ADMINISTRATIVE AGENCIES
PROCEDURE -- POLICY -- PRACTICE
by
Stephen K. Huber, Esq.
Law Foundation Professor
University of Houston
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
Administrative Agencies
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© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
Administrative Agencies
TABLE OF CONTENTS
I. Introduction and Overview
II. Regulation Through Administrative Agencies
A. Reasons for Use of Agencies
B. Agency Process Goals/Values
1. Acceptability
2. Accuracy
3. Efficiency
4. Fairness
C. Separation of Powers: Checks and Balances
D. Independent Regulatory Commission
1. Appointment
2. Multiple Members
3. Term of Office
4. Reappointment
5. Salary
6. Political Affiliation
7. Geographic Balancing
8. Removal
E. Predictability and Transparency
F. Limitations on Benefits of Sound Procedural Rules
III. Administrative Agency Procedures
A. Introduction
B. Rule Making
1. Notice and Comment Rule Making
2. Rule Making Without a Hearing
3. Flexible Guidelines as Regulations
4. Rule Making and the President
C. Adjudication
1. Adjudicatory Procedures
2. Evaluation of Charter and License Applications
3. Use of Rule Making to Limit Adjudication
4. Judicial Review
D. "Informal Action" by Administrative Agencies
E. Institutional Decisions by Agencies
F. Agency Inaction
G. Adjudication v. Rule Making: Railway Charges Case
H. Administrative Procedure Act (APA)
IV. Government Acquisition of Information
V. Public Access to Agency Information
A. General Agency Disclosure Requirements
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
Administrative Agencies
B.
C.
D.
E.
F.
G.
Disclosure in Response to Individual Requests
Freedom of Information Act Exemptions
Objection to Disclosure by Provider of Information
Processing of Information Requests
Agency Recalcitrance Regarding Disclosure Laws
Freedom of Information Act (FOIA)
VI. Agency Meetings (Open to Public)
A. Explanation of Requirements and Exceptions
B. Government in the Sunshine Act
VII. Government Advisory Committees
A. Explanation of Requirements and Exceptions
B. Federal Advisory Committee Act (FACA)
VIII. Government Contracting
A. Principles and Problems
B. Federal Acquisition Regulations (FAR) System
1. Guiding Principles
2. Performance Standards
3. Acquisition Team
4. Councils and Secretariat
5. Agency Implementation
6. Deviations
7. Opportunity for Public Comments
8. Contracting Officers
9. Determinations and Findings
C. Construction Project Problems (Burtman, See No Evil)
D. Construction Project Problems (Rodriguez, Persistence Pays Off, Part II)
IX. Country-Specific Materials and Exercises
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
Administrative Agencies
I. INTRODUCTION AND OVERVIEW
Administrative law is about government decision-making; how the process happens and its effect on
the nation. Administration by government is carried out through agencies. Their functions include entering
contracts with parties outside government, the employment of staff, deciding disputes, making rules (which
bind both the agency and members of the public), investigation (both general and of particular persons), law
enforcement, collecting information, and disseminating information.
An agency, being a creature of law, can exercise only such powers as were granted to the agency by the law
giver (usually some combination of legislative and executive action). It may be sound public policy to create
some agencies with quite limited and specific powers, but the point here is that the potential powers that can
be granted to an agency are quite broad.
Instances will regularly arise where an agency may authorize or reject a request for a financial
allowance, or extend a deadline. Indeed, one concern about administrative agencies is that they may have too
much discretion, and that they may exercise this power in an unfair or even corrupt manner.
Information gathering should not be limited to submission of paper. In addition, compliance must be
confirmed at construction sites and other places where physical operations take place. It is said of bank real
estate lending departments that if people do not have mud on their shoes then the bank is in trouble. Reports
are likely to say what the agency wants to hear, or the contract between the parties requires. Progress in
building a pipeline, compliance with quality specifications, and many other matters can only be determined by
spot-checking that performance is in accord with paper claims.
So far, this section has addressed the power of agencies to obtain information about the activities of
regulated persons, and the responses available to an agency in the event of non-compliance. To oversimplify
only slightly, a Government body can obtain whatever information it needs or wants, in whatever form the
agency specifies. Job sites could be inspected daily, if the agency had the personnel to do so, but this would
not make sense. The collection of information whether through paper reports, on-site physical inspections,
and laboratory tests or by other methods, is not an end in itself. Rather, it is means for achieving operational
objectives.
