Preference for Contractors Who Utilize Domestic Shipyards for Vessel Repairs Does Not Require 100 Percent Utilization; GAO B-417175.2, Curtin Maritime Corporation

Protest challenging the terms of a solicitation for a U.S. flag tug vessel is denied, where the agency was not required to afford an award preference to offerors who demonstrated a 100 percent use of domestic shipyards for overhaul, repair, and maintenance work. GAO found the statutory and regulatory language establishing this evaluation criterion gave the agency the discretion to consider the extent to which offerors made use of domestic shipyards, and therefore the agency’s decision to first consider proposals from offerors with a 25 percent usage rate was reasonable.

Curtin Maritime Corporation protested the terms of a Navy Military Sealift Command solicitation for a U.S. flag tug vessel, arguing that the solicitation violates the DFARS’ domestic shipyard preference.

The solicitation provided the agency would consider the extent to which offerors had maintenance and repair work performed in U.S. shipyards. If 25 percent or more of such work had been completed at a domestic shipyard, the offeror would be considered a Category 1 offeror. All other offerors would fall into Category 2. The solicitation stated the agency would first identify the lowest-priced technically acceptable proposal from among the Category 1 offerors. If no award could be made to one of those offerors, the agency would next consider the proposals in Category 2.

The protester argued that the DFARS requires MSC to give a preference to companies that exclusively employ domestic shipyards for overhaul, repair, and maintenance work. Curtin Maritime argued that any threshold lower than 100 percent is contrary to the regulation. In response, the agency argued that the plain language of the DFARS provision requires only that the agency include an evaluation criterion that considers the extent to which an offeror has used domestic shipyards for qualifying work. The agency argued the specific criterion is within its discretion.

GAO agreed, finding that the legislation requiring DoD to adopt this policy directed defense agencies to consider the extent to which an offeror used domestic shipyards for repair and maintenance of covered vessel. The DFARS regulation implement this statutory language mirrored the legislation almost verbatim. GAO found no obligation for the agency to set a 100 percent threshold for its consideration of the extent to which offerors used domestic shipyards for this purpose. GAO also found no congressional intent in the legislative history to require DoD to give evaluation preferences only to offerors who used domestic shipyards 100 percent of the time. Accordingly, GAO denied the protest on these grounds.

Curtin Maritime also argued that the 25 percent threshold itself was unreasonable. When developing the evaluation criterion, the agency sought to balance an interest in maintaining competition in the coastwise charter market while encouraging industry partners to conduct repair work at U.S. shipyards. The agency concluded that a previously used threshold of 15 percent was too low, but decided not to raise the percentage dramatically, so as not to chill competition. For example, if the threshold was set too high, the agency was concerned that some offerors might not compete at all, based on the assumption that they had a low chance of award. Instead, the agency decided to gradually increase the threshold over the next two years, to give offerors a fair chance to plan their repair and maintenance work.

The protester argued that maintaining a lower threshold in order to promote competition is contrary to the law and regulation governing the preference. GAO disagreed, finding it reasonable for the agency to consider competition when deciding how to weight an offeror’s use of domestic shipyards. Again, GAO found the statutory and complementary regulatory language intended for DoD to consider the extent to which offerors used domestic shipyards, while leaving the details to the agency’s discretion. GAO found no reason the agency could not consider competition when establishing the threshold. In fact, the legislative history suggested Congress wanted DoD to consider the use of domestic shipyards in a manner similar to other considerations, such as cost and schedule. Accordingly, it was reasonable for the agency to take competition into account when setting the threshold for domestic shipyard use.

The protester alleged that the low threshold would encourage offerors to move work to cheaper overseas shipyards, but GAO found nothing objectionable in the agency’s decision to set the DSU threshold initially at a level where all current offerors would likely be eligible for the preference and to gradually raise the threshold in future fiscal years to encourage offerors to maintain and/or increase their domestic shipyard use.

Curtin Maritime Corporation is represented by Marley Schroepfer of Curtin Maritime Corporation. The government is represented by Ann Calabrese, Allison McDade, and Schuyler Lystad, Department of the Navy. GAO attorneys Elizabeth Witwer and Jennifer D. Westfall-McGrail participated in the preparation of the decision.