UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


ICELAND STMSHP CO

v.

US DEPT ARMY


99-5088a

D.C. Cir. 2000


*	*	*


Sentelle, Circuit Judge: Appellants TransAtlantic Lines- Iceland ehf.
("TLI") and TransAtlantic Lines, L.L.C. ("TLL")  are affiliated
corporations and awardees of military shipping  contracts for shipping
between the eastern United States and  Iceland. They appeal from an
order of the district court  allowing summary judgment in favor of
appellees, Iceland  Steamship Company, Ltd.-Eimskip ("Eimskip") and
Van Om- meren Shipping (USA) L.L.C. ("Van Ommeren"), and requir- ing
the U.S. Army to rebid the contracts. The district court  required
rebidding on two grounds: First, it held that a 1986  treaty entered
into between the United States and Iceland  prohibited the award of
the contracts to appellants because of  their affiliation with each
other. Second, the district court  held that the contracting officer's
determinations of responsi- bility for appellants were arbitrary and
capricious in that she  failed to follow relevant solicitation
procedures. Applying the  deferential standard of review of executive


which govern in both these contexts, we reverse the district  court and
uphold the Army's award.


I. Facts


A. Overview


While the interpretation of an international treaty is impli- cated in
this action, this is essentially a disappointed bidder  case. Cf.
Elcon Enters., Inc. v. Washington Metro. Area  Transit Auth., 977 F.2d
1472 (D.C. Cir. 1992); CACI, Inc.- Federal v. United States, 719 F.2d
1567 (Fed. Cir. 1983). At  stake are government contracts for shipping
between the  eastern United States and Iceland. Appellants were
awarded  the contracts on September 18, 1998, by the United States 
Army's Joint Traffic Management Office of the Military Traf- fic
Management Command ("Army"). Appellees were losing  bidders and the
incumbent carriers on these contracts. Dis- appointed bidders may
challenge a government contract  award under the Administrative
Procedure Act ("APA"),  which empowers courts to set aside any agency
action that is  "arbitrary, capricious, an abuse of discretion, or
otherwise not  in accordance with law." 5 U.S.C. s 706(2)(A) (1994);
see  Scanwell Lab., Inc. v. Shaffer, 424 F.2d 859, 874 (D.C. Cir. 


B. History


This action is the latest in a series of disputes over the  military
shipping contracts for trade between the United  States and Iceland.
We will briefly review the history of this  trade and the earlier
disputes to provide context for the  current case.


The United States has maintained formal arrangements for  the use of
military facilities in Iceland since at least 1951,  when the two
countries entered into a defense agreement.  See Defense Agreement
Pursuant to the North Atlantic Trea- ty ("Defense Agreement"), May 5,
1951, U.S.-Ice., 2 U.S.T.  1195. Prior to 1984, Icelandic shippers
traditionally serviced  the U.S. military's Keflavik Air Base in
Iceland. In that 


year, Rainbow Navigation, a newly formed United States flag  carrier,
took over the trade by invoking the Cargo Preference  Act of 1904, 10
U.S.C. s 2631 (1994). That statute requires  that American military
supplies be carried by U.S. flagged  vessels if available. See Curran
v. Laird, 420 F.2d 122, 127- 28, 133 (D.C. Cir. 1969).


The government of Iceland asked that Icelandic shippers  be given some
accommodation in order to maintain Iceland's  good defense
relationship with the United States. At first,  the U.S. Navy tried to
disqualify Rainbow by invoking an  exception in the Cargo Preference
Act for excessive rates, but  this was rejected as based on
insufficient evidence. See  Rainbow Navigation, Inc. v. Department of
the Navy, 783  F.2d 1072, 1073, 1080-81 (D.C. Cir. 1986). The Navy
then  tried to "dispense with Rainbow's services by a diversion of 
the cargo ... to military aircraft," but the District Court  rejected
this tactic. Rainbow Navigation, Inc. v. Depart- ment of the Navy, 686
F. Supp. 354, 355 (D.D.C. 1988)  (reviewing prior challenges).


Realizing that the Cargo Preference Act was a formidable  barrier, the
United States (through the State Department)  and Iceland negotiated a
treaty and memorandum of under- standing in 1986. These documents are
intended to ensure  that the Iceland trade will be shared by United
States flag  carriers and Icelandic shippers. Article I of the treaty 
provides:


Transportation services for cargo transported by sea  between Iceland
and the United States for purposes of  the Defense Agreement shall be
provided by vessels of  the United States and vessels operated by
Icelandic  shipping companies on the basis of competition between 
United States flag carriers and Icelandic shipping compa- nies
pursuant to this Article. Any such competition shall  result in
contract awards that ensure that both United  States flag carriers and
Icelandic shipping companies are  able to maintain a viable presence
in the trade. To  ensure achievement of these objectives, the
percentage of  cargo transported ... by Icelandic shipping companies


and vessels of the United States on the basis of such  competition
shall be determined by agreement between  the United States and


Treaty to Facilitate Defense Relationship ("Treaty"), Sept.  24, 1986,
U.S.-Ice., T.I.A.S. No. 11,098, at 3. The memoran- dum of
understanding fleshes out how this competition should  proceed:


Transportation services for cargo transported by sea  between Iceland
and the United States for purposes of  the Defense Agreement shall be
provided by vessels of  the United States and vessels operated by
Icelandic  shipping companies on the basis of periodic competitions 
between United States flag carriers and Icelandic ship- ping
companies. Each competition shall result in con- tract awards to both
an Icelandic shipping company and  a United States flag carrier such
that not to exceed 65  percent of the cargo shall be carried by the
lowest bidder  and the remainder shall be carried by the next lowest 
bidder of the other country....