Often agencies request or require the submission of reports or other information just because they
have the power to do so, and then the reports sit unread on a shelf collecting dust -- or, even worse, people are
hired to read useless reports. This approach is obviously wasteful. It is important to recognize that the creation
and dissemination of information is a cost, and that reporting requirements should not imposed lightly. More
data is not automatically better data. Submission of a report is just as much a cost of exploring for oil as
seismic testing or digging a hold in the ground. The goal, which is far easier to state in theory than to
implement in practice, is an optimum level of reporting that provides a government agency accurate
information in a timely manner.
Reporting requirements must be considered on a Government-wide as well as an agency perspective.
The ability to require a report from someone is a form of power, particularly when that someone is associated
with a large money operation like energy development, so many agencies want a piece of the action. Just as a
thought experiment, think of all the government bodies, both national and local, bodies that might have a
plausible basis for requiring that an energy project make some form of report to it, and thus be subject to
regulation by that agency. Even worse, many of these agencies will require that similar information be
organized in somewhat different ways.
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Administrative Agencies
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The regulated multi-national energy firms (and construction contractors as well) are willing to
provide whatever information is required of them, and permit unlimited access to operational sites. They may
not prefer this approach, but they know that such compliance is a normal part of doing business. What truly
upsets the firms is duplicative requirements, or the collection of information that never gets used by anyone.
Regulated firms generally prefer to deal with a single agency rather than being subject to multiple and
conflicting directives from different agencies. In many instances, a Government does not want to place full
authority over as important a matter as energy development in a single agency, and it is difficult to prevent
agencies from exercising their core authority. Will housing for energy workers not be subject to building
codes and regular inspections? Will imported goods and services for an energy project not go through
customs procedures? Energy affects national security, foreign policy, and the environment. Persons and
agencies charged with oversight of these (and many other) functions will (legitimately) claim a role in energy
development -- and good quality, current information is essential to meaningful participation. Note that the
power struggles here are not between the Government and a regulated firm or industry, but among agencies
within Government.
One approach to this problem is creating an inter-agency taskforce charged with coordinating the
collection of information, and to resolve disputes about regulatory authority.
Once an agency has information, there arises the question of what persons within the agency may
have access to various sorts of information. Information is not fungible, so some system for classifying it is
necessary. To the extent that access to any class of information is limited, there then arises the need for a
system of determining what information falls into what category, and who has access to various classes of
information. Further, a system must be devised for inter-agency access to information --that is, under what
circumstances can information collected by one agency be made available to an official of another agency.
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II. REGULATION THROUGH ADMINISTRATIVE AGENCIES
The creation of administrative agencies as a response to a perceived need to regulate large scale
economic activities is one that has been attractive to governments throughout the world in recent decades,
without regard to political system or ideology. This chapter will consider the reasons why governments
choose to create administrative agencies, the objectives agencies strive to meet, and then examine selected
issues related to the creation and operation of agencies by governments.
A. Reasons for Use of Agencies
There are a number of reasons why the agency approach to regulation has such wide appeal. An
agency can define, refine, and subdivide a set of issues that are related to a specific sphere of economic
activity such as agriculture, transportation, education, financial institutions, or energy. The agency can
exercise continuous supervision and control over an extended period of time. Agencies can regulate in a
flexible manner, and adapt to changes over time. Indeed, an important administrative function, particularly
initially, is to define the universe of problems to be addressed by the agency at a level of detail that is
impractical for the law giver. In the course of conducting regulatory activities, the agency develops
experience and expertise. Collection of data is possible, which contributes to both expertise and the quality of
agency decisions. An agency can adopt rules and procedures, which it can then implement in a uniform
manner, and adjust them over time on the basis of operational experience.
Agencies can impose sanctions, including large fines (as authorized by the law creating the agency)
for violation of agency rules, but the agency can also promote preventive actions by regulated parties. (By
way of comparison, a court can only punish transgressions after the fact.) Finally, the agency approach offers
continuity, and allows for long term planning.
Compared to elected executive officials, the legislature and the courts, agencies have several
institutional strengths that equip them to deal with complex problems. The most important of these may be
specialized staffing, the ability to hire persons with whatever particular knowledge and experience is needed
to address the range of problems assigned to an agency. And, since the agency's area of responsibility is
limited, it can develop the expertise that results from long and focused attention to a particular subject area.
