Case: FORT WORTH REFINING COMPANY v. THE UNITED STATES
Abbreviation: Fort Worth Refining Co. v. United States
Decision Date: 1971-06-11
Docket Number: No. 351-69
Citation: 195 Ct. Cl. 259
Volume: 195
Reporter: United States Court of Claims Reports
Court: United States Court of Claims
Jurisdiction: United States
Parties: FORT WORTH REFINING COMPANY v. THE UNITED STATES
Judges: Before Cowen, Chief Judge, Lakamore, Dureee, Davis, ColliNs, SheltoN, and Nichols, Judges.
Pages: 259–278

Head Matter:
440 F. 2d 414
FORT WORTH REFINING COMPANY v. THE UNITED STATES
[No. 351-69.
Decided June 11, 1971]
J ohn O. Nabors, for plaintiff. W. Robert Brown, attorney of record. Liddell, Sapp, Zively <& Brown, of counsel.
Russell W. Rosleinen, with, whom was Assistant Attorney General L. Patrióle Gray, III, for defendant.
Before Cowen, Chief Judge, Lakamore, Dureee, Davis, ColliNs, SheltoN, and Nichols, Judges.

Opinion:
Per Curiam: This case was referred to Trial Commissioner Mastín Gr. White with directions to make findings of fact and recommendations for conclusions of law under the order of reference and Rule 134(h). The commissioner has done so in an opinion and report filed on December 10, 1971. Plaintiff filed exceptions to certain of the commissioner's findings of fact as to the damages issue which would result in an increase in the -award, but otherwise requested that the court adopt his opinion, findings and recommended conclusion as the basis for its judgment in the case. Defendant filed exceptions to certain findings of fact and urged that the court dismiss plaintiff's petition. The case has been submitted to the court on oral argument of counsel and the briefs of the parties. Since the court agrees with the opinion, findings of fact and recommended conclusion of law of the trial commissioner, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case. Therefore, plaintiff is entitled to recover and judgment is entered for plaintiff in the sum of $77,655.21.
OPINION OF COMMISSIONER
White, Commissioner:
The plaintiff, which owns and operates a small petroleum refinery in Fort Worth, Texas, is suing the defendant for additional compensation in connection with the furnishing by the plaintiff of 15,531,042 gallons of jet fuel to Barksdale Air Force Base, which is located in the vicinity of Shreveport, Louisiana.
It is my opinion that the plaintiff is entitled to recover.
The present controversy had its genesis in the issuance by the Defense Fuel Supply Center ("the DFSC") of Solicitation No. DSA-600-69-B-0043 ("the solicitation") on August 2,1968. The solicitation (as subsequently amended) solicited bids for the supply of approximately 2,600,000,000 gallons of jet fuel, JP-4, in order to meet the requirements of approximately 300 federal installations in the United States and in certain foreign countries during the first half of 1969. Bids were to be opened on September 5, 1968. Various items in the solicitation contained set-asides for small businesses.
Item 151 of the solicitation solicited bids for the supply of 40,000,000 gallons of jet fuel to Barksdale Air Force Base. Half of this quantity (i.e., 20,000,000 gallons) was set aside to be furnished by small businesses.
The small business set-aside procedure to be used in connection with the solicitation was the "matched price method" described in ASPE Deviation 68-11. Under this procedure, the Defense Fuel Supply Center offered to purchase the set- aside portion of a procurement (in this case, 20,000,000 gallons of jet fuel for Barksdale Air Force Base) from small businesses at the price which the Government would have had to pay if there had been no set-aside.
The plaintiff, which is a small business concern, submitted bids on several items contained in the solicitation, including Item 151 relating to the supply of jet fuel for Barksdale Air Force Base. On Item 151, the plaintiff offered to supply a total of 17,000,000 gallons of jet fuel for Barksdale Air Force Base at a lay-down price of 11.4-5 cents per gallon.
Another bidder on Item 151 of the solicitation was Triangle Kefineries, Inc. ("Triangle"), which is a subsidiary of Kerr-McGee Corporation and is not a small business concern. Triangle broke its bid into two 20,000,000-gallon increments. It offered to supply the initial increment of 20,000,000 gallons (the equivalent of the non-set-aside portion of Item 151) at a lay-down price of 11.3203 cents per gallon, and to supply the second increment of 20,000,000 gallons (the equivalent of the set-aside portion of Item 151, for which Triangle was not eligible) at a lay-down price of 10.3303 cents per gallon. However, Triangle's bid on the second 20,000,000-gallon increment was conditioned upon the acceptance of Triangle's offer to supply the first 20,000,000-gallon increment at the higher price of 11.3203 cents per gallon. Thus, Triangle's bid, if accepted, would not obligate Triangle to supply any jet fuel for Barksdale Air Force Base at a price of 10.3303 cents per gallon until after Triangle had first supplied 20,000,000 gallons at the higher price of 11.3203 cents per gallon.