Memorandum of Understanding in Implementation of the  Treaty to
Facilitate Defense Relationship ("MOU"), Sept. 24,  1986, U.S.-Ice.,
T.I.A.S. No. 11,098, at 2. The MOU is to be  reviewed yearly and may
be amended upon mutual agree- ment of the parties at any time. See id.


Upon ratification of the Treaty, Icelandic shippers were  able to claim
back some of Iceland trade. In fact, the  Icelandic shippers got back
65 percent of the trade. Al- though the MOU does not guarantee this
allocation, Icelandic  shipping companies have much lower costs than
U.S. flag  carriers, cf. Aeron Marine Shipping Co. v. United States,
695  F.2d 567, 569 (D.C. Cir. 1982), and generally will be able to 
submit lower bids than their American competitors. There- fore, in
light of this economic reality, the lowest bidder among  Icelandic
shipping companies will generally be awarded 65  percent of the trade,
and the lowest bid from a U.S. flag  carrier will be awarded the


We interpreted the Treaty and MOU in Rainbow Naviga- tion, Inc. v.
Department of the Navy, 911 F.2d 797 (D.C. Cir. 


1990). Rainbow Navigation claimed that the Treaty and  MOU,
supplemented by legislative testimony on the ratifica- tion of the
Treaty, required a bidding process protecting  Rainbow by including
restrictive specifications to disqualify  small domestic supply boats.
It also contended that the  solicitation must include a provision
ensuring it could recover  the fixed costs of operating a vessel which
could carry 65  percent of the trade even if awarded only 35 percent.
See id.  at 801. We rejected the theory that Rainbow should be 
accorded any greater protection than other U.S. flag carriers,  seeing
nothing in the language of the Treaty or MOU requir- ing such a
result. We summarized the requirements of the  Treaty and MOU:


By its terms, the Treaty and the MOU require only (1)  that the
[government] award contracts by means of a  competition; (2) in a
manner that "ensure[s] that both  United States flag carriers and
Icelandic shipping compa- nies are able to maintain a viable presence
in the trade";  and (3) that the lowest U.S. bidder receive at least
35  percent of the cargo.


Id.


C. Present Controversy


This brings us to the present controversy. On January 30,  1998, the
Army1 issued a solicitation for the Iceland trade,  specifically
stating that awards would be allocated "[p]ursuant  to the Treaty and
its implementing Memorandum of Under- standing." Of course, the
solicitation stated numerous other  requirements for bidders to meet.
Those we mention here  are relevant to appellees' non-treaty related
challenges. The  solicitation required the Contracting Officer to make
an "af- firmative determination" of offeror responsibility. It cited
to  Federal Acquisition Regulation ("FAR"), Subpart 9.1 on Re-




__________

n 1 Although the Navy handled the administration of the bidding 
process in the past, see, e.g., Rainbow, 911 F.2d at 799, this 
responsibility was transferred at some point to the Army, who 
administered this solicitation through the Joint Traffic Management 
Office of the Military Traffic Management Command.


sponsible Prospective Contractors, which mandates that an  awardee
"[h]ave adequate financial resources to perform the  contract, or the
ability to obtain them." 48 C.F.R. s 9.104- 1(a) (1998). The
solicitation also stated that each offer should  "include sufficient
evidence to establish control or irrevocable  right to gain control of
the necessary vessels in sufficient time  to commence service on [the
contract start date]."


The solicitation stated that offers were due on March 5,  1998, and the
contracts had a proposed starting date of May  1, 1998 because the
prior contracts were set to expire on April  30, 1998. Due to delays
in the bidding process, the proposed  start date was moved back to
November 1 and the incumbent  carriers given a six month extension.


TLI and TLL each submitted bids.2 TLI and TLL have  substantially
similar ownership and are principally managed  by Gudmundur
Kjaernested, who is a citizen of Iceland and  United States resident.
At the time the original bids were  submitted, Kjaernested and Brandon
C. Rose, a United  States citizen, were the primary owners of both
companies.  Despite this close relationship, TLI and TLL are separate 
corporate entities. TLL is a limited liability company regis- tered in
Delaware, and TLI is an Icelandic company regis- tered in Iceland.


The Army announced the awards on September 18, 1998.  TLI, the
Icelandic company, was the lowest overall bidder  and the Army awarded
it a contract covering 65 percent of  the trade. The Army awarded TLL
a contract for the  remaining 35 percent because it was the lowest bid
among  U.S. flag carriers.


The Contracting Officer also made the required determina- tion that
each company was a responsible contractor. As to  TLI, the Contracting
Officer cited a bank letter tentatively  approving a $1 million credit
line to TLL. This letter noted  the bank's prior history with TLI and
TLL stockholder 




__________

n 2 We are referring to separate bids that TLI and TLL submitted.  TLI
and TLL also submitted two other bids which were rejected  because
they were in the nature of joint venture proposals.


