PROMPT STAY NOTICE REQUESTED Y PROTESTS GAO GOV

New York

Philadelphia

San Diego

San Francisco

Washington, DC

Albany

Atlanta

Brussels

Denver

Los Angeles

EMAIL [email protected]

THOMAS C. PAPSON(202) 496-7639

1900 K Street, NW Washington, DC 20006Tel: 202.496.7500 Fax: 202.496.7756

www.mckennalong.com

April 5, 2012

PROMPT STAY NOTICE REQUESTED

BY EMAIL TO [email protected]

General CounselGovernment Accountability Office441 G Street, N.W.Washington, D.C. 20548Attn: Procurement Law Control Group

Re: Protest of Maersk Line, LimitedUnder Solicitation No. DTMA98R20120001

Dear Sir or Madam:

Maersk Line, Limited (“MLL”) protests the terms of the Maritime

Administration’s (“MARAD”) Solicitation No. DTMA98R20120001 (“the RFP” or “the

solicitation”) for Ship Manager services for three Ready Reserve Force (“RRF”) vessels.

In particular, MLL protests the solicitation’s minimum eligibility requirement that limits

the competition to what are sometimes referred to as “section 2 citizens” of the United

States, i.e., entities that are not only themselves U.S. citizens, but whose ultimate parent

company is a U.S. citizen.

MLL is a U.S. company incorporated in the State of Delaware. MLL has a board

chairman and CEO who are U.S. citizens. MLL’s direct parent company is a U.S.

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company incorporated in the State of New York. MLL employs thousands of seamen

who are U.S. citizens. MLL maintains, operates, and manages U.S. Government-owned

vessels and privately owned commercial vessels that are available for use in times of war

or national emergency or in actual military deployment. MLL maintains a facility

security clearance with the Department of Defense at the top secret level. And MLL is a

fully responsible source with superior capabilities and experience in exactly the work

called for by the solicitation. But MLL is ineligible to submit a proposal for this

procurement solely because its ultimate parent is a Danish company.

The agency has therefore failed to solicit proposals from all responsible sources as

required by the Competition in Contracting Act (“CICA”). Because MARAD has

provided no justification for conducting other than a full and open competition and using

non-competitive procedures, the solicitation’s citizenship requirement violates applicable

procurement laws and regulations.

PROCEDURAL MATTERS

Interested Party Information: Maersk Line, Limited is a corporation organized

and existing under the laws of the State of Delaware. It is wholly owned by Maersk, Inc.,

a corporation organized and existing under the laws of the State of New York. MLL is

indirectly owned by A.P. Moller-Maersk A/S, a Danish corporation and MLL’s ultimate

parent. The MLL headquarters are located at One Commercial Place, 20th Floor, Norfolk,

Virginia 23510-2103. MLL is an interested party to bring this protest because it is

challenging the terms of a solicitation issued by MARAD that restrict the competition to

a narrowly-defined class of United States citizens. But for this restriction, MLL would be

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an actual offeror in response to this solicitation whose direct economic interest would be

affected by the award of contracts in response to this solicitation.

Counsel: MLL is represented in this protest by Thomas C. Papson and John W.

Sorrenti of the law firm of McKenna Long & Aldridge LLP. Mr. Papson’s phone and fax

numbers are 202-496-7639 (voice) and 202-496-7290 (secure fax). His email address is

[email protected].

Timeliness: MARAD issued its solicitation on February 15, 2012. Proposals are

currently due on April 9, 2012. This protest challenges the terms of the solicitation and is

being filed prior to the deadline for submission of proposals and is therefore timely under

4 C.F.R. § 21.2(a)(1)(2012).

Request for Prompt Notice of Protest: MLL requests that your office issue a

prompt stay notice to ensure that the contracting officer does not award any contract

under the solicitation while this protest is pending, as required by 31 U.S.C. § 3553(c).

Notice to Contracting Officer: The contracting officer for this procurement is:

Melinda Simmons-HealyContracting OfficerOffice of Acquisition (MAR 380)7737 Hampton Blvd., Bldg. 19, Suite 300Norfolk, VA 23505Phone: 757-322-5819Cell: 757-268-6932Fax: [email protected]

Request for Protective Order: Although this filing does not contain confidential

information, MLL anticipates that information requiring protection may be produced by

the agency and therefore is requesting that GAO issue a protective order for this protest.

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Document Request: Pursuant to 4 C.F.R. § 21.1(d)(2), MLL’s request for

specific documents to be produced with the Agency Report is attached.

STATEMENT OF FACTS AND REGULATORY FRAMEWORK1

A. The Procurement

MARAD issued the solicitation at issue in this protest on February 15, 2012. The

solicitation is for a firm-fixed-price/cost reimbursable performance-based service contract

for Ship Manager services on the three RRF vessels. Ship Managers will maintain the

vessels in “Fully Mission Capable Readiness Status and efficiently activate and operate

these vessels in support of national emergencies and defense objectives.” RFP § C.1.3.1

(Ex. K). The contract will have a three-month base period and four, one-year option

periods. Id. § B. As extended by RFP Amendment 0006, the deadline for submission of

proposals is 2:00 p.m. on April 9, 2012.

The FedBizOpps synopsis for the solicitation stated: “This requirement will be

solicited on an UNRESTRICTED/FULL AND OPEN competition basis, subject to

mandatory eligibility requirements.”2 The solicitation contains three such mandatory

eligibility requirements. RFP § M.3 (Ex. K). First, offerors must have experience within

the last five years as an operator or owner/operator of at least one of the following types

1 The maritime statutes and regulations, solicitation provisions, and certain other sourcesreferred to in this section of the protest are reproduced in an accompanying exhibit package. Anindex to those exhibits follows the cover page to that package.

2 FedBizOpps, Ship Management Services for Three RRF Vessels,https://www.fbo.gov/index?s=opportunity&mode=form&tab=core&id=2e4c0ac6eae13b3b9674ad6cc6802970&_cview=1 (Jan. 26, 2012)(Ex. J).

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of vessels: a self-propelled vessel, an Integrated Tug/Barge of at least 450’LLWL with a

minimum cargo capacity of 7,500 DWTs, or a Tanker of at least 25,000 DWTs. Id. §

M.3.1.2. Second, offerors must have an irrevocable line of credit of at least $350,000 per

vessel.

The third mandatory eligibility requirement is the citizenship requirement at issue

in this protest. The solicitation states: “As required by 46 C.F.R. 315.5(a)(1), the Offeror

must be a Citizen of the United States as defined in 46 C.F.R. 315.3(b), 50 App. U.S.C.

§1736(g) and 46 U.S.C. § 50501(a)-(c).” RFP § M.3.1.1 (Ex. K); see also id. § H.16.

These referenced statutes and regulations provide (for purposes other than management

of the RRF) this definition of a “citizen of the United States”:

Citizen of the United States means a person . . . including anyPerson . . . who has a controlling interest in such person . . .and any parent corporation . . . of such Person at all tiers ofownership, who, in both form and substance at each tier ofownership, satisfies the following requirements – . . . Acorporation organized under the laws of the United States orof a State, the controlling interest of which is owned by andvested in Citizens of the United States and whose chiefexecutive officer, by whatever title, chairman of the board ofdirectors and all officers authorized to act in the absence ordisability of such persons are Citizens of the United States,and no more of its directors than a minority of the numbernecessary to constitute a quorum are noncitizens.

See 46 C.F.R. §§ 315.3(b), (b)(2)(emphasis added)(Ex. M). This definition is drawn from

section 2 of the Shipping Act of 1916, ch. 451, 39 Stat. 728, 729 (1916)(codified as

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amended at 46 U.S.C. § 50501 (2006))(Ex. A).3 In certain contexts, companies that are

considered to be U.S. citizens under this definition are referred to as “section 2 citizens.”

To establish citizenship in accordance with this definition, the solicitation requires each

offeror to provide documentation showing that the offeror and each of the offeror’s

parent companies, “at every tier of ownership,” are citizens of the United States. RFP §§

L.6.2.1, L.6.2.1.1 (Ex. K).

For offerors that meet the three mandatory eligibility requirements, MARAD will

consider the following evaluation factors to determine a competitive range and eventual

awardee: technical/management, corporate experience, past performance, and price. See

RFP §§ M.4-M.7. MARAD intends to award a contract to the offeror that meets the

mandatory eligibility requirements and provides the best value to the Government. RFP

§ M.12.1.

B. The National Defense Reserve Fleet, the Ready Reserve Force, andOther Defense Support Programs

The procurement at issue is for ship manager services for three specific vessels

enrolled in MARAD’s Ready Reserve Force: the Cape Horn, the Cape Henry and the

Cape Hudson (together, the “Cape H vessels”). The RRF is a component of the National

Defense Reserve Fleet (“NDRF”), a fleet of U.S.-owned vessels that are available for

national defense and national emergency purposes. There are currently 148 vessels in the

3 Section 2 of the Shipping Act of 1916 stated: “[N]o corporation . . . shall be deemed acitizen of the United States unless the controlling interest therein is owned by citizens of theUnited States, and, in the case of a corporation, unless its president and managing directors arecitizens of the United States and the corporation itself is organized under the laws of the UnitedStates or of a State . . . .” Shipping Act of 1916, ch. 451, 39 Stat. at 729.