Triangle, being the low bidder, was awarded a contract for the supply of the 20,000,000-gallon non-set-aside portion of the jet fuel for Barksdale Air Force Base under Item 151 of the solicitation, at a price of 11.3203 cents per gallon.
The plaintiff was the low bidder among the small businesses that submitted bids on Item 151 of the solicitation for the supply of jet fuel to Barksdale Air Force Base. After learning of Triangle's bid through some private person who attended the bid opening, the plaintiff got in touch with the Defense Fuel Supply Center by means of two or more long-distance telephone calls, and inquired as to whether, on the portion of Item 151 that was set aside for small businesses, the plaintiff would have to meet Triangle's conditional bid of 10.3303 cents per gallon. The plaintiff ultimately received an affirmative reply to its inquiry.
When the plaintiff realized that it (a small business concern) would be offered the set-aside portion of 3>em 151 of the solicitation at a price lower than the price that would be paid to Triangle (a substantial business concern) on the non-set-aside portion, the plaintiff objected to the contracting officer. Also, by means of a letter dated October 10, 1968, the plaintiff protested to the Comptroller General and asked such official to review the procedure which the contracting officer proposed to follow.
The plaintiff's protest to the Comptroller General brought to a standstill the process of making awards on the various items under the solicitation. This information was conveyed to the plaintiff by the Defense Fuel Supply Center, which requested the plaintiff's cooperation in creating a situation that would permit the making of awards to go forward. The plaintiff indicated a willingness to cooperate; and it was suggested by the DFSC that a communication to this effect be sent by the plaintiff to the Comptroller General.
In a letter dated October 15,1968, the plaintiff advised the Comptroller General that it did not wish to delay the making of contract awards under the solicitation; that the plaintiff would take a contract to supply a substantial amount of jet fuel under the solicitation regardless of the price; and that the plaintiff desired to negotiate with the Defense Fuel Supply Center under its then-current procedure, but subject to the final decision of the Comptroller General on the plaintiff's protest. In addition, the plaintiff sent a similar message to the DFSC by means of a telegram dated October 15,1968. The telegram also confirmed an understanding between the plaintiff and the DFSC to the effect that the DFSC would make a retroactive price adjustment upward in the plaintiff's contract if the Comptroller General upheld the plaintiff's protest.
When no decision from the Comptroller General on the plaintiff's protest was forthcoming by mid-December of 1968, the Defense Fuel Supply Center issued a final contract award to the plaintiff on 16,078,000 gallons of the set-aside portion of Item 151 of the solicitation, at a price of 10.3303 cents per gallon. However, the contract contained a proviso allowing an upward adjustment in the contract price if the Comptroller General subsequently sustained the plaintiff's protest.
The plaintiff made its first shipment of jet fuel to Barks-dale Air Force Base under the contract on January 2, 1969. The plaintiff eventually supplied a total of 15,531,042 gallons of jet fuel to Barksdale Air Force Base pursuant to the contract, and received a price of 10.3303 cents per gallon for this fuel, or a total of $1,501,776.12.
On January 16,1969, the Comptroller General issued decision B-165422 denying the plaintiff's protest relative to Item 151 of the solicitation. The present litigation followed.
In the light of the governing regulation, the primary problem in the present case is to determine what the defendant would have had to pay for the jet fuel which the plaintiff supplied to Barksdale Air Force Base if there had been no set-aside under Item 151 of the solicitation.
Triangle's actual bid indicated that Triangle was able and willing to supply — and, indeed, was desirous of supplying— the entire 40,000,000 gallons of jet fuel required by Barksdale Air Force Base during the first half of 1969 at an overall average lay-down price of 10.8253 cents per gallon. On the other hand, Triangle's actual bid indicated that Triangle was not willing to supply any jet fuel to Barksdale Air Force Base unless it received an overall average lay-down price of at least 10.8253 cents per gallon. Thus, it is reasonable to infer that Triangle would have submitted an offer — and would have received a contract — to supply 40,000,000 gallons of jet fuel for Barksdale Air Force Base at a lay-down price of 10.8253 cents per gallon if Item 151 of the solicitation had called for bids on 40,000,000 gallons of jet fuel, without any set-aside for small businesses.