Brandon Rose as being important in setting up the line of  credit. The
Contracting Officer also had a letter from Kjaer- nested stating that
the credit line was available to both TLI  and TLL. As to TLL, the
Contracting Officer's responsibili- ty determination concluded that
TLL had "the necessary  equipment and facilities to perform this
contract." Before  the officer were four letters from marine companies
pledging  vessels, with varying levels of specificity.


Eimskip and Van Ommeren filed protests with the U.S.  Government
Accounting Office ("GAO"). Under the Compe- tition in Contracting Act,
this action automatically stayed the  awards. See 31 U.S.C. s
3553(b)-(d) (1994). On October 23,  1998, approval to override the
stay was granted by the  Assistant Secretary of the Army. Eimskip then
filed this suit  in the district court causing the GAO to dismiss the
bid  protest. See 4 C.F.R. s 21.11 (1997). TLL, TLI, and Van  Ommeren
timely intervened.


During this same period, the government of Iceland sent a  diplomatic
note to the U.S. Department of State protesting  the awards. Citing
the Treaty and MOU, Iceland stated two  problems it had with the
awards to TLI and TLL: (1) that as  commonly owned companies, TLI and
TLL could not be  awardees, and (2) that TLI was not a true Icelandic
shipping  company. Specifically, the note stated:


The Government of Iceland has concluded, based on  available
information, that [TLI and TLL] are affiliated  companies under common
direction, ownership and/or  control of Icelandic citizens, and that
[TLI] lacks the  necessary experience, technical capability, financial
re- sponsibility, and material connection with Iceland.


.... 


... [T]he Government of Iceland interprets the Treaty  and [MOU] to
preclude awards by the [Army] of both the  Icelandic and United States
portions of the trade subject  to the Treaty and [MOU] to affiliated
companies under  common direction, ownership and/or control.


... [T]he Government of Iceland interprets the Treaty  and [MOU] to
preclude any award of the Icelandic 


portion of that trade to any company that lacks the  experience,
technical capability, financial responsibility,  and material
connection with Iceland that are necessary  to ensure ... maintenance
of a viable presence of Icelan- dic shipping companies in that trade
providing for the  security of Iceland and the equitable participation
of  Iceland in the benefits of the Defense Agreement....


Iceland Ministry of Foreign Affairs, Diplomatic Note to the  Department
of State of the United States of America (Sept.  28, 1998), Joint
Appendix ("J.A.") 124, 126 ("Iceland Diplo- matic Note").


The U.S. State Department issued a diplomatic note on  December 30,
1998 in response to Iceland's position:


The Government of the United States considers its ac- tions in the
recent competition and award of the Icelan- dic military cargo
contract are fully consistent with the  Treaty and MOU.


....


... Until the recent contract competition, the Govern- ment of Iceland
has not expressed any views regarding  the qualifications of
particular Icelandic companies nor  informed the Government of the
United States that it  held views that appear to the United States to
go beyond  the plain meaning of the words themselves.


....


... The Government of the United States notes that  none of [the] four
criteria cited by the Government of  Iceland to render [TLI] a
non-Icelandic shipping compa- ny appears in the text of the Treaty or
MOU. ....


It is the position of the Government of the United  States that none of
the terms in the Treaty or MOU  require recourse to supplementary
means of interpreta- tion when the terms of the treaty are plain and
unambig- uous.... Iceland, consistent with its obligations under 
international law, is of course free to enact specific  statutory or
regulatory criteria for "Icelandic shipping 


companies" should it wish to do so (just as the internal  law of the
United States provides specific criteria for  "U.S. flag vessels").


....


... [T]he Government of Iceland [has] expressed its  concern that there
had been no effective competition  because of the relationship between
two of the bidders.  The Government of the United States, however,
followed  its own contracting processes in this procurement and 
believes that the goal of competition was indeed met....


... [T]here is no evidence of an attempt to eliminate  competition from
other bidders.... [T]he two compa- nies ... were not competing to fill
the same contract  requirement. Rather, the Iceland company submitted
a  proposal for the 65% share while the U.S.-flag company  submitted
one for the 35% share....


Since the portion of the cargo trade which would be  reserved for
Icelandic interests was determined on the  basis of competition
between offers submitted by entities  from each country, it is the
view of the United States  that any relationship between Icelandic
companies and  companies operating U.S.-flag vessels was and is
irrele- vant to the fact that there was full, vigorous, and open 
competition in full compliance with the Treaty and MOU.


U.S. Department of State, Diplomatic Note to the Embassy of  the
Republic of Iceland (Dec. 30, 1998), J.A. 128, 128-35  ("U.S.
Diplomatic Note").


Meanwhile, appellees' district court action was proceeding.  Appellees
challenged the award on two primary grounds  which are before us on
appeal. First, they claim that the  Treaty and MOU prohibited awards
to TLI and TLL for the  same reasons cited by the Iceland Diplomatic
Note: (1)  because the common ownership of TLI and TLL made the 
bidding process something other than a competition and (2)  because
TLI is not a true "Icelandic shipping company."  Appellees also make
two challenges to the Contracting Offi- cer's responsibility findings:
(1) that TLI was a financially 


responsible contractor, and (2) that TLL was responsible in  that it
had a vessel ready to perform.