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NDRF that stand ready to be activated as needed in time of war or national emergency.

Commercial ship managers maintain and operate the vessels in the NDRF under contracts

with the United States. 4

The RRF component of the NDRF consists of over 40 vessels that are available to

support rapid deployment of military equipment. The vessels are maintained at a

Reduced Operating Status (“ROS”) and are assigned a 4, 5, 10, or 20-day level of

readiness. Each vessel must be able to be fully operational within its assigned readiness

level. In the past, RRF vessels have provided humanitarian assistance in response to

Hurricanes Katrina and Rita as well as Operations Desert Shield/Storm and Enduring

Freedom and Iraqi Freedom. Until activated, RRF vessels are under MARAD’s control.

When activated, however, they are placed under the control of the Navy’s Military Sealift

Command (“MSC”).5

The MSC manages several fleets of U.S.-owned, privately managed ships. One

such fleet is known as the Maritime Prepositioning Force (“MPF”), which is part of

MSC’s Prepositioning Program. The Prepositioning Program strategically places military

equipment and supplies aboard ships that are located in key ocean areas to ensure rapid

4 50 U.S.C. app. § 1744(a)(Ex. L); MARAD National Defense Reserve Fleet,http://www.marad.dot.gov/ships_shipping_landing_page/national_security/ship_operations/national_defense_reserve_fleet/national_defense_reserve_fleet.htm (last visited March 28, 2012).

5 MARAD’s Ready Reserve Force,http://www.marad.dot.gov/ships_shipping_landing_page/national_security/ship_operations/ready_reserve_force/ready_reserve_force.htm (last visited March 28, 2012); U.S. Navy’s MilitarySealift Command Fact Sheet Ready Reserve Force, http://www.msc.navy.mil/factsheet/rrf.asp(last visited March 28, 2012).

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availability during war, humanitarian operations or other contingencies. Prepositioning

ships include a combination of U.S. government-owned ships, chartered U.S.- flagged

ships, and ships activated from the RRF. The MPF component of the program positions

supplies for the U.S. Marine Corps.6

Finally, the Maritime Security Program (“MSP”) provides yet another fleet of

vessels to be available in times of war and national emergency. The MSP is administered

by MARAD. Unlike the U.S.-owned vessels in the NDRF, the MSP vessels are

privately-owned. MARAD contracts with the vessel owners to maintain these vessels in

a state of readiness and to enroll the vessels in an approved Emergency Preparedness

Agreement for ocean and intermodal transportation.7 The Emergency Preparedness

program currently approved by MARAD/DoD is known as the Voluntary Intermodal

Sealift Agreement (“VISA”) program. VISA “is a partnership between the U.S.

Government and the maritime industry to provide the Department of Defense (DoD) with

‘assured access’ to commercial sealift and intermodal capacity to support the emergency

deployment and sustainment of U.S. military forces.”8

6 Military Sealift Command Prepositioning, http://www.msc.navy.mil/pm3/ (last visitedMarch 28, 2012).

7 MARAD Maritime Security Program (MSP),http://www.marad.dot.gov/ships_shipping_landing_page/national_security/maritime_security_program/maritime_security_program.htm (last visited March 28, 2012).

8 Voluntary Intermodal Sealift Agreement (VISA),http://www.marad.dot.gov/ships_shipping_landing_page/national_security/vol_intermodal_sealift_agreement/vol_intermodal_sealift_agreement.htm

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C. MLL

1. Citizenship

Vessels that engage in a maritime trade must be covered by a certificate of

documentation from the United States Coast Guard. 46 U.S.C. § 12102(a)(2012). To be

eligible for such a certificate, a vessel must be wholly owned by an “eligible owner,” be

at least five net tons, and cannot be documented under the laws of a foreign country. 46

U.S.C. § 12103(a)(2012). A corporation qualifies as an eligible owner if it is

“incorporated under the laws of the United States or a State,” its CEO and the chairman

of the board of directors are both U.S. citizens, and only a minority of the number of

directors necessary to constitute a quorum are noncitizens. 46 U.S.C. § 12103

(b)(4)(A)(2012); see also 46 C.F.R. §§ 67.30, 67.39(2012). Accordingly, U.S. companies

engaged in the maritime trade who register their vessels in this system and operate those

vessels under the U.S. flag are often referred to as “documentation citizens.”

Documentation citizens differ from “section 2 citizens” in that a section 2 citizen also

must hold U.S. citizenship at every tier of its ownership while documentation citizens can

have a foreign entity as their ultimate parent.

Maersk Line, Limited (the prospective offeror) is a U.S. company with officers

and directors who are U.S. citizens. It is a fully qualified documentation citizen. It does

not qualify as a section 2 citizen, however, because its ultimate parent is a Danish

corporation. As a documentation citizen and eligible owner, MLL has applied for and

received numerous certificates of documentation and has registered hundreds of vessels

under the U.S. flag.

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MLL’s employees also are U.S. citizens. In fact, Maresk is the largest employer

of U.S. merchant mariners in the world. In a typical year, MLL employs over 4000

merchant mariners, all of whom are U.S. citizens, on its U.S.-registered commercial

vessels and on the U.S.-owned vessels that it manages, maintains, and operates for both

MARAD and the MSC. For the contract at issue, MLL would use only U.S. citizens to

crew the three RRF vessels.

2. Capability and Experience

MLL has demonstrated its capability to perform the activities and responsibilities

of a Ship Manager through its vast and extensive experience managing and operating

vessels — both privately-owned commercial vessels and U.S. Government–owned Navy

vessels — that are maintained for potential use in national defense or emergency

purposes. MLL’s experience includes managing, maintaining and operating vessels,

including RRF vessels, for the MSC, other Department of Defense agencies, and

MARAD.

Between October 2005 and February 2011, for example, MLL served as the Ship

Manager for eight U.S.-owned Fast Sealift Ships (“FSS”) under contract with the MSC.

When MLL was awarded that FSS contract by the MSC in 2005, the eight vessels were

part of MSC’s surge program. In October 2007, the vessels were placed in the RRF and

transferred to MARAD’s control. MLL continued to manage those RRF vessels until

February 2011.

MLL also has extensive experience operating vessels that are part of the MSC’s

Prepositioning Program. From October 1997 to December 2008, MLL operated eight

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Large, Medium Speed Roll-on Roll-off (“LMSR”) prepositioning vessels. In addition,

MLL recently was awarded contracts to operate seven other vessels that are part of the

Maritime Prepositioning Force supporting the Marine Corps. Both the LMSR and MPF

prepositioning ships operated by MLL are U.S.-owned. MLL also time charters two

vessels to the MSC to support the U.S. Army’s prepositioning of ammunition.

MLL itself owns, operates, and/or charters 23 commercial container ships and four

pure car truck carriers that are enrolled in MARAD’s Maritime Security Program. As a

participant in the MSP, MLL agrees to make its commercial ships available to the DoD

during times of war or national emergencies. All of these ships operate under the U.S.

flag with a U.S. crew. During peacetime, this ensures an employment pool of merchant

mariners who are U.S. citizens. MLL currently operates more vessels in the MSP than

any other commercial operator participating in the program. In the broader

MARAD/DoD VISA Program, MLL provides more commercial sealift and intermodal

capacity than any other VISA participant.

Finally, MLL operates Tactical Auxiliary General Ocean Surveillance (“TAGOS”)

vessels under a classified DoD contract that requires MLL to maintain facility security

clearances at the top secret level. TAGOS Program vessels are used to conduct

surveillance missions for the Air Force and Navy. MLL has been participating in that

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program since October 1989 and currently operates seven TAGOS vessels under a

contract awarded in October 2005.9

As the above experience indicates, MLL is highly qualified and capable to act as a

Ship Manager for RRF vessels. Through a variety of contracts with both DoD and

civilian agencies, MLL has operated and continues to operate vessels, including U.S.

Government-owned vessels, that are being maintained for use in times of war or national

emergency or that are actually deployed for military purposes.

D. Statutory and Regulatory Framework

No statute requires MARAD to restrict its procurements for RRF Ship Manager

services to section 2 U.S. citizens. That requirement is solely a creature of a non-

procurement regulation that MARAD first promulgated in 1951 and re-promulgated in

1993. That regulation provides that only section 2 citizens are eligible to serve as ship

managers for U.S-owned vessels under MARAD’s control. 46 C.F.R. §§ 315.3, 315.5

(2012)(Ex. M). The regulation does not apply to procurements conducted by the MSC

when U.S.-owned vessels, including NDRF and RRF vessels, come under DoD control.

MARAD relies on Section 11 of the Merchant Ship Sales Act of 1946, Ch. 82, 60

Stat. 41 (codified at 50 U.S.C. app. § 1744 (2008))(Ex. L), as the sole source of its

9 Like many other U.S. defense contractors with ultimate foreign ownership, Maersk ispermitted to hold classified information necessary to perform U.S. Government contracts underthe terms of a Special Security Agreement with the Department of Defense. Maersk Line,Limited (the Delaware corporation), its parent Maersk Inc. (the New York corporation), and itsultimate parent A.P. Moller-Maersk A/S, are each parties to that agreement. The agreementrequires, among other things, for management control of Maersk Line, Limited to be vested inresident citizens of the United States who have DoD personal security clearances.

