(a) Definition. “United States firm,” as used in this provision, means a firm incorporated in the United States that complies with the following:

(1) The corporate headquarters are in the United States;

(2) The firm has filed corporate and employments tax returns in the United States for a minimum of 2 years (if required), has filed State and Federal income tax returns (if required) for 2 years, and has paid any taxes due as a result of these filings; and

(3) The firm employs United States citizens in key management positions.”

(b) Evaluation. Offers from firms that do not qualify as United States firms will be evaluated by adding 20 percent to the offer. (c) Status. The offeror _______ is ______ is not a United States firm. DFARS 252.236-7010.

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A. The Navy’s Interpretation is Reasonable

 It is well settled that an "agency’s interpretation must be given controlling weight unless it is plainly erroneous or inconsistent with the regulation." Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994). Pursuant to Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) the Court “must first carefully investigate the matter to determine whether Congress’s purpose and intent on the question is judicially ascertainable.” Times V.I., Inc. v. United States, 157 F.3d 879, 881 (Fed. Cir. 1998) (citing Chevron, 467 U.S. at 842-43 & n.9). "Only if, after this investigation, we conclude that Congress either had no intent on the matter, or that Congress’s purpose and intent regarding the matter is ultimately unclear, do we reach the issue of Chevron deference." Id. The second step of the Chevron standard is to determine whether the agency’s interpretation of the statute is reasonable in light of the statute and its purpose. While "formal" Chevron deference is probably not applicable here, the analytical framework is still appropriate. See United States v. Mead Corp., 533 U.S. 218 (2001); Skidmore v. Swift & Co., 323 U.S. 134 (1944).

In this case, the one thing that is clear to the Court is that both the statute and the DFARS do not clearly define whether a joint venture between an American company and foreign corporation is an American company for the purposes of the twenty percent differential to be applied to foreign corporations. The policy behind the Act is designed to give American corporations a chance to compete in distant locations – and the combined American-foreign venture may actually benefit this policy. As explained in the contracting officer’s declaration, in addition to expanding the pool of United States firms that may participate as United States contractors, the Navy’s construction of DFARS 252.236-7010 will assist in implementing the agreement between the United States and Japan for the relocation of 17,000 Marines and dependents from Okinawa to Guam. Yoshimira Decl. at ¶¶ 8-9.

The Navy has seemingly evaluated the standard on a contract-by-contract basis, and in this case the Court concludes that the agency made a reasonable determination that it would consider United States joint ventures that may include foreign firms as “United States contractors” and “United States firms.” See Yoshimura Decl. However, while messy in theory and productive of litigation, these case-by-case decisions are not inconsistent with the broad goals of the statute. Thomas Jefferson Univ., 512 U.S. at 512. Therefore, the Court must defer to the likelihood that Navy’s interpretation of the statute is allowable, and so preliminary equitable relief would be unjustified.

B. The Navy’s Interpretation was not Arbitrary and Capricious

In determining whether the Agency’s decision was one that was arbitrary and capricious the Court must review whether a rational basis for the agency’s decision was lacking or a violation of an applicable regulation or procedure occurred during the procurement process. Impresa, 238 F.3d at 1333. As held above, the Court has already concluded that the contracting officer’s decision was reasonable based on all facts available in this very expedited proceeding. Therefore, what is left is that the Plaintiff’s only legitimate claim to arbitrary and capricious action would be if the proper definition of the joint venture was as a foreign bidder. On the current record it is impossible to say that the Navy’s choice of policy violated either the statute or the DFARS. Thus, the Court cannot conclude that the agency’s action was arbitrary and capricious on these facts.

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However, the Government should clarify the policy to prevent disappointed bidders from reasonably believing they have a cause of action. The existing confusion cannot be solved by equitable relief in a specific case but requires the Navy and the other agencies concerned to review the policy directive of the statute and devise a coherent policy to implement it. At the very minimum, this requires guidelines for the source selection personnel so that parties will have some guidance.

For example, when the prospective bidders posed questions requesting clarification of the twenty percent rule, the Navy’s only response was that the terms of the DFARS 252.236-7010 governed. D. Intervenor Br. at Attachment B. And, when asked specifically whether a joint venture between a foreign and a United States firm could be considered a “United States firm” under DFARS 252.236-7010, the Navy responded to this question by stating “[f]ormation of a JV or partnership with a non-U.S. firm is not automatically disqualifying for purposes of the 20% preference. However, the JV or partnership must meet the requirements of DFARS 252.236-7010.” D.Intervenor Br. at Attachment C. In these instances, it is clear to the Court that the response to the project specific questions would not have been very helpful to some one trying to find out if they had improperly lost a contract.

The other possible approach is a definitive regulation establishing some bright lines after both notice and comment as well as agency assessments of what rules or guidelines will really promote the ability of United States contractors to fairly compete in these contracts.  (Watts-Healy Tibbitts A JV v. U. S. and IBC/TOA Corporation, No. 08-261C, May 2, 2008) (pdf)