After initially denying a motion for a preliminary injunc- tion, the
district court granted appellees' motions for sum- mary judgment on
February 3, 1999, and ordered the Army  to cancel the contracts and
rebid. The court first ruled that  the ownership status of TLL and TLI
defeated the MOU's  requirement of a single competition for the
Icelandic trade.  The court also found that the Army's decisions under
the  solicitation procedures were arbitrary and capricious on both 
counts. The district court was not yet aware of the recently- issued
U.S. Diplomatic Note addressing the treaty issues.


TLL, TLI, and the Army appealed the judgment of the  district court. We
granted a stay pending appeal. The  Government of Iceland submitted an
amicus brief on behalf of  the losing bidders. The Army originally
dismissed its appeal,  but has asked leave to file a brief which
addresses only the  treaty issues.3


Addressing the treaty issues first, we conclude that the  Army's
contract awards to TLL and TLI do not violate the  plain language of
the Treaty and MOU. As to the responsi- bility determinations of the
Contracting Officer, the context  of which requires an especially
deferential version of arbi- trary and capricious review, we determine
that the Army's  actions were permissible.


II. Treaty Issues


A. Standard of Review


When interpreting a treaty or memorandum of understand- ing, we are
guided by principles similar to those governing  statutory
interpretation. We "must, of course, begin with the  language of the
Treaty itself." Sumitomo Shoji Am., Inc. v.  Avagliano, 457 U.S. 176,
180 (1982). At this level, "[t]he 




__________

n 3 The Army's brief does not address the responsibility determina-
tions of the Contracting Officer. At oral argument the Army  clarified
that it has not changed its position on these issues but has  simply
chosen not to appeal the district court's decision.


clear import of treaty language controls unless 'application of  the
words of the treaty according to their obvious meaning  effects a
result inconsistent with the intent or expectations of  its
signatories.' " Id. (quoting Maximov v. United States, 373  U.S. 49,


To the extent that the meaning of treaty terms are not  plain, we give
"great weight" to "the meaning attributed to  treaty provisions by the
Government agencies charged with  their negotiation and enforcement."
Sumitomo, 457 U.S. at  184-85; see also In re Papandreou, 139 F.3d
247, 252 n.2  (D.C. Cir. 1998). Although "we give somewhat less defer-
ence" where an agency and another country disagree on the  meaning of
a treaty or MOU, where an agency has "wide  latitude in interpreting
the MOU, ... we will defer to its  reasonable interpretation." Air
Canada v. U.S. Dep't of  Transp., 843 F.2d 1483, 1487 (D.C. Cir.


In this case, we deem it proper to refer to the U.S.  Diplomatic Note
for guidance as to the meaning of the terms  "competition" and
"Icelandic shipping companies" under the  Treaty and MOU, although the
Note was not in the record  before the district court. Although the
Army may have  considered the Note confidential, TLL and TLI
apparently  had access to it since they presented it to this court at
the  time of the initial application for temporary restraint. We 
would not, of course, consider evidence offered to support a  factual
proposition which had not been before the district  court. However,
the Diplomatic Note is not offered as evi- dence to support a factual
proposition, but rather as an  interpretive guide for our use in
making a legal interpreta- tion. And although all parties refer to the
Note in their  briefs, appellees do not object to those references, or
our  consideration of the Note, on the ground that it was not in the 
record below. Because it is important for this court to have  the
guidance of the agency responsible for negotiating this  treaty, we
consider the Note along with the Army's argu- ments adopting the same
views. A diplomatic note is an  official position of the type which is
unlikely to be taken for  litigation purposes, and is entitled to
deference. Cf. Smiley v.  Citibank (South Dakota), N.A., 517 U.S. 735,


B. Competition


Having reviewed the applicable principles guiding our rea- soning, we
proceed to the issue of whether the affiliated  status of TLI and TLL
transformed the bidding process into  something other than a
"competition." We hold that there  was still a "competition" under the
Treaty and MOU. The  plain meaning of the Treaty and MOU comport with
this  view, but to the extent the meaning of the word "competition" 
is in any doubt, it does not prevent bids of separate corporate 
entities that have common ownership. Therefore, we agree  with the
U.S. Diplomatic Note that the bidding process was a  competition.4


On a surface level, a "competition" certainly occurred be- tween U.S.
flag carriers and Icelandic shippers. TLI and  TLL were competing
against other U.S. flag carriers and  Icelandic shippers. Regardless
of whether TLI and TLL  competed against each other, nothing in the
Treaty and MOU  suggests, as appellees contend, that each and every
bidder  must compete against each and every other bidder.


In fact, that has never been the nature of the competition.  Because
bidders may bid for between 35 percent and 65  percent of the trade
each has never competed against all.  Because TLI was effectively
vying for the 65 percent portion  and TLL for the remainder, perhaps
it can be said they were  not in head to head competition. But the
same can be said  for Eimskip and Van Ommeren and all the other
bidders.  Eimskip, being an Icelandic shipper, and Van Ommeren, a 
U.S. flag carrier, were not in direct head to head competition 
either. The bottom line is that this conception of a "full 
competition" has nothing to do with the affiliation of bidders.  Under
the appellees' theory, a competition could not occur  unless each and
every bidder requested 100 percent of the  trade. The Treaty and MOU
do not require such 100 percent  bids.




__________

n 4 We have no occasion to consider whether appellants' behavior  would
or would not constitute "competition" within the meaning of  the
antitrust laws.