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authority to impose the citizenship restriction. See 46 C.F.R. Part 315 (citing 50 U.S.C.

app. § 1744). That Act addressed the disposition of war-built vessels in order to build

and support a privately-owned U.S. merchant marine after World War II. In a declaration

of policy, the Merchant Ship Sales Act stated that considerations of national security and

foreign commerce of the United States required “an efficient and adequate American-

owned merchant marine . . . owned and operated under the United States flag by citizens

of the United States.”10 Merchant Ship Sales Act, ch. 82, § 2(a)(Ex. C). The 1946 Act

defined “citizen of the United States” by reference to the definition in section 2 of the

Shipping Act of 1916. Id. § 3(g). The definition was used in the 1946 Act to limit the

class of persons who could purchase, charter, or exchange a war-built vessel.

Separately, Section 11 of the Act established a U.S.-owned “national defense

reserve” (the NDRF) to “be preserved and maintained by the Commission for the

purposes of national defense.” Id. § 11(a). This fleet was to be comprised of vessels that

the Secretaries of War and the Navy found should be retained by the United States for

defense purposes (rather than sold, chartered, or exchanged under the other provisions of

the Act). Id. Unlike the vessels regulated by the other provisions of the Act, the United

States would continue to own these defense reserve vessels. In contrast to the sections of

the 1946 Act addressing a sale, charter, or exchange of war-built vessels, Section 11 did

10 The Merchant Marine Act, which had been enacted in 1936 and had created the MaritimeCommission (the predecessor to MARAD), expressed a similar policy goal: that the UnitedStates “have a merchant marine . . . owned and operated under the United States flag by citizensof the United States insofar as may be practicable.” Merchant Marine Act of 1936, ch. 858, 49Stat. 1985 (Ex. B).

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not use the term “citizen of the United States.” Nor did Section 11 restrict operators of

the retained NDRF vessels to section 2 citizens or any particular class of persons.

Five years later, in 1951, MARAD promulgated a regulation that addressed the

eligibility requirements for general agents, agents and berth agents to “manage and/or

conduct the business of vessels of which the United States is owner or owner pro hac

vice.”11 16 Fed. Reg. 2888 (Apr. 3, 1951)(Ex. D). The regulation, which was the

precursor of the regulation on which MARAD relies in the subject procurement, provided

that only citizens of the United States, as defined by section 2 of the Shipping Act of

1916, could apply to act as a general agent, agent or berth agent. Id. Unlike the current

regulation, however, MARAD issued the 1951 regulation solely under the authority of

the Merchant Marine Act of 1936, 16 Fed. Reg. 2888 (authority statement citing 49 Stat.

1987), citing a provision of that Act that simply gave MARAD’s predecessor agency the

authority to “adopt all necessary rules and regulations to carry out the powers, duties and

functions vested in it by this Act.” Merchant Marine Act of 1936, ch. 858, 49 Stat. 1985,

1987. The 1951 regulation did not even cite the Merchant Ship Sales Act of 1946 as

additional authority.

In 1989, Congress amended Section 11 of the Merchant Ship Sales Act (the

section that had retained certain war-built vessels in a national defense reserve) to

11 At about the same time, MARAD promulgated a regulation that provided a detailed formfor its Service Agreements. The 1951 regulations were codified at 32A C.F.R. §§ 1801 and1802. In 1980, these regulations were transferred to 46 C.F.R., Chapter II. The provisionsregarding Service Agreements were transferred to 46 C.F.R. § 315 and the eligibility andcitizenship requirements were transferred to 46 C.F.R. § 316. 45 Fed. Reg. 44587 (July 1, 1980).

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provide for a ready reserve within the NDRF. The 1989 version of Section 11 was the

first statutory provision to use the term “Ready Reserve Force.” It states:

The Secretary of Transportation shall maintain a NationalDefense Reserve Fleet, including any vessel assigned by theSecretary to the Ready Reserve Force component of the fleet,consisting of those vessels owned or acquired by the UnitedStates Government that the Secretary of Transportation, afterconsultation with the Secretary of the Navy, determines are ofvalue for national defense purposes and that the Secretary ofTransportation decides to place and maintain in the fleet.

Pub. L. No. 101-115, § 6, 103 Stat. 691, 693 (1989)(codified as amended at 50 U.S.C.

app. § 1744 (2008)(Ex. E). Like the 1946 version of Section 11, the 1989 amendment to

Section 11 did not use the term “citizen of the United States” and did not restrict

operators of NDRF or RRF vessels to section 2 citizens.

In 1991, Congress again amended Section 11 of the Merchant Ship Sales Act.

This time, Congress did so by adding a new subsection specifically addressing contracts

to manage the RRF. The new subsection contained specific eligibility requirements for

RRF vessel managers. Coast Guard Authorization Act, Pub. L. No. 102-241, § 57, 105

Stat. 2208, 2234 (1991)(Ex. F). The eligibility requirements were stated as follows:

(2) Vessel managers.—

(A) Eligibility for contract.—A person, including a shipyard,is eligible for a contract for the management of a vessel in theReady Reserve Force if the Secretary determines, at aminimum, that the person has—

(i) experience in the operation of commercial-typevessels or public vessels owned by the United StatesGovernment; and

(ii) the management capability necessary to operate,maintain, and activate the vessel at a reasonable price.

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(B) Contract requirement.—

The Secretary of Transportation shall include in each contractfor the management of a vessel in the Ready Reserve Force arequirement that each seaman who performs services on anyvessel covered by the contract hold the license or merchantmariner’s document that would be required under chapter 71or chapter 73 of title 46, United States Code, for a seamanperforming that service while operating the vessel if thevessel were not a public vessel.

Id. § 57 adding sec. 11(d)(2) (codified as amended at 50 U.S.C. app. §

1744(c)(2)(2008)(emphasis added). To obtain the license or merchant mariner’s

document under Chapter 71 or Chapter 73 of Title 46 (as referenced under the “contract

requirement” subsection), a seaman must be a citizen of the United States. 46 U.S.C. §§

7102, 7304. Congress did not require that the vessel managers holding the contract be

section 2 citizens.

Thus, in imposing the two new eligibility requirements for RRF vessel managers,

Congress addressed only experience and capability (i.e., typical responsibility criteria),

and imposed a citizenship requirement only as to the seamen performing services on a

RRF vessel. Once again, Congress did not require that vessel operators be United States

citizens in this amendment to Section 11.

In 1993, MARAD issued a Notice of Proposed Rulemaking to update its

regulations concerning the award and administration of service agreements and Ship

Manager contracts for vessels that are owned, controlled, or time-chartered by the United

States. 58 Fed. Reg. 9135 (Feb. 19, 1993)(Ex. G). One of the proposed changes was the

elimination of the requirement that Ship Managers be section 2 citizens. MARAD

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proposed to require only that Ship Managers be documentation citizens, explaining that

this would “harmonize” MARAD’s requirements for appointment of agents to operate

and manage U.S.-owned vessels with DoD’s requirements for the operation and

management of U.S.-owned vessels. Id. at 9136.

Due to strong opposition by companies in the shipping industry who are section 2

citizens, however, the change in the citizenship requirement was not adopted in the final

version of the rule. 58 Fed. Reg. 44,283 (Aug. 20, 1993)(Ex. H). As a result, MARAD’s

regulation today states that its agents for managing U.S.-owned ships in MARAD’s

control are required to be citizens of the United States and defines citizenship in section 2

terms. See 46 C.F.R. §§ 315.3(b) and 315.5(a)(Ex. M)(requiring that each parent

corporation of the Ship Manager, at all tiers, be a citizen of the United States). As

authority to promulgate the current version of this regulation, MARAD cited only to 50

U.S.C. app. § 1744 (the current codification of Section 11 of the Merchant Ship Sales Act

of 1946). Id. § 315.3(b).

In addition to the section 2 citizenship requirement, the current regulation states a

general experience and capability requirement consistent with the experience and

capability requirement for RRF vessel managers that was added to Section 11 of the

Merchant Ship Sales Act in 1991. In particular, the regulation states that MARAD’s

agents must “[d]emonstrate the necessary ability, experience and resources as an operator

of vessels.” 46 C.F.R. § 315.5(a)(2).

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E. The 2010 Solicitation for RRF Ship Manager Services

In 2010, MARAD issued a solicitation for Ship Managers for eleven RRF vessels,

including eight RRF vessels MLL was then managing under contract with the Navy

Military Sealift Command. The follow-on procurement was conducted by MARAD

rather than the MSC because the vessels had been returned to MARAD’s control. 12

The 2010 solicitation contained the same citizenship requirement as the current

solicitation. For that solicitation, however, MARAD recognized that restricting

eligibility to section 2 citizens meant that the procurement was not a full and open

competition. MARAD therefore issued a Justification and Approval (“J&A”) to support

its exclusion of companies who are not section 2 citizens from the competition. See J&A

(Mar. 12, 2010)(Ex. I).

