a specific decision to waive the application of the rules in a particular instance, having made the decision that a failure to do so would be 'prejudicial to the best interests of the Government.'

Such a construction of the regulations 'does not significantly engage the agency's expertise,' Barlow v. Collins, 397 U.S. at 166, 90 S.Ct. at 837, for 'Courts are as expert as administrators in matters of statutory construction.' East Oakland-Fruitvale Planning Council v. Rumsfeld, 471 F.2d 524, 529 (9th Cir. 1972). See Barlow v. Collins, 397 U.S. at 166, 90 S. Ct. 832.19

Thus the issue in this case comes down to the relatively straightforward one of the extent to which the Department of Defense Rules on Avoidance of Organizational Conflicts of Interests were meant to apply to the type of engineering contracts which Boeing held for the KC--135. The decision that Boeing's sustaining engineering and related support services contracts did not come within the purview of the rules was not made on the basis of the 'best interests of the Government,' rather the record shows it was made on the basis of a construction of the language of the regulations, and the legislative history surrounding the drafting of the rules. Such matters are eminently fit for judicial review, and while naturally an agency's interpretation of its own regulations is subject to substantial deference,20 this does not amount to unreviewable discretion within the meaning of § 701(a) of the Administrative Procedure Act.21

APPLICABILITY OF THE DEPARTMENT OF DEFENSE RULES ON

AVOIDANCE OF ORGANIZATIONAL CONFLICTS OF INTERESTS

As the Government has had to rely increasingly on the use of private contractors to perform tasks which might previously have been performed by Government employees, the problem of reconciling the private interests of independent contractors with the public mission they are called upon to perform has resulted in substantial legislative concern about conflicts of interest. The problem has been particularly acute concerning use of individual Government employees who have some interest in private concerns, and both the legislation and the literature concerning this question of so-called 'individual conflicts of interest' have been extensive.22 Such 'individual conflicts of interest' have been defined as 'the clash, or appearance of a clash, between a Government official's interest in performing his official duties and his interests in his private--and especially his private economic--affairs.' Association of the Bar of the City of New York, Conflict of Interests in Federal Service, 3 (1960). Here the statutory restrictions are relatively clear, and well understood. The same cannot be said of 'organizational conflicts of interest' which have been described by one of the leading scholars in the field as a 'more mysterious, arcane subject, on which much less has been published and about which very little that is definitive can yet be said.' Pasley, Organizational Conflicts of Interests in Government Contracts, 1967 Wis.L.Rev. 5, 6.

'Organizational conflicts of interest,' unlike ones concerning individual employees, normally do not arise in most aspects of public service. Rather they have been described as 'essentially creatures of federal government contract law and policy, more specifically of research and development contracting and of complex space age technology.' Pasley, Id.

32 C.F.R. § 1--113.2 and Part 141 were drafted to deal with what a series of Congressional hearings and reports identified as the continuing problem of organizational conflicts of interest in aerospace procurement.23 At trial the Government introduced witnesses who either participated in the drafting of the regulations in question, or who subsequently were responsible for applying them in military procurement contracts, who testified that the rules were intended to apply to situations where a highly specialized contractor engaged in what was called 'systems engineering' and 'technical direction.'24 'Systems engineering' is defined by 32 C.F.R. Part 141 to include 'a combination of substantially all the following activities: determination of specifications, identification and solution of interfaces between parts of the system, development of test requirements or plans and evaluation of test data, and supervision of design work.' The term 'technical direction' is similarly defined to include 'a combination of substantially all the following activities: preparation of work statements for contractors, determination of parameters, direction of contractors' operations, and resolution of technical controversies.' While some of these technical terms seem so conceptually broad as to include some, although certainly not all, of Boeing's responsibilities under its sustaining engineering contracts, Government witnesses at trial testified that the type of post-production engineering which Boeing was expected to perform under its sustaining engineering contracts was qualitatively different from the kind of engineering effort described by the terms 'systems engineering' and 'technical direction.' Typically this latter type of engineering was said to involve development of new systems, and the coordination of the contributions of a number of sub-contractors in an effort to speed research, development and production.

The Government relies not only upon what individuals who participated in the drafting of the regulations suggested was the intent behind the language used within the regulation, but also refers to the specific instances of systems engineering and technical direction which had been identified by Congressional committees investigating organizational conflicts of interest as creating a problem which required a solution.25

Expert Government witnesses testified that there were fundamental differences between the type of engineering responsibilities involved in developing a new weapon system, and those which are involved in performing maintenance engineering on an existing system. These witnesses testified that contracts let by the Logistics Command simply were not 'systems engineering' or 'technical direction' contracts within the meaning of the regulations. Sustaining engineering was identified as resembling 'fix-it' engineering although the precise conceptual differences between such 'fix-it' engineering and the 'very sophisticated type of technical management' which was said to be involved in systems engineering and technical direction were left largely unarticulated.

The plaintiff produced no evidence as to the intent of the draftsman of 32 C.F.R. § 1--113.2 and Part 141, nor any evidence as to how the terms 'system engineering' and 'technical direction' are viewed by specialists in military procurement. Rather Hayes simply says that to read the language of the regulation is enough, that the words are so clear no extrinsic evidence is required. However, it only requires a single attempt to read and understand the cabalistic jargon of the regulations to conclude that the words cannot stand alone.

We do not feel that the plaintiff has offset the weight we attach to the administrative interpretation of the regulations and to the intent attributed to the draftsman of the regulation by participants in the drafting process. One such participant in the drafting process, then a special assistant to the Secretary of Defense, has described the problems the regulations were designed to solve. Yarmolinsky, Organizational Conflicts of Interest, 24 Fed.B.J. 309 (1964). He describes the development of 'systems engineering and technical direction' as responding to a need which arose 'because weapons systems had become so complex that the job of fitting together separate systems, sub- systems, and sub-sub-systems, turned out to be at least as important as the job of producing component elements. Contractors were needed to perform what came to be called systems engineering and technical direction, which amounted to giving the contractor a very large say in what the ultimate customer--the Government--was going to buy.'

We are thus unable to read 32 C.F.R. § 1--113.2 and Part 141 so broadly as to encompass all engineering tasks assigned by contract by the military. Such a reading is inconsistent with the background to the drafting of the regulation, and has never been the interpretation placed upon it by the agencies responsible for military procurement. In our view, the limited reading placed on the regulations by the various procurement agencies is consistent with the legislative materials which prompted the drafting of the regulation originally, and with the attempted solution of the specific problem those legislative hearings and reports documented.

We thus conclude that the Air Force's administrative interpretation of 32 C.F.R. § 1--113.2 and Part 141 is a permissible interpretation, and we do not disturb it.26

Accordingly, we affirm the judgment of the trial court.