On a deeper level, a form of head to head competition does  occur
between all bidders. Every bidder is submitting bids in  a single
competition to award the shipping trade. All the  bids must be
compared in the first instance to determine who  is the overall lowest
bidder. Even though TLL and Van  Ommeren (or other U.S. flag carriers)
have little chance of  being the lowest overall bidder, they still
compete against  everyone else. In this portion of the competition,
even TLI  and TLL's bids are stacked against each other.


While appellees object to the substantially common owner- ship of TLI
and TLL, it is worth noting that the Comptroller  General allows
affiliated companies to submit multiple bids  for the same
procurement. In Pioneer Recovery Sys., Inc.,  B-214878, 1984 WL 46915,
at *2 (Comp. Gen. Nov. 13, 1984),  the Comptroller General stated that
"[t]he general rule is  that multiple bids may be accepted unless such
multiple  bidding is prejudicial to the interests of the government or
 other bidders in which case it is clear that the reason for  multiple
bidding was not legitimate." See also David I. Abse,  51 Comp. Gen.
403, 404-06 (1972) (upholding award where  high and low bids were
signed by same person of affiliated  companies). While the Comptroller
General's opinion is not  binding precedent, we agree that the
existence of affiliation  does not negate the presence of
"competition" in the usual  sense of that word.


The language of the Treaty and MOU does not define  "competition" in
any peculiar way requiring a different result.  There is "nothing in
the Treaty ... clearly prohibit[ing] a  relationship between the two
awardees." Iceland Steamship  Co. v. United States Dep't of the Army,
slip op. at 4, No.  98-2631 (D.D.C. Nov. 10, 1998) (order denying
preliminary  injunction). The Treaty contemplates awards "on the basis
of  competition between United States flag carriers and Icelandic 
shipping companies," and the MOU uses similar language.  Neither
document addresses a situation in which a U.S. flag  carrier and
Icelandic shipping company have similar owner- ship.


Appellees argue that the dictionary definition of competi- tion
precludes affiliates from bidding. Black's Law Dictio- nary, for
example, describes "competition" as "[t]he effort of  two or more
parties, acting independently, to secure the  business of a third
party by the offer of the most favorable  terms." Black's Law
Dictionary 257 (5th ed. 1979). But this  is exactly what all the
bidders, including TLI and TLL, did.  Even if TLI and TLL colluded and
were not acting indepen- dent of each other, the participation of
other bidders would  meet the definition's requirements. Appellees'
"plain mean- ing" argument therefore fails.


We note that the suggestion of collusion (as opposed to  mere
affiliation) could be cause for concern. It might be  called "unfair
competition," but even that term admits that a  "competition" occurs.
And there is a mechanism for protect- ing against collusive bidding. A
Certificate for Independent  Price Determination ("CIPD") certifies
the independent de- velopment of a bid. Appellees raised a CIPD issue
before the  district court, but have not pressed it on appeal.


In Maximov v. United States, 373 U.S. 49 (1963), a peti- tioner
similarly sought to impose a meaning on a term that it  could not
bear. Under the Income Tax Convention between  the United States of
America and the United Kingdom, Apr.  16, 1945, 60 Stat. 1377, 1384,
capital gains of a "resident of the  United Kingdom" were exempt from
taxation by the United  States. See id. at 49. The petitioner was
trustee of a trust  created under Connecticut law by a grantor who was
a  resident of the United Kingdom. A trust was considered a  person
under the law of both countries and thus a "resident"  of the United
States, not the United Kingdom, under the  treaty. Petitioner urged
that the purpose of the treaty  required the opposite result. The
Supreme Court disagreed.  Reviewing the plain language, the Court
could not construe  the treaty to effect "so significant a deviation
from normal  word use or domestic tax concepts." Id. at 52.


This case is not unlike Maximov. We cannot, in the name  of
effectuating the purposes of the Treaty and MOU, read  into those
documents a meaning of "competition" which would 


prohibit the bids of separate corporate entities with common 
ownership. To do so would distort the meaning of the term 
"competition." If TLI and TLL were one corporation, then  the entire
shipping trade could not be split between them  because the Treaty and
MOU contemplate two separate  awards to one entity of each country.
But TLI and TLL are  separate entities, and are entitled to be treated
as such.  Therefore, we conclude that the Treaty and MOU require- ment
of a "competition" does not foreclose bids from affiliated  companies.
To the extent that the term admits of any  ambiguity, we will defer to
the position of the U.S. Diplomatic  Note that the bids did not create
some unnamed creature that  was not a "competition."


C. Icelandic Shipping Companies


Our disposition of the meaning of "competition" does not  end our
discussion of the Treaty. We must also consider  whether TLI is an
"Icelandic shipping company." As a  preliminary point, we make clear
that this dispute is not  whether TLI is a properly registered
Icelandic company,  although it appears to be one. Instead, we are
asked to  decide whether it is an "Icelandic shipping company" as that
 term in used in the Treaty and MOU. While it could be said  these two
inquiries, absent other direction, should be identi- cal, we need not
decide that issue. We can conclude that  whatever the Treaty and MOU
require, the interpretation of  the U.S. Diplomatic Note is reasonable
and is entitled to  deference.