In the 2010 J&A, MARAD argued that two CICA exemptions justified its use of

non-competitive procedures. MARAD relied principally on the exemption that allows an

agency to use other than competitive procedures where “a statute expressly authorizes or

requires that the procurement be made . . . from a specified source.” 41 U.S.C. 253(c)(5)

codified as amended at 41 U.S.C. § 3304(a)(5)(2011)). MARAD also relied, in the

alternative, on the industrial mobilization exemption, contending that it was “necessary to

award the contract to a particular source—to maintain a facility, producer, manufacturer,

or other supplier available for furnishing property or services in case of a national

12 MLL was permitted to continue to manage the eight RRF vessels even after they cameunder MARAD’s control under a provision of MARAD’s regulation that creates an exception tothe citizenship requirements for U.S.-owned vessels being managed “under acontract . . . previously awarded by another federal agency.” See 36 C.F.R. § 315.6 (Ex. M).

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emergency or to achieve industrial mobilization.” Id. § 253(c)(3)( codified as amended at

41 U.S.C. § 3304(a)(3)(A).

With regard to the exemption for sources specified by express statutory

authorization or requirement, MARAD argued that the policy declaration in the Merchant

Ship Sales Act and the 1991 amendment to Section 11 together expressly authorized

MARAD to limit RRF procurements to section 2 citizens. As for the amendment,

MARAD noted that the specific experience and capability requirements added by that

amendment are matters that the Secretary must “determine[], at a minimum.” 50 U.S.C.

app. § 1744(c)(2).

MLL was thus excluded from the 2010 competition because — although it was the

incumbent contractor for eight of the vessels in the competition — it did not meet the

solicitation requirement for section 2 citizenship.

GROUNDS FOR PROTEST

I. THE SOLICITATION VIOLATES CICA’S MANDATE FORFULL AND OPEN COMPETITION

The core mandate of the Competition in Contracting Act is for full and open

competition. CICA states:

Except as provided in sections 3303, 3304 (a), and 3305 ofthis title and except in the case of procurement proceduresotherwise expressly authorized by statute, an executiveagency in conducting a procurement for property or servicesshall—

(1) obtain full and open competition through the use ofcompetitive procedures in accordance with the requirementsof this division and the Federal Acquisition Regulation . . . .

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41 U.S.C. § 3301(a)(2011)(formerly codified at 41 U.S.C. § 253(a)(2010)). CICA

defines “full and open competition” as follows: “[T]he term ‘full and open competition,’

when used with respect to a procurement, means that all responsible sources are

permitted to submit sealed bids or competitive proposals on the procurement.” Id. § 107

(formerly codified at 41 U.S.C. § 403(6)(2010)). Here, MLL is a responsible source for

the RRF requirement, yet it is not being permitted to submit a competitive proposal.

The referenced exceptions — stated in sections 3303, 3304(a), and 3305 — are

limited and well defined. Section 3303, which provides for exclusion of a particular

source “to establish or maintain an alternative source of supply” is not applicable here.

MARAD, which maintains plenty of well established sources of supply,13 has never

invoked this provision to exclude particular sources or to justify limiting procurements

for ship manager services to section 2 citizens. Section 3305 involves simplified

procedures for small purchases and is also not applicable to this procurement.

Section 3304(a), which MARAD relied on in the prior procurement, states seven

circumstances in which “[a]n executive agency may use procedures other than

competitive procedures.” Id. § 3304(a)(formerly codified at 41 U.S.C. § 253(c)). These

circumstances are often referred to as the CICA “exemptions” from competition. In

procuring RRF Ship Manager services in 2010, MARAD relied on two of those

13 In its 2010 J&A, MARAD identified seven current and three potential sources for RRFShip Manager services who are section 2 citizens. See 2010 J&A at 18 (Ex. I).

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exemptions in issuing its 2010 J&A for the use of noncompetitive procedures for that

procurement.

An agency may not, however, award a contract using other than competitive

procedures unless the contracting officer first “justifies the use of those procedures in

writing and certifies the accuracy and completeness of the justification,” i.e., executes an

appropriate J&A. Id. § 3304(e)(1)(A)(formerly codified at 41 U.S.C. § 253(f) (1)(A));

see also FAR 6.303.14 MARAD has not issued any justification for its use of

noncompetitive procedures for the pending procurement. Instead, according to its

FedBizOps synopsis of the procurement, MARAD is purporting to conduct a full and

open competition. Synopsis of Ship Management Services for Three RRF vessels,

Solicitation No. DTMA98R201200001, Jan. 26, 2012 (Ex. J).

The subject procurement is not a full and open competition. The agency has

established a mandatory eligibility requirement under which sources that are not section 2

citizens, but otherwise fully qualified and responsible, are not permitted to submit

competitive proposals. For that reason alone, the solicitation violates the CICA

requirement for full and open competition established in 41 U.S.C.§ 3301(a) and FAR

6.301.

14 In addition, the FAR requires agencies to address full and open competition objectives inacquisition planning. FAR 7.102. Specifically, FAR 7.105 details the contents of the agency’swritten acquisition plan, and instructs agencies to: “Describe how competition will be sought,promoted, and sustained throughout the course of the acquisition. If full and open competition isnot contemplated, cite the authority in 6.302, discuss the basis for the application of thatauthority, identify the source(s), and discuss why full and open competition cannot be obtained.”FAR 7.105(b)(2)(i).

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II. NO STATUTE EXPRESSLY AUTHORIZES OR REQUIRES THEAGENCY TO LIMIT ELIGIBLE SOURCES TO SECTION 2 CITIZENS

MLL recognizes that the agency may change its current posture, concede that it is

not conducting a full and open competition, and issue a J&A for use of other than

competitive procedures. In that event, the CICA exemption on which MARAD

presumably would rely (as it did in 2010) permits an agency to use noncompetitive

procedures where “a statute expressly authorizes or requires that the procurement be

made . . . from a specified source.” 41 U.S.C. § 3304(a)(5)(2011)(formerly codified at 41

U.S.C. § 253(a)(5)(2010)). In its 2010 J&A, MARAD relied on this exemption to assert

that it was expressly authorized by the Merchant Ship Sales Act of 1946, as amended in

1991 (codified at 50 U.S.C. app. §§ 1735 to 1746), to procure RRF ship manager services

only from section 2 citizens. See 2010 J&A at 14-15 (Ex. I).

Nothing in the 1946 Act or its amendments supports that position. In the 2010

J&A, MARAD relied on two features of the Act: the declaration of policy and the

provision of the 1991 amendment to Section 11 that requires the Secretary to use

experience and capability requirements in establishing the eligibility of contractors to

manage vessels in the RRF. Neither “expressly authorizes” the agency to obtain ship

manager services from any specified source.

The principal purpose of the 1946 Act was to provide for the sale and disposition

of war-built vessels owned by the United States and suitable for commercial use in a

privately-owned merchant marine. To foster the development of an adequate merchant

marine that would be privately owned by American citizens, the Act required that the war

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vessels be sold only to citizens of the United States (as defined in section 2 of the

Shipping Act of 1916). The declaration of policy stated five desirable characteristics of

the privately-owned merchant marine resulting from such sales, one of which was that it

be “owned and operated under the United States flag by citizens of the United States.”

Merchant Ship Sales Act of 1946, 60 Stat. 41, § 2(a).15

That element of a 55-year-old declaration of policy for a privately-owned

merchant marine does not address citizenship policy as to U.S.-owned vessels. Those

vessels are addressed only in Section 11 of the Act, which provided for a National

Defense Reserve Fleet of war vessels that would be “retained for the national defense”

and continue to be U.S.-owned. But that section was and continues to be utterly silent as

to citizenship requirements for persons who might be engaged to manage or operate those

vessels. See 50 U.S.C. app. § 1744 (Ex. L). In any event, the Act’s broad declaration of

policy — “to foster the development and encourage the maintenance” of an efficient and

adequate American-owned merchant marine with certain characteristics, 60 Stat. 41

§ 2(b) — cannot reasonably be read as “expressly authorizing” MARAD or its

predecessor agencies to obtain ship manager services for U.S.-owned defense reserve

vessels from a specified source.

MARAD’s reliance on Section 11 of the Act, as amended in 1991, is equally

unavailing. That amendment established two and only two eligibility requirements for

15 Declarations of policy in a statute are “not part of the substantive portion of the statute.”Norman J. Singer & J.D. Shambie Singer, Statutes and Statutory Construction § 20.12 (7th ed.2009)

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persons wishing to contract for management of vessels in the RRF: “(i) experience in the

operation of commercial-type vessels or public vessels owned by the United States

Government; and (ii) the management capability necessary to operate, maintain, and

activate the vessel at a reasonable price.” Pub. L. No. 102-241, § 57, 105 Stat. 2208,

2234-35 (1991), adding sec. 11(d)(2) (codified as amended at 50 U.S.C. app. §

1744(c)(2)(emphasis added)(Ex. F). At the time Congress added this provision, the

regulation restricting contracts for management of U.S.-owned vessels under MARAD’s

control to section 2 U.S. citizens had been on the books for 40 years. Yet Congress — in

addressing the management of the RRF component of the NDRF by statute for the first

time— saw fit only to require that vessels managers be experienced and capable, and not

to address what type of U.S. citizenship was required or to otherwise specify a source.

