Link: GAO Opinion
Agency: Department of Defense
Disposition: Protest denied.
In implementing the section 827(a) of Title VIII of Division A of the National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 (appearing at 10 U.S.C.A. § 2410n and note), which restricts noncompetitive purchases of product categories from Federal Prison Industries (FPI) by the Department of Defense (DOD) for those categories where FPI has been found to have a significant market share in DOD, DOD acted reasonably in establishing an effective date of 30 days from DOD’s issuance of an amended list of product categories for which FPI has a significant market share.
General Counsel P.C. Highlight:
Ashland asserts that, based on the plain language of the amended Act, “[o]nce FPI has a ‘significant market share’ of the DOD market for a product, DOD can only purchase that product from FPI pursuant to competitive procedures.” The protester therefore contends that “since the Secretary of DOD has issued and published a revised list of the [FSCs] for which the FPI share of the DOD market exceeds 5% that listing is effective as of the time of its publication and DOD may not by its own edict delay the effective time for application of the listing to procurements.” Thus, the agency is barred from procuring the shirts from FPI on a non-competitive basis because FPI has a “significant market share,” so that these shirts must be acquired through competition. GAO states that its analysis begins with the interpretation of the relevant statute. In matters concerning the interpretation of a statute, the first question is whether the statutory language provides an unambiguous expression of the intent of Congress. If it does, our analysis ends there, for the unambiguous intent of Congress must be given effect. If, however, the statute is silent or ambiguous with respect to the specific issue, deference to the interpretation of an administering agency is dependent on the circumstances. Where an agency interprets an ambiguous provision of the statute through a process of rulemaking or adjudication, unless the resulting regulation or ruling is procedurally defective, arbitrary, or capricious in substance, or manifestly contrary to the statute, deference will be given to the agency’s interpretation. However, where the agency’s position reflects an informal interpretation, Chevron deference is not warranted; in these cases, the agency’s interpretation is “entitled to respect” only to the extent it has the “power to persuade.”
The requirements for the procurement of products from FPI by the DOD are governed by the National Defense Authorization Act (NDAA) for Fiscal Year 2002, Pub. L. No. 107-107. Section 827(a) of the 2008 Act created a new procedure for obtaining products from FPI for situations where FPI has been determined to have a “significant market share” of the product category in question. In addition, section 827(b) of the 2008 Act, directs the Secretary of Defense to publish a list of product categories for which FPI has a significant market share. Sections 827(a) and 827(b) of the 2008 NDAA must be read together to produce a “harmonious whole.” While the protester focuses on the unambiguous language in section 827(a) in support of its position that this statute is essentially self-executing, section 827(b) expressly provides for the Secretary of Defense to make the determinations regarding the product categories for which FPI has a “significant market share.” In addition, section 827(b) of the Act contains other provisions regarding DOD’s responsibility and authority to make such determinations. Specifically, section 827(b) requires DOD to publish an initial list of product categories for which FPI has a significant market share, and states that the “Secretary may modify the list . . . at any time” if new data requires adding or omitting a product category. Thus, while the Act clearly states the intent of Congress that products should not be noncompetitively obtained from FPI where it has a significant market share, it also provides that the Secretary of Defense is responsible for making “significant market share” determinations with regard to FPI, which the Secretary “may” modify “at any time.” GAO believes that the discretionary term “may” as used in section 827(b) is unambiguous, and when used with the phrase “at any time,” and reading the statute as a whole, accords to the Secretary of Defense discretion as to when the list should be modified and be effective, consistent with the intent of the statute.
As indicated above, in implementing its exercise of discretion to modify the list of product categories for which FPI has a significant market share, DOD has issued a memorandum dated June 3, 2009 with an attached “updated” list of these product categories. DOD established an effective date of July 3 for the list updates. The protester asserts that DOD lacks the authority to establish a future effective date for its determination regarding FPI’s significant market share.
Because the memorandum issued by the Secretary of Defense was developed informally rather than through a formal rulemaking, adjudication, or other similar process, it is not entitled to substantial deference under Chevron. GAO finds the Secretary of Defense’s position to have the “power to persuade,” and thus entitled to “respect” under Skidmore, because of the validity of its reasoning. DSCP argues that establishing a 30-day effective date was a “procedural matter and well within the discretion given to the Secretary of Defense by the statute.” DSCP further explains that the 30-day effective date is necessary because DOD is a huge organization, and it would be unreasonable to expect procurement laws and practices to be effected instantaneously. This is so, DSCP explains, because “policies have to be disseminated among the many DOD components, down to the lowest base level, and acquisition plans and strategies have to be revised with some type of advance notice.” DSCP further notes that a 30-day effective date is the usual practice for other procurement regulations and policies implemented for DOD. GAO is persuaded that DSCP’s reasons for the 30-day effective date for its FPI significant market share determination represent a reasonable exercise of DOD’s discretion in implementing the 2008 NDAA. The protest is denied.