The Iceland Diplomatic Note suggests that all Icelandic  shipping
companies must fulfill four requirements: "experi- ence, technical
capability, financial responsibility, and materi- al connection with
Iceland." How much of any of these  factors is required? The Note says
sufficient "to ensure a  viable presence of Icelandic shipping
companies" in the trade.  Unfortunately that is not helpful given that
the term "Icelan- dic shipping company" is used in the "definition"
itself.  Whichever Icelandic shipping company is awarded the con-
tract will have a viable presence. As the district court feared, 


this is not a meaningful way for a court to analyze what  constitutes
an Icelandic shipping company within the meaning  of the Treaty. See
Iceland Steamship Co. v. United States  Dep't of the Army, slip op. at
6 n.2, No. 98-2631 (D.D.C. Feb.  3, 1999).


We do recognize the concerns of the government of Ice- land.
Apparently, when the Treaty was drafted, it was not  contemplated that
newly formed Icelandic-owned shipping  companies would be able to
capture the trade. Thus a  specific definition of the term was not
included. Just as  Rainbow Navigation was formed as a U.S. flag
carrier in 1984  to capture to the entire trade under the Cargo
Preference  Act, TLI was founded by an Icelandic citizen in an attempt
to  capture the Icelandic portion under the regime established in 
1986. However, if Iceland wished the limitation it now seeks,  it
could have insisted that a more specific definition be  included. For
example, the U.S. portion of the trade is  reserved for "U.S. flag
carriers" instead of "U.S. shipping  companies."


The parties to the international agreements included no  explicit
definition. We have no authority for engrafting  terms onto the MOU
that they did not include. The plain  meaning of the words "Icelandic
shipping company" does not  compel us to find as a matter of law that
TLI does or does  not qualify for such status. Insofar as there is any
ambigui- ty, we will defer to the reasonable interpretation offered in
 the U.S. Diplomatic Note. We therefore hold that it was  reasonable
for the Army to find that TLI is an Icelandic  shipping company under
the Treaty and MOU.


Because we need only decide the case before us, we do not  identify a
line between actions that are permitted and those  which are
prohibited by the Treaty and MOU. We recognize  that a reasonable
range of choices might exist. There is no  call for us to go


III. Solicitation Issues


A. Standard of Review


Finally, we consider the challenges to the Contracting  Officer's
responsibility determinations. Because of the spe-


cial nature of contracting determinations, our review is an  especially
deferential application of the arbitrary and capri- cious standard. We
clarified the application of the standard  to contracting
determinations in Old Dominion Dairy Prods.,  Inc. v. Secretary of
Defense, 631 F.2d 953 (D.C. Cir. 1980):


As stated in Keco Industries, Inc. v. United States, 492  F.2d 1200,
1203 (Ct. Cl. 1974), the ultimate standard is  "whether the
Government's conduct was arbitrary and  capricious toward the
bidder-claimant." Concerning a  determination of nonresponsibility,
the court in Keco  Industries specifically stated that contracting
officers  "have very wide discretion," and that a complaining  bidder
"would normally have to demonstrate bad faith or  lack of any
reasonable basis in order to prevail." Id. at  1205. In describing the
reasonable basis test, the court  elsewhere noted that, "although
based on external facts  and circumstances rather than a showing of
animosity  toward plaintiff or favoritism for a competitor, this prin-
ciple is not far removed from the bad faith test; courts  often equate
wholly unreasonable action with conduct  motivated by subjective bad


Old Dominion, 631 F.3d at 960; see also YRT Servs. Corp. v.  United
States, 28 Fed. Cl. 366, 387-88 (1993).


As in other agency review contexts, "a procurement deci- sion is not
'irrational' simply because we might have reached  a different
decision in the first instance." Elcon Enters., 977  F.2d at 1478. But
we look for no more than "substantial  compliance with applicable law
and baseline substantive ra- tionality [because] '[j]udges are
"ill-equipped to settle the  delicate questions involved in
procurement decisions." ' " Id.  at 1479 (quoting Delta Data Sys.
Corp. v. Webster, 744 F.2d  197, 203 (D.C. Cir. 1984) (quoting Kinnett
Dairies, Inc. v.  Farrow, 580 F.2d 1260, 1271 (5th Cir. 1978))).


Applying this deferential standard, we conclude that a  rational basis
existed for the responsibility determinations of  the Contracting
Officer.


B. TLI


Although various challenges were advanced below, appel- lees' primary
argument is that the Contracting Officer should  not have relied on a
tentative letter of credit to one compa- ny--TLL--in finding
another--TLI--to be financially re- sponsible. While the basic
proposition is appealing, on the  specific facts before us we cannot
hold that the officer acted  improperly. The line of credit letter
relied on was addressed  to Mr. Rose at TLL, a stockholder of both
companies, and  stated that the line of credit was based on the bank's
relation- ship with Mr. Rose's family. TLI also provided written 
assurance to the Army that the letter of credit applied to both 
companies. And while the letter was "tentative," it does not  state


Viewing the totality of the evidence, we hold that the Army  had a
rational basis for finding TLI to be responsible. In  fact, before the
district court, the Army even suggested that  the Contracting Officer
could have found that no line of credit  was needed at all. See
Iceland Steamship Co. v. United  States Dep't of the Army, slip op. at
13 n.9, No. 98-2631  (D.D.C. Feb. 3, 1999). This suggestion highlights
the diffi- culty of second-guessing the Contracting Officer's
determina- tion. We have no basis for requiring that a letter of
credit be  more than "tentative." And while the fact that the letter
of  credit was addressed to TLL might be troubling, the ultimate 
weight given to this piece of information is based on a  discretionary
weighing of financial risks and rewards by the  Contracting Officer.