Nothing in Section 11 remotely constitutes an express authorization to impose an

additional, highly restrictive eligibility requirement, unrelated to the two expressly stated

requirements. MARAD apparently relies on the words “at a minimum” in the 1991

amendment that introduce the two, specific experience and capability requirements. That

introduction states: “A person . . . is eligible for a contract for the management of a

vessel in the Ready Reserve Force if the Secretary determines, at a minimum, that the

person has—[the stated experience and capability].” Id. (emphasis added). To support

MARAD’s reliance on Section 11, this introductory language would not merely authorize

the Secretary to amplify the experience and capability requirements in determining vessel

manager qualifications. Rather, that language would have to be read as expressly

authorizing the Secretary to procure vessel management services from any source the

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Secretary chooses (and not just section 2 citizens) simply because the determinations to

be made are “at a minimum.” By that logic, the Secretary also would be expressly

authorized to restrict vessel manager procurements to firms owned by citizens of southern

Louisiana, so long as those firms were also experienced and capable.

MARAD’s logic proves too much. The short answer to MARAD’s position is that

Section 11, as amended, contains no authorization or requirement, express or otherwise,

to procure from a specified source.

MARAD’s interpretation is also at odds with the next subsection of the 1991

amendment, which expressly requires the Secretary to ensure that all seamen who

perform services on an RRF vessel hold a license or documentation establishing that they

are U.S. citizens. Id., adding subsection (d)(2)(B) (codified as amended at 50 U.S.C. app

§ 1744(c)(2)(B)). Having expressly chosen to require that the seamen on the RRF vessels

be U.S. citizens in the 1991 amendment, Congress surely would have mentioned a section

2 citizenship requirement for the vessel manager companies themselves if it intended to

authorize or require one. But it did not, even though the Act it amended continues to

contain a section 2 definition of U.S. citizenship for other purposes. See 50 U.S.C. app.

§ 1736(g).

Finally, the CICA exemption at issue, 41 U.S.C. § 3304(a)(5), has never been

interpreted as allowing general grants of authority to serve as express authorizations to

procure from a specified source. While there are few GAO cases interpreting the

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“expressly authorized or required by statute” exemption (and none directly on point),16

FAR 6.302-5 implements that exemption by listing six statutes that qualify as an express

authorization or requirement that an acquisition be made from a specified source. Not

surprisingly, in each of the six cases, the underlying statute explicitly identifies a

particular source.

FAR 6.302-5(b)(5), for example, lists (as a statutory authorization of a specified

source): “Sole source awards under the HUBZone Act of 1997 — 15 U.S.C. 657a (see

19.1306).” The underlying statute expressly specifies “any qualified HUBZone small

business concern” as the source to which a contracting officer “may award sole source

contracts.” 15 U.S.C. § 657a(b)(2)(A)(emphasis added). Similarly, FAR 6.302-5(b)(6),

lists: “Sole source awards under the Veterans Benefits Act of 2003 (15 U.S.C. 657f).”

The underlying statute expressly specifies “any small business concern owned and

controlled by service-disabled veterans” as the source to which a contracting officer

“may award a sole source contract.” 15 U.S.C. § 657f(a)(emphasis added). As another

example of a statute not involving sole source procurements, FAR 6.302-5(b)(2) lists:

“Qualified Nonprofit Agencies for the Blind or other Severely disabled — 41 U.S.C. 46-

48c.” The underlying statute expressly specifies “qualified nonprofit agency for the

16 There is at least one instructive case. In Magnavox Elec. Sys. Co., GAO held that theArmy inappropriately relied on the FY 1988 appropriations act to authorize a sole-source awardunder the CICA exemption at 41 U.S.C. § 3304(a)(5). Magnavox Elec. Sys. Co., B-230297, June30, 1988, 88-1 CPD ¶ 618. GAO found that the appropriations act did not contain the expressauthorization required to use this CICA exemption, stating that the act did not “contain anexpress direction” to procure from a specific source nor did it “preclude the Army fromconsidering [other] sources.” Id. at 5.

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blind or by a qualified nonprofit agency for other severely disabled” as the source from

which any government entity may “procure a product or service on the procurement list”

of items created by the statute. 41 U.S.C. §§ 8503(a)(1)(A) and 8504(a)(formerly

codified at 41 U.S.C. §§ 47(a) and 48 (emphasis added).

Each of these statutes — and all the others included in the FAR inventory of

statutes qualifying under this CICA exemption — expressly authorizes agencies to

procure from a particular source specified in the statute. In contrast, Section 11 of the

Merchant Ship Sales Act specifies no source of any kind.

In sum, there is no statute that “expressly authorizes or requires” that this

procurement for RRF Ship Manager services be made “from a specified source.” The

statute on which MARAD relies as the source of its authority does not specify any

source. Rather, it specifies only experience and capability requirements that MLL plainly

meets. For these reasons, MARAD cannot justify its restriction of this procurement to

section 2 citizens on the basis of the CICA exemption for express statutory authorization.

III. MARAD’S REGULATION IS INCONSISTENT WITH CICA

MARAD’s regulation restricting vessel managers to section 2 U.S. citizens, first

promulgated in 1951, now cites 50 U.S.C. app. § 1744 as its sole source of statutory

authority. See 46 C.F.R. Part 315 (authority statement)(Ex. M). Section 1744 is the

codification of Section 11 of the Merchant Ship Sales Act of 1946. In contrast, the 1951

version of the current regulation did not even cite Section 11 as a source of authority. At

that time, MARAD’s predecessor relied only on its general authority to adopt rules and

regulations to carry out the functions vested in it by the Merchant Marine Act of 1936.

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See 16 Fed. Reg. 2888 (citing 49 Stat. 1987)(Ex. D). Later, when MARAD updated and

re-promulgated its regulation applicable to the management of U.S.-owned vessels, it

deleted the reference to the Merchant Marine Act of 1936 and substituted the reference to

50 U.S.C. app. § 1744 (addressing establishment of the NDRF and management of the

RRF).

The updated regulation was promulgated in 1993, some nine years after Congress

enacted CICA. CICA, however, had stated a clear statutory mandate for full and open

competition applicable to all executive agency procurements. After CICA, an agency

could conduct a procurement without providing for full and open competition only as

provided by CICA’s clearly defined and limited exceptions. With respect to sources

specified by a statute, CICA provided and continues to provide the only applicable test:

the statute must be one that “expressly authorizes or requires that the procurement be

made . . . from a specified source.” 41 U.S.C. § 3304(a)(5).17

As demonstrated, nothing in 50 U.S.C. app. § 1744 provides express authority to

require that RRF procurements be made from section 2 citizens. Giving MARAD’s

regulation that effect, in the absence of express statutory authority, would permit the use

17 The Office of Procurement Policy Act established a centralized system for review andpromulgation of acquisition regulations. 41 U.S.C. § 1121. Among other things, the OFPPAdministrator is empowered to review agency procurement regulations and agencies are requiredto publish proposed procurement regulations for public comment. See id. §§ 1121(e), 1707; seealso FAR subpart 1.3 (agency procurement regulations). The system for publication of proposedacquisition regulations was established by amendment to the OFPP Act in 1984, long beforeMARAD promulgated its 1993 regulation. Small Business and Federal ProcurementCompetition Enhancement Act of 1984, Pub. L. No. 98-577, § 302(a), 98 Stat. 3066.Nonetheless, MARAD did not promulgate that regulation as a procurement regulation in theOFPP system.

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of noncompetitive procedures on a basis not authorized by CICA. MARAD’s regulation

is therefore inconsistent with CICA and is not authorized by or in accordance with law.

Accordingly, it provides no lawful justification for the mandatory citizenship requirement

in the subject solicitation.

CONCLUSION

The mandatory eligibility for section 2 citizenship in the subject solicitation

violates the Competition in Contracting Act and is not authorized by law. Accordingly,

that feature of the solicitation must be removed. MLL — which is a fully qualified,

experienced, and capable ship manager and a documentation citizen of the United States

— should be permitted to submit a proposal for the services at issue in a full and open

competition.

REQUEST FOR RELIEF

MLL requests a decision on this protest by the Comptroller General of the United

States. In addition, MLL respectfully requests that GAO sustain its protest and:

1. Recommend that the solicitation be amended to remove the minimum

eligibility requirement that restricts award of a Ship Manager contract only to section 2

United States citizens;

2. Recommend that MLL be reimbursed the costs of filing and pursuing this

protest, including reasonable attorneys fees;

3. Provide any other relief that GAO determines is appropriate.

REQUEST FOR DOCUMENTS

Maersk requests that MARAD produce the following documents (including

electronic documents and emails):

1. Any Justification and Approval or similar document(s) issued by MARAD

in connection with this solicitation.

2. All documents and communications that mention or address the use of full

and open competition, other than full and open competition, or other than competitive

procedures for this procurement.

3. All documents and communications reflecting MARAD’s acquisition plan

for this procurement including, but not limited to, all aspects of the plan that address how

competition will be sought, promoted and sustained through the acquisition or any

authority used to justify other than full and open competition, the basis for the application

of that authority; and any discussions as to why full and open competition cannot be

obtained. See FAR 7.105 (b)(2)(i).