In this connection, it is also reasonable to infer that, in submitting the incremental bid on Item 151 of the solicitation and in offering to supply the second increment of 20,000,000 gallons of jet fuel (the equivalent of the set-aside portion of Item 151 of the solicitation) at a price 1 cent per gallon less than the price quoted on the first increment of 20,000,000 gallons (the equivalent of the non-set-aside portion of Item 151), Triangle was motivated by a desire to deter small businesses from negotiating with the Defense Fuel Supply Center for the set-aside quantity of 20,000,000 gallons of jet fuel. Triangle knew that its quotation of 10.3303 cents per gallon on the second increment was conditioned upon the Government's first purchasing the initial increment of 20,000,000 gallons from Triangle at a price of 11.3203 cents per gallon, so that Triangle would receive an overall average lay-down price substantially in excess of 10.3303 cents per gallon (and not less than 10.8253 cents in any event) for any and all jet fuel which it supplied to Barksdale Air Force Base.
Triangle's bid was so unusual as to be unique in the Government's experience of receiving bids for the supply of jet fuel. Except for this particular bid submitted by Triangle, it has been the experience of the Government that when an oil company submits an incremental bid for the supply of jet fuel, the bidder invariably quotes a specified price for the first increment, then quotes a higher price for the second increment, and quotes increasingly higher prices for any other increments. This normal bidding pattern on incremental bids for the supply of jet fuel is attributable to the factors mentioned in the immediately succeeding paragraph.
Jet fuel is a blend of kerosene and straight-run naphthas. In refining a barrel of crude oil, a petroleum refinery will normally convert only a relatively small percentage of the crude oil into jet fuel. Most of the crude oil will normally be converted into other petroleum products — -such as gasoline — -that have a higher economic value than jet fuel. When a refinery revises its customary manufacturing procedure in order to produce from a barrel of crude oil a higher percentage of jet fuel than the percentage normally produced, it is necessary for the refinery to divert to jet fuel certain components which would ordinarily be utilized in the manufacture of petroleum products having a higher economic value than jet fuel. In such a situation, the price of the jet fuel has to be increased above the refinery's customary price in order to make the production of the increased quantity of jet fuel economically feasible.
Thus, although Triangle's conditional bid on Item 151 of the solicitation was in the form of an incremental bid, it was, in substance, an attempt to obtain a contract to supply 40,000,000 gallons of jet fuel for Barksdale Air Force Base at a lay-down price of 10.8253 cents per gallon.
With respect to the jet fuel which the plaintiff supplied to Barksdale Air Force Base under Item 151 of the solicitation, the evidence shows that if the Government had paid the plaintiff a price equivalent to the overall average lay-down price of 10.8253 cents per gallon quoted by Triangle on 40,000,000 gallons of jet fuel for Barksdale Air Force Base, the plaintiff would have received $77,655.21 more than the plaintiff actually received. This should be the measure of the plaintiff's recovery in the present case, under the governing regulation.
It is true that in the contract which the plaintiff signed with the Defense Fuel Supply Center, the plaintiff agreed to supply jet fuel to Barksdale Air Force Base at a lay-down price of 10.3303 cents per gallon, subject to the final decision of the Comptroller General on the plaintiff's protest (which decision was ultimately adverse to the plaintiff's position). However, the action of the DFSC in requiring the plaintiff to accept a price of 10.3303 cents per gallon was contrary to, and violated, the provisions of the governing regulation and, accordingly, must be overturned in the present judicial proceeding.
In connection with the matter mentioned in the preceding paragraph, it is pertinent to note that in the negotiations between the plaintiff and the Defense Fuel Supply Center regarding the price that would be payable to the plaintiff, the plaintiff never made any commitment that it would not attempt to overturn the decision of the Comptroller General on the plaintiff's protest if such decision was adverse to the plaintiff's position.
For the reasons previously set out in this opinion, judgment should be entered for the plaintiff in the amount of $77,655.21.
The concurring opinion of Davis, Judge, in which Laramore, Judge, joins, and the opinion of Nichols, Judge, concurring in part and dissenting in part, follow the opinion of the trial commissioner which has been adopted by the court.