Furthermore, it is in an agency's self-interest to make  proper
responsibility determinations. Otherwise, the agency  runs the risk of
contractor default which could cause "sub- stantial delay and
inconvenience." Keco Indus., 492 F.2d at  1206. But in any event,
considering the deferential standard  of review applied to this type
of decision, and the fact that  judges are not financial advisors to
the United States govern- ment, we conclude that there is no basis for
overturning the  Contracting Officer's finding that TLI was


C. TLL


Appellees challenge the Contracting Officer's responsibility 
determination regarding TLL on the ground that TLL pre- sented
insufficient evidence to show a right to control a  vessel. The
solicitation required "sufficient evidence to es- tablish control or
irrevocable right to gain control of the  necessary vessels in
sufficient time to commence service on  [the contract starting date]."
TLL submitted four letters  from marine companies pledging the
availability of vessels.  For example, the letter from Tidewater


This is to confirm that [TLL] has the option to charter  the supply
boat Native Dancer.... The maximum char- ter shall not exceed 180
days. Additional unspecified  options shall be mutually negotiated.


The purpose of the charter is to fulfill a part of [TLL's]  obligation
to the Joint Traffic Management Office, in the  event that the company
is awarded the contract.


J.A. at 216. Based on these submissions, the Contracting  Officer
concluded that TLL would obtain the ships necessary  to be a
responsible contractor.


Deferring to the expertise of the Contracting Officer in  these
matters, we find this decision to be rational. We have  no occasion to
weigh the quantum of evidence needed to  establish the legal
requirements of an irrevocable option.  Considering these letters, we
cannot say it was arbitrary for  the Contracting Officer to decide
that TLL would be able to  obtain vessels. Moreover, we note that we
have held in a  contract action that an irrevocable option can be
created  despite a paucity of stated terms. See Ammerman v. City 
Stores Co., 394 F.2d 950, 954-55 (D.C. Cir. 1968). Although  the
letters apparently did not state price terms, we have no  information
on the typical evidence required by contracting  officers, or
furnished by prospective charterers. Therefore,  we must conclude that
the appellees have not established that  the Contracting Officer's


IV. Conclusion


For the reasons set forth above, we conclude that the  Army's decision
to award the shipping contracts to TLI and  TLL does not require
rebidding. Because there are no issues  of material fact to be
decided, we reverse the judgment of the  district court and remand for
the entry of summary judgment  in favor of appellants.


So ordered.


Karen LeCraft Henderson, Circuit Judge, concurring in part  and
dissenting in part:


The majority rightly focuses on our narrow standard of  review of the
Contracting Officer's two responsibility determi- nations. Although
its focus is blurred by the quotation from  Old Dominion Dairy
Products, Inc. v. Secretary of Defense,  631 F.2d 953, 960 (D.C. Cir.
1980), discussing an ill-defined  "reasonable basis test," Maj. Op. at
18, in the end my  colleagues adhere to the well-established arbitrary
and capri- cious standard of review of administrative action. See id.
at  18, 20 ("[O]ur review is an especially deferential application of 
the arbitrary and capricious standard."); id. at 18 ("[T]he  ultimate
standard is 'whether the Government's conduct was  arbitrary and
capricious.' ") (quoting Old Dominion Dairy  Prods., Inc. v. Secretary
of Defense, 631 F.2d 953 (D.C. Cir.  1980)).


In any event, even with "an especially deferential applica- tion" of an
already deferential standard of review, id., we are  nevertheless
obligated to review the administrative decisions  with some scrutiny.
The Army regulations mandate that  contracts "be awarded to[ ]
responsible prospective contrac- tors only." See 48 C.F.R. s 9.103(a).
My review of the  Contracting Officer's decision leads me to reject
his determi- nation of TLI's financial responsibility. In addition,
although  I concur in the majority holding regarding the Contracting 
Officer's determination of TLL's operational responsibility, I  cannot
agree that our standard of review intends nothing  more than
rubber-stamping the same.


I.


The regulations governing the financial responsibility de- termination
mandate that a bidder provide information "clear- ly indicating" it
has, or can obtain, adequate financial re- sources to perform the
contract.1 48 C.F.R. s 9.103(b) ("In  


__________

n 1 The solicitation here provided:


The Government shall require a showing of financial and  operational
responsibility prior to making an award. The  applicable provisions of
the FAR [Federal Acquisition Regula- tion], Sub-part 9.1 require that
prior to award, an affirmative  determination be made by the
Contracting Officer that the  the absence of information clearly
indicating that the prospec- tive contractor is responsible, the
contracting officer shall  make a determination of
nonresponsibility."); see id. s 9.104- 1 ("To be determined
responsible, a prospective contractor  must ... [h]ave adequate
financial resources to perform the  contract, or the ability to obtain
them."). Evidence of a  prospective contractor's ability to obtain
required resources  "normally consists of a commitment or explicit
arrangement."  Id. s 9.104-3(a). Moreover, the regulations consider
affiliat- ed entities like TLL and TLI separately for the purpose of 