4. All documents relating to the development and decision to use the

mandatory eligibility requirements listed in the solicitation.

Each of these requests is relevant to Maersk’s contention that the solicitation’s

citizenship requirement violates CICA and that MARAD is not conducting a full and

open competition nor has it provided any justification and approval for other than a full

and open competition.

Albany

Atlanta

Brussels

Denver

Los Angeles

New York

Orange County

Rancho Santa Fe

San Diego

San Francisco

Washington, DC

EMAIL [email protected]

THOMAS C. PAPSON(202) 496-7639

1900 K Street, NWWashington, DC 20006

Tel: 202.496.7500mckennalong.com

April 16, 2012

BY E-MAIL TO [email protected]

AND [email protected]

Tania Calhoun, Esq.Senior AttorneyGovernment Accountability Office441 G Street, N.W.Washington, D.C. 20548Attn: Procurement Law Control Group

Re: Supplemental Protest of Maersk Line, LimitedUnder Solicitation No. DTMA98R20120001; B-406586.2

Dear Ms. Calhoun:

On April 5, 2012, Maersk Line, Limited (“MLL”) protested a restrictive term of

Solicitation No. DTMA98R20120001 for ship manager services for three Ready Reserve

Force (“RRF”) vessels. The restriction at issue limits the competition to companies who

are not only citizens of the United States, but whose ultimate parent companies are also

citizens of the United States (i.e., section 2 citizens). The protest demonstrated that,

although the Maritime Administration (“MARAD”) was purporting to conduct the

procurement as a full and open competition, the agency’s mandatory eligibility

requirement for section 2 citizenship had in fact excluded highly qualified and

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responsible sources such as MLL and was doing so without statutory authority in

violation of the Competition in Contracting Act (“CICA”).

On the evening of April 6, 2012, the Maritime Administration (“MARAD”)

changed the position stated in its original synopsis (announcing a full and open

competition) and posted a Justification and Approval for Other Than Full and Open

Competition (“the 2012 J&A”). A copy of that J&A is attached as Exhibit O.1 This

supplemental protest challenges that J&A as legally erroneous, unsupported by fact, an

abuse of the agency’s discretion, and otherwise unreasonable.

The supplemental protest is timely under 4 C.F.R. § 21.2(a)(2) because it is being

filed within ten days of the date on which MLL learned of the J&A via the public posting

on FedBizOpps. A copy of this supplemental protest is being provided to the contracting

officer, Melinda Simmons-Healy, at the time of filing with GAO. A supplemental

document request is attached.

INTRODUCTION

The Competition in Contracting Act mandates full and open competition based on

the solicitation of proposals from all responsible sources. With the issuance of its J&A

for “other than full and open competition,” MARAD has now conceded — contrary to

the express terms of the synopsis it originally issued with the solicitation — that the

competition at issue here is not a full and open competition and that it is using other than

competitive procedures.

1 MLL’s protest was supported by Exhibits A through M. MARAD’s 2010 J&A for a priorship manager procurement was Exhibit I (“the 2010 J&A”).

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CICA defines the specific and exclusive circumstances in which procuring

agencies may use such procedures. 41 U.S.C. § 3301(a)(formerly codified at 41 U.S.C.

§ 253(c)). It does so principally by way of setting forth seven specific exceptions from

the requirement for full and open competition. See id. § 3304(a)(formerly codified at 41

U.S.C. § 253(c)). Among those exceptions is one that addresses separate statutory

authority to procure from a specified source or sources. That exception states: “An

executive agency may use procedures other than competitive procedures only when —

. . . (5) . . . a statute expressly authorizes or requires that the procurement be

made . . . from a specified source . . . .” 41 U.S.C. § 3304(a)(5)(emphasis added).

MARAD’s belated J&A does not even mention, much less rely on, section

3304(a)(5). And for good reason. As MLL demonstrated in its original protest, the

Merchant Ship Sales Act of 1946 — the principal statute on which MARAD has relied

over the years as the source of its purported authority to restrict competitions for ship

management services for U.S.-owned vessels to section 2 citizens — does not come close

to expressly authorizing or requiring that such services be obtained only from that source.

Protest at 22-27. Indeed, the 2012 J&A concedes that the agency has no specific

mandate from Congress for its section 2 citizenship restriction. The J&A states: “The

regulatory requirement in 46 C.F.R. § 315.5(a)(1) that vessel managers of the

RRF/NDRF be United States Citizens as defined in 46 C.F.R. § 315.3 is not ‘specifically’

mandated in the Merchant Ship Sales Act.” 2012 J&A at 3 (Ex. O).

Instead of invoking the CICA exception based on statutory authority, the J&A

relies on MARAD’s longstanding regulation. As MARAD would have it, the regulation

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enables the agency to procure from a specified source (section 2 citizens), despite the

absence of express statutory authority, because it is “consistent with” a policy declaration

in the Merchant Ship Sales Act. Id. As demonstrated in the original protest, however,

the policy declaration addresses only privately owned vessels in the merchant marine and

does not apply to the U.S.-owned vessels at issue in this protest. Protest at 22-25. And

even if it did, the policy declaration does not satisfy CICA’s requirement for “express”

statutory authority to procure from a specified source. Id. at 22-27. In any event, the

agency cannot repeal CICA by promulgating a regulation. Accordingly, its reliance on

the policy declaration, as well as its general authority to implement eligibility

requirements for vessel managers, fails.

MARAD also cites CICA’s industrial mobilization exemption, 41 U.S.C.

§ 3304(a)(3)(A), and 40 U.S.C. § 113(e)(15), a savings provision in the Federal Property

and Administrative Services Act (“FPASA”) stating that FPASA does not impair certain

authorities granted to particular agencies. As demonstrated below, however, the agency’s

invocation of the industrial mobilization exception has no factual basis, and its reliance

on section 113(e)(15) is both unsupported and legally erroneous. Neither the industrial

mobilization exception nor the savings clause provide any lawful basis for restricting this

ship manager competition to section 2 citizens.

Finally, the 2012 J&A states that MARAD is bound by its own regulation, even

though the agency is no longer sure that regulation is a good idea and is reviewing it “to

see if it needs to be revised or revoked.” 2012 J&A at 6. In the meantime, MARAD

argues, it can obtain quality services and competition from numerous section 2 sources

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even after excluding other U.S. citizens who also are responsible sources. See id. But

that is not a choice that CICA allows MARAD to make. Under CICA’s mandate, it is not

good enough to obtain some competition or to justify noncompetitive procedures on the

basis that this will nonetheless allow the agency to procure quality services. Rather,

CICA requires full and open competition — the inclusion of all responsible sources —

unless the agency demonstrates that an exception applies. MARAD’s 2012 J&A utterly

fails to make that showing.

ARGUMENT

I. MARAD’S RELIANCE ON A REGULATION AND A GENERAL POLICYSTATEMENT IN THE MERCHANT SHIP SALES ACT TO RESTRICTTHE COMPETITION TO SECTION TWO CITIZENS IS INCONSISTENTWITH CICA

In a segment of the 2012 J&A titled “Mandatory eligibility requirement for United

States Citizenship,” MARAD relies on its regulation as the legal authority for restricting

this competition to section 2 citizens. 2012 J&A at 3-4 (Ex. O); see 46 C.F.R.

§ 315.5(a)(1)(Ex. M). Acknowledging that the restriction in the regulation is not

specifically mandated by the Merchant Ship Sales Act, however, the J&A argues only

that the agency had the “discretion . . . to promulgate such a regulation” and that the

regulation is “consistent with” the declaration of policy in the Act. 2012 J&A at 3. The

J&A also alludes vaguely to the fact that the Act identifies two eligibility requirements as

“minimum” requirements. Id. at 3-4. MARAD’s conclusion in this segment of the J&A

is as follows: “The Agency’s decision to include [in the regulation] an eligibility

requirement that any vessel manager be Citizen [sic] of the United States as defined in

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the MSS Act was consistent with the stated policy objectives of [the Merchant Ship Sales

Act] and was a matter within the discretion of the Agency charged with implementing

that statute.” Id. at 4.

MARAD has no authority to promulgate a regulation inconsistent with CICA.

Under CICA, there is only one kind of statutory authority that allows an agency to

procure from specified sources without accepting proposals from all responsible sources,

and that is express statutory authority. See 41 U.S.C. § 3304(a)(5). MARAD does not

claim such authority, concedes it has no specific mandate for its restriction, and fails even

to cite section 3304(a)(5). That, by itself, negates the J&A’s reliance on the regulation or

the Merchant Ship Sales Act as authorizing its use of other than full and open

competition in this procurement.

Finally, as demonstrated in MLL’s original protest, MARAD’s reliance on the

policy in the Merchant Ship Sales Act and the Act’s reference to a “minimum” is

severely flawed for other reasons. Protest at 22-25. The policy declaration refers to the

importance of a merchant marine “owned and operated under the United States flag by

citizens of the United States.” Merchant Ship Sales Act of 1946, ch. 82, § 2(a)(codified

at 50 U.S.C. app. § 1735)(emphasis added)(Ex. C).2 That has nothing to do with Section

11 of the Act, which separately created the National Defense Reserve Fleet (“NDRF”) as

2 MLL agrees that the reference to “citizens of the United States” in the declaration ofpolicy is subject to the definition of citizenship in the Act, which in turn refers to section 2citizenship as defined in the Shipping Act of 1916. See Merchant Ship Sales Act of 1946, ch. 82,§ 3(g)(codified at 50 U.S.C. app. § 1736(g)).

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a fleet of vessels that the United States (rather than its citizens) would itself retain and

continue to own. Id. § 11 (codified at 50 U.S.C. app. § 1744(a)). Consistent with that

original formulation, the current version of Section 11 expressly states that the NDRF,

including its RRF component, consists of “vessels owned or acquired by the United

States Government.” 50 U.S.C. app. § 1744(a)(Ex. L). Those Government-owned

NDRF/RRF vessels are therefore not among the merchant marine vessels “owned . . . . by

citizens of the United States,” to which the policy declaration refers. Thus, contrary to

the entire premise of the J&A, the policy declaration concerning the commercial,

merchant marine vessels owned by section 2 citizens is not applicable to the public

NDRF and RRF vessels owned by the United States itself.3

In any event, GAO has firmly rejected reliance on general statutory policy as a

justification for restrictions on competition. In Dock Express Contractors, Inc., B-

223966, Dec. 22, 1986, 86-2 CPD ¶ 695, the Military Sealift Command had restricted a

competition for ocean transportation to common carriers, thereby excluding contract

carriers who claimed to be fully qualified. GAO found that the agency had failed to

demonstrate that contract carriers could not satisfy its actual needs or that “common

carriers have any inherent attributes which form a basis for limiting the competition on

this solicitation.” 86-2 CPD ¶ 695 at 4. Importantly, MSC had relied on a policy

3 As also demonstrated in the original protest, the 1946 provisions of the Act regulating thesale, charter, and exchange of war built vessels expressly required that the persons acquiringthose vessels from the United States be section 2 citizens. Protest at 22-23. Section 11 of theAct, in contrast, did not then and does not now refer to United States citizens. Id. Most of thesale, charter, and exchange provisions were repealed in 1989 as obsolete. See Coast GuardAuthorization Act of 1989, Pub. L. No. 101-225, § 307(12)-(13), 103 Stat. 1908, 1925 (1989).

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underlying the Shipping Act of 1984 as support for the notion that having a base of

common carriers would better support the statutory goal of developing a “United States-

flag liner fleet capable of meeting national security needs.” Id. at 5. But, GAO found,

that Act “did not provide for limiting competition for government ocean transportation to

ocean common carriers.” Id. Because there was no statute that conflicted with or

modified CICA’s requirement for full and open completion, GAO rejected MSC’s

reliance on the Shipping Act as inconsistent with CICA.

Like its reliance on statutory policy, the agency’s reliance on the Merchant Ship

Sales Act’s reference to “minimum” determinations concerning eligibility is equally

misplaced. As demonstrated in the original protest, Congress imposed two eligibility

requirements for RRF vessel managers in a 1991 amendment to that Act, one for

experience and one for capability. Coast Guard Authorization Act, Pub. L. No. 102-241,

§ 57, 105 Stat. 2208, 2234-35 (1991) (codified as amended at 50 U.S.C. app.

§ 1744(c)(2))(Ex. F); Protest at 23-25. There is no mention of a citizenship requirement

in that amendment. Rather, the amendment states only that the determinations that the

Secretary must make as to the stated requirements for experience and management

capability are minimums, i.e., the Secretary can require more specific indicia of

experience and management capability than those defined in broad terms in the statute.

See 50 U.S.C. app. § 1744(c)(2)(A)(Ex. L).

Indeed, that is exactly what MARAD has done in the solicitation here at issue.

For example, with regard to experience, the statute requires only that the Secretary

determine, at a minimum, that the manager have “experience in the operation of

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commercial-type vessels or public vessels owned by the United States Government.” Id.

In contrast, the instant solicitation states a mandatory eligibility requirement for

experience as follows: “The Government will . . . determine whether the offeror was an

operator or owner/operator within the past five (5) years of at least one (1) self-propelled

vessel, or Integrated Tug/Barge, of at least 450’LLWL, with a minimum cargo capacity

of 7,500 DWTs or a Tanker of at least 25,000 DWTs.” RFP § M.3.1.2 (Ex. K). That is

substantially more specific and demanding than the minimum determination required by

the statute, but it is still an experience requirement. Under MARAD’s farfetched

interpretation of the words “at a minimum,” Congress would have authorized the agency

to impose any mandatory eligibility requirement of any nature, however unrelated to

matters of experience and management capability.4

In sum, there is no statute expressly authorizing MARAD to procure ship

management services only from section 2 citizens. In the absence of such authority (or

some other valid exception to CICA), MARAD’s regulation must give way to CICA’s

clear requirement for full and open competition based on the solicitation of proposals

from all responsible sources, including MLL. There is no CICA exception for express

authorization to procure from a specified source based on a regulation.

4 Even if MARAD were correct about the scope of the general authorization conferred bythe words “at a minimum,” that would plainly not constitute an express statutory authorization toprocure from a specified source. Protest at 24-25.

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II. THE J&A FAILS TO SUPPORT OR ESTABLISH THE APPLICABILITYOF CICA’S INDUSTRIAL MOBILIZATION EXCEPTION

The sole CICA exception on which MARAD actually relies is the industrial

mobilization exception. That exception states: “An executive agency may use

procedures other than competitive procedures only when — . . . (3) it is necessary to

award the contract to a particular source — (A) to maintain a facility, producer,

manufacturer, or other supplier available for furnishing property or services in case of a

national emergency or to achieve industrial mobilization.” 41 U.S.C. § 3304(a)(3)(A)

(previously codified at 41 U.S.C. § 253(c)(3)(A)).

The 2012 J&A does not make a single finding of fact to support its invocation of

this fact-intensive exception. Instead, it contends that the policy declaration in the

Merchant Ship Sales Act of 1946 and comments that MARAD received when it

promulgated the current version of its regulation in 1993 somehow “qualify” the

section 2 citizenship restriction for the industrial mobilization exception.5 2012 J&A at 4

(Ex. O). The agency’s theory is that the policy that Congress stated in 1946 reflects “a

connection between national security and the development and maintenance of domestic

commerce and having a merchant marine owned and operated under the United States

flag by Section 2 citizens of the United States.” Id.

MARAD never says how this general “connection” to national security supports

its decision to exclude United States citizens who are not section 2 citizens from this

5 MARAD has not identified the particular comments it received 19 years ago that wouldsupport its use of the industrial mobilization exception to CICA in 2012.

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competition for ship management services for three specific RRF vessels, none of which

are in the privately-owned merchant marine. As demonstrated below, MARAD does not

attempt to show that restricting the competition to section 2 citizens actually supports the

interest of national security (much less national emergency or industrial mobilization).

Nor does MARAD even suggest that the industrial base of qualified ship managers is

inadequate, either generally or with respect to section 2 citizens in particular. In fact,

MARAD’s reliance on the industrial mobilization exception is contradicted by other facts

set forth in the J&A establishing the availability of “numerous” qualified sources.

First, as demonstrated in MLL’s original protest, both MARAD and the Navy

Military Sealift Command (“MSC”) administer a variety of programs designed to ensure

the availability of vessels in times of war or national emergency or otherwise provide

vessels to support the national security interests of the United States. Protest at 6-8.

Except when NDRF/RRF vessels are under MARAD’s control, none of those programs

— including programs involving classified information and requiring facility clearances

— are restricted to ship managers that are section 2 citizens.

MLL is or has been a key participant in all of those national security-oriented

programs. Id. at 10-12. Between 2005 and 2011, MLL managed eight RRF vessels

under contract with the MSC while those vessels were part of MSC’s surge program. Id.

at 10. MLL also participates in: (1) MSC’s Prepositioning Program and the Maritime

Prepositioning Force; (2) MARAD’s own Maritime Security Program (in which MLL

agrees to make its commercial ships available to the Department of Defense in time of

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war or national emergency); and (3) the MARAD/DoD VISA Program.6 Id. at 10-12.

MLL also operates Tactical Auxiliary General Ocean Surveillance vessels under a

classified DoD contract. Id. at 11-12. The suggestion that a documentation citizen like

MLL (an American company with officers and directors who are themselves U.S. citizens

and which holds a Special Security Agreement with DoD) needs to be excluded from a

ship management contract for RRF vessels for reasons related to national security is

preposterous.

Second, the J&A identifies no fewer than seven section 2 citizen ship managers

who currently manage RRF vessels and two more section 2 citizen ship managers who

formerly managed RRF vessels as sources that have expressed an interest in this

solicitation. 2012 J&A at 8. Further, the J&A expressly finds as follows: “The RFP, as

written, complies with the current regulation and provides for competition among

numerous vessel management companies that meet the Section 2 U.S. Citizen

requirement without negatively impacting the quality of services obtained by the

Maritime Administration.” Id. at 6 (emphasis added). Thus, far from providing factual

support for a need to maintain some particular supplier or group of suppliers to support

the objectives of the industrial mobilization exception, the J&A actually finds that there is

6 The VISA program is “a partnership between the U.S. Government and the maritimeindustry to provide commercial sealift and intermodal shipping services and systems necessary tomeet mobilization requirements.” MARAD VISA Brochure,http://www.marad.dot.gov/documents/VISA_BROCHURE.pdf (last visited Apr. 13,2012)(emphasis added).