The majority concludes that there is no basis to overturn  the
Contracting Officer's finding that TLI was financially  responsible.
See Maj. Op. at 19. His determination was  based on a letter from the
State Bank of Long Island  purporting to extend a tentative line of
credit. As the  majority notes, see id., the letter was addressed to
Brandon  Rose, a stockholder in both TLI and TLL. The majority, 
however, omits that it was addressed to Rose at TLL. More- over, the
letter extended nothing to Rose and nothing to TLI;  it merely
"tentatively approved" a line of credit to TLL. JA  313. One of the
bases for the bank's decision was its relation- ship with Rose's
family. The bank also cited TLL's business  plan and made no reference
to TLI. Perhaps the State Bank  of Long Island would not extend credit
equally to an entity  like TLI, organized under the laws of another
country. Per- haps TLI's financial status or business plan was not as
sound  as TLL's. I also wonder if the letter "clearly indicat[ed]" the
 prospect of a line of credit for other companies Rose owned  stock




__________

n prospective offeror is responsible and meets the minimum  standards
specified herein.


Joint Appendix (JA) 107-08.


2 Section 9.104-3(c) provides that "[a]ffiliated concerns ... are 
normally considered separate entities in determining whether the 
concern that is to perform the contract meets the applicable stan-
dards for responsibility."


3 Although TLL provided the Contracting Officer a letter of  assurance
that the credit applied equally to both companies, TLL 


Even assuming the letter bears on the determination of  TLI's financial
responsibility, the letter approved the line of  credit only
"tentatively." JA 313. The majority discounts  the conditional nature
of the approval because the letter  "does not state what 'tentative'
means." Maj. Op. at 19.  Indeed, the letter did not detail what
conditions must be  satisfied before the bank in fact extended credit.
But "tenta- tive" means "subject to change or withdrawal" or otherwise
 "not final." Webster's Third New International Dictionary  2357
(1981). The majority also claims: "We have no basis for  requiring
that a letter of credit be more than 'tentative.' "  Maj. Op. at 19.
On the contrary, the standards that govern  award of a procurement
contract (the FAR, Sub-part 9.1,  discussed above) plainly envision
that a bidder provide more  than a tentatively approved line of credit
to an affiliated  entity. See 48 C.F.R. s 9.103(b) ("In the absence of
informa- tion clearly indicating that the prospective contractor is
re- sponsible, the contracting officer shall make a determination  of


Because the letter from the bank neither "clearly indi- cat[ed]"
applicability to TLI nor extended credit to anyone, I  would conclude
that the Contracting Officer's determination  of TLI's financial
responsibility was especially arbitrary and  capricious and that he
was bound to "make a determination of  nonresponsibility." Id.


II.


The majority omits review of the Contracting Officer's  operational
responsibility determination regarding TLL. The  Army's solicitation
mandates that "[n]o offer will be consid- ered for award which does
not include sufficient evidence to  establish control or irrevocable
right to gain control of the  necessary vessels in sufficient time to
commence service on  [contract starting date]." JA 102. Because TLL
proffered  no evidence "establish[ing] control," our review focuses on




__________

n did not purport to be speaking for the bank. See JA 187. In any 
event, the regulations provide that affiliated entities are to be 
considered separately. See 48 C.F.R. s 9.104-3(c).


whether TLL proffered sufficient evidence establishing "an  irrevocable
right to gain control." Id. The majority notes  that the Contracting
Officer relied on four letters from ma- rine companies pledging the
availability of vessels to TLL. It  concludes that "[w]e have no
occasion to weigh the quantum  of evidence needed to establish the
legal requirements of [an]  irrevocable option." Maj. Op. at 20. I
disagree. First, while  the majority is no doubt correct that, as a
general rule,  "judges are ill-equipped to settle the delicate
questions in- volved in procurement decisions," id. at 18, the
determination  of an "irrevocable right to gain control" requires a
legal  conclusion and, thus, a conclusion which judges are presum-
ably adept at making. Moreover, the solicitation provides  that an
"irrevocable right" is a prerequisite to the operational 
responsibility determination, JA 102; therefore, finding a  bidder to
be responsible without an irrevocable right is  arbitrary and
capricious. In reviewing the Contracting Offi- cer's responsibility
determination under any formulation of  the arbitrary and capricious
standard, then, we must consider  whether the four letters TLL
submitted were sufficient to  establish an "irrevocable right to gain


Because I believe the four letters could constitute an  irrevocable
option, see Ammerman v. City Stores Co., 394  F.2d 950 (D.C. Cir.
1968); see generally Restatement (Sec- ond) of Contracts (1979) s
87(2) ("An offer which the offeror  should reasonably expect to induce
action or forbearance of a  substantial character on the part of the
offeree before accep- tance and which does induce such action or
forbearance is  binding as an option contract to the extent necessary
to avoid  injustice."); 3 Eric Mills Holmes, Corbin on Contracts s
11.7  (rev. ed. 1996) ("[A]n option contract can be made binding and 
irrevocable ... by subsequent action ... by the option holder  in
reliance on the option."), I join the majority in deferring to  the
Contracting Officer's determination that the letters con- stituted
"sufficient evidence" to establish an "irrevocable  right to gain
control of the necessary vessels in sufficient time  to commence
service," JA 102, and that TLL was therefore  operationally


Accordingly, I concur in toto in Parts I and II and in Parts  III.A and
III.C as explained above. I respectfully dissent  from Part III.B. My
resolution of Part III.B, finding revers- ible error in the award to
TLI, would require remand to the  Army for rebidding.