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no such need. By its own concession, MARAD already has “numerous” qualified section

2 sources.

When an agency relies on the industrial mobilization exception, it must

“demonstrate that its determination [to use noncompetitive procedures] is related to its

industrial mobilization needs.” Kilgore Corp., B-253672, et al., Oct. 13, 1993, 93-2 CPD

¶ 220 at 2. Accordingly, while agencies have discretion to make industrial mobilization

judgments, they must identify their needs to show why “the statutory mandate for full and

open competition is not applicable under the circumstances.” NI Indus., Inc., Vernon

Div., B-223941, Dec. 15, 1986, 86-2 CPD ¶ 674 at 2-3. To do so, the agency must state

the particular facts that justify noncompetitive procedures as well as explain why

industrial mobilization or national emergency needs require award to a particular source

or sources. 7 Id. at 3.

The 2012 J&A does not come close to meeting these standards. Rather than

relying on particular facts to support its need to maintain a supplier for purposes of

national emergency or industrial mobilization, MARAD once again relies principally on

the declaration of a policy in the Merchant Ship Sales Act of 1946. As demonstrated,

7 Typically, agencies use the industrial mobilization exemption to restrict competition to aparticular source or sources when there is a specific need for a particular or unique product orservice or to ensure the supply of a limited product or service. See, e.g., Ship Analytics Inc., etal., B-230647, July 12, 1988, 88-2 CPD ¶ 37 (finding noncompetitive procedures acceptable forindustrial mobilization in order to maintain unique ship-handling simulator that had capabilitiesbeyond those of any other simulator facilities); Oto Melara, S.p.A., B-225376, Jan. 6, 1987, 87-1CPD ¶ 15 (finding that sole source award for gun weapon systems acceptable for industrialmobilization reasons because awardee was the only company with the capability to manufacturethe gun weapon system and agency wanted to prevent the loss of the employee skills required toproduce the weapon system).

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however, that policy declares only that vessels in this country’s privately owned

merchant marine should be owned and operated by section 2 citizens. Merchant Ship

Sales Act of 1946, ch. 82, § 2(a)(codified at 50 U.S.C. app. § 1735)(Ex. C). Whatever

the force of that World War II era policy may be in 2012, it does not provide the facts

necessary to establish that considerations of national emergency or industrial

mobilization require that this competition to manage three, U.S.-owned RRF vessels be

restricted to section 2 citizens.

In sum, the agency has utterly failed to justify its reliance on 41 U.S.C.

§ 3304(a)(3)(A), the only exemption from the requirements of CICA cited in the 2012

J&A.

III. THE FPASA SAVINGS PROVISION PROVIDES NO AUTHORITY FORTHE CITIZENSHIP RESTRICTION

The 2012 J&A also cites 40 U.S.C. § 113(e)(15) as an additional authority

supporting MARAD’s use of other than full and open competition in this procurement.8

2012 J&A at 1 and 7 (Ex. O). MARAD’s attempt to justify its noncompetitive

procedures in reliance on that provision is erroneous for much the same reasons that its

reliance on the Merchant Ship Sales Act is erroneous.

Section 113(e) is a provision of the original Federal Property and Administrative

Services Act (“FPASA”) that was designed to operate as a “savings” clause, preserving

8 The J&A also contains a “determination” under that provision finding in general termsthat all three of the mandatory eligibility requirements that MARAD is employing in thisprocurement are consistent with the Merchant Ship Sales Act and necessary or appropriate forcarrying out the NDRF/RRF program. 2012 J&A at 9.

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the pre-existing authority of various executive branch agencies to conduct certain

procurement activities in a manner consistent with their statutory mission. It was

originally codified at 40 U.S.C. § 474, and appeared in a subchapter addressing the scope

of FPASA.

Section 113(e) begins with this language: “(e) Other Limitations— Nothing in

this subtitle impairs or affects the authority of — . . . .” That introduction is followed by

20 separate subsections identifying various executive branch agencies or programs and,

in some cases, also identifying some authority of the agency to which the savings

provision applies. In the case of MARAD, the savings provision states:

Nothing in this subtitle impairs or affects the authority of —

. . .

(15) the Maritime Administration with respect to theacquisition, procurement, operation, maintenance,preservation, sale, lease, charter, construction, reconstruction,or reconditioning . . . of a merchant vessel or shipyard . . . orother installation necessary or appropriate for carrying out aprogram of the Administration authorized by law or non-administrative activities incidental to a program of theAdministration authorized by law, but the Administrationshall, to the maximum extent it considers practicable,consistent with the purposes of its programs and the effective,efficient conduct of its activities, coordinate its operationswith the requirements of this subtitle and with policies andregulations prescribed under this subtitle;

40 U.S.C. § 113(e)(15).

GAO recently addressed the appropriate application of FPASA’s savings clause in

MFM Lamey Group, LLC, B-402377, Mar. 25, 2010, 2010 CPD ¶ 81. There, GAO held

that the procurement of support services by the Overseas Private Investment Corporation

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was subject to CICA, rejecting the agency’s argument that it was exempt from CICA by

virtue of 40 U.S.C. § 113(e)(2) (which applies the FPASA savings clause to certain

foreign aid programs). In so holding, GAO recognized the “legal presumption that CICA

applies to executive agencies, ‘except in the case of procurement procedures otherwise

expressly authorized by statute.” 2010 CPD ¶ 81 at 5 n.7. GAO explained:

FPASA, as amended by CICA, is the basic procurementstatute applicable to procurements by most executive branchcivilian agencies. See, e.g., Michael J. O’Kane; Lorna H.Owens, B-257384, B-257384.2, Sept. 28, 1994, 94-2 CPD ¶120 at 3. Executive agencies must make purchases andcontracts for property and services in accordance with theprovisions of the CICA and the FAR, except when the act ismade inapplicable pursuant to another law. 41 U.S.C. §252(a). That is, 41 U.S.C. §§ 251-260 [CICA] apply in theabsence of a statutory provision that, in express terms,exempts the procurement from the procurement statute. SeeAndrus v. Glover Constr. Co., 446 U.S. 608, 618 n.19 (1980).

Id. at 5 (emphasis added)(footnote omitted). With specific regard to OPIC’s argument

that its procurement was exempt from CICA because of the savings provision, GAO held

that the agency has failed to show “that complying with CICA or the FAR when it

procures supplies or services impairs its authority to conduct foreign aid programs.” Id.

at 6.

GAO also has had occasion to consider MARAD’s section 113 savings provision,

albeit in a context unrelated to the Merchant Ship Sales Act or the RRF. In Coflexip &

Servs., Inc., B-216634, May 16, 1985, 85-1 CPD ¶ 554, GAO rejected MARAD’s

attempt to rely on its section 113 saving provision (then codified at 40 U.S.C. ¶ 474(16))

as an unlimited exemption from competition requirements. 85-1 CPD ¶ 554 at 9-11.

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MARAD was procuring an offshore petroleum delivery system, and had relaxed a

material requirement for the benefit of the awardee but not the protester. In response to

MARAD’s contention that that it was generally exempt from compliance with the usual

competition rules, GAO held:

In any event, Marad’s exemption from the act is notunqualified. The legislative history of the act indicates thatCongress intended MARAD and other agencies withexemptions to comply with the act except to the extent thatdoing so would actually interfere with the operation of theirprograms. See H.R. Rept. No. 670, 81st Cong., 1st Sess.(1949), reprinted in 1949 U.S. Code Cong. & Admin. News1475, 1504. MARAD has not explained how advisingCoflexip of the relaxing of material requirements wouldhave interefered with any MARAD program, and it is notevident to us that this would have been the case.

Id. at 10-11 (emphasis added).9

Here, as demonstrated, MARAD has no statutory exemption from CICA or other

competition requirements, express or otherwise. Equally important, as in Coflexip,

MARAD has utterly failed to explain how opening this competition to all responsible

sources would impair or affect its authority to carry out the RRF program. Nor has

MARAD attempted to demonstrate that employment of competitive procedures would

not be practicable. Nothing in the section 113(e) savings provision remotely justifies

9 In contrast, in another MARAD case involving its section 113(e) savings provision, GAOfound that a procurement for custodial services for offshore drilling units was exempt from strictcompliance with CICA because another MARAD statute expressly authorized the exemption.TLM Marine, Inc., B-226968, July 29, 1987, 87-2 CPD ¶ 111. That statute stated that MARADcould contract for such services “[n]otwithstanding any other provision of law relating to theacquisition, handling, or disposal of property by the United States.” Id. at 3.

SUPPLEMENTAL REQUEST FOR DOCUMENTS

Maersk requests that MARAD produce the following documents (including

electronic documents and emails):

5. All communication between the Navy Military Sealift Command or the

United States Transportation Command and MARAD since January 1, 2009, concerning

whether or not there is a national security, industrial mobilization, or other need to limit

competition for ship manager services to section 2 citizens. This request is relevant to

MLL’s claim that there is an inadequate factual basis for the 2012 J&A.

EXHIBIT O