Techniques and strategies for regulation can be tailored to meet the problems at hand, and later they can be
adjusted in response to changing conditions. Because agencies commonly deal with a small number of
business organizations on a continuing basis, they can affect conduct by regulated firms through a wide
variety of informal methods. This is true for regulating retail petrol stations, and far more so for the huge
multinational energy firms that undertake exploration and production activities.
Agencies have the power to impose a wide array of sanctions that vary dramatically in both formality
and severity. Among the more severe sanctions that might be used are suspension of a license,
disqualification from bidding for future licenses, monetary fines, denial of permission to undertake an
activity, and refusal to grant the waiver of a rule. Rarely is anything so crude as a threat required; regulated
entities are quite well aware of what sanctions are available to an agency, and the extent to which they have
been in fact been imposed in the recent past. "The mailed fist inside the velvet glove" is the approach adopted
by experienced agencies. Precisely because agencies interact regularly with the same firms over an extended
period, and everyone knows that this relationship has to continue, mere suggestions from an agency
("jawboning") are commonly taken very seriously by regulated firms.
The institutional advantages of agencies are particularly apparent in new or rapidly changing areas of
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activity, where the regular process of law making cannot keep up with changing circumstances or address
issues in adequate detail. The development of natural resources, with the related infrastructure and
environmental issues, provides a good example of such a situation. An agency, with continuous responsibility
for a limited (albeit very important) sphere of activity, can develop sensible policy over a period of time.
Where the subject matter being regulated is technical or complex, and/or where detailed knowledge
about the regulated industry is important, the agency approach to governance can be particularly effective.
Again, energy development provides an obvious example.
While expertise and experience clearly are desirable, there are other important considerations for
agencies. Experience can lead to inflexibility and tunnel vision regarding an issues or an industry. Expertise
can become a form of group bias -- engineers build, surgeons operate, etc. There is a considerable social
science literature demonstrating that people define issues in a way that makes them susceptible to being
addressed by the knowledge/expertise of the person who is defining the problem. For example, biologists,
economists, engineers, and lawyers are likely to respond to environmental concerns by generating quite
different sets of responses.
Working with a single client industry can result in "capture" of the agency by the parties being
regulated. This is because agency personnel work closely with the industry, and personnel from both have
similar professional backgrounds and also because the regulated industry is an obvious source of future
employment for the (usually underpaid) civil servant. What sort of work is a Government petroleum
geologist likely to do in his next job? These arguments are not made in praise of ignorance or lack of
experience, but they are important cautions.
Expertise must be considered together with accountability. Governments commonly find expertise
helpful, just as individuals seek out the assistance of physicians. At times, however, the views of the experts
may be not completely aligned with the needs and desires of governing elites or of an influential segment of
the public. For questions such as which among several potential routes for a road or pipeline should be
adopted, the expertise needed is that of a master politician. Accountants can provide project cost estimates,
and engineers can compare the problems associated with alternative routes, but whether a specific level of
added cost to skirt a local park is appropriate is a political as well as a technical decision. It is no wonder that
agency heads are usually political appointees rather than technicians.
The benefits of assigning responsibility for a particular area of regulation to an (independent) agency
are broadly applicable to complex economic undertakings over an extended period of years. Agreement with
this proposition merely sets the stage for regulation, but it does not tell one what to regulate, the manner of
regulation, or how much to regulate. Acceptance of the proposition that some level of regulation of an
industry (e.g., energy development) or a problem (e.g., damage to the environment) may be required does not
demonstrate that more regulation is better regulation. Indeed, it is a defect of agencies that they regulate
everything they have the power to regulate (and often do so in considerable detail) for no better reason than
because they possess the power to do so. One is reminded of Edmund Hillary's reason for wanting to climb
Mount Everest: "because it is there." This is a rather weak rational for a regulatory regime.
B. Agency Process Goals/Values
The agency process, which includes input from other parts of the government and the society, can
usefully be seen as seeking to balance and maximize four often congruent but sometimes conflicting
goals/values: acceptability, accuracy, efficiency, and fairness. Of course, such abstract principles do not
provide answers to hard questions, but it is important to sound policy administration that the larger values are
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Administrative Agencies
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kept in mind. Gellhorn and Levin, ADMINISTRATIVE LAW AND PROCESS 1-7 (1997).
1. Acceptability. Because the legitimate exercise of Government power ultimately is tied to the
acquiescence of the governed, it is important to consider the attitudes of constituency groups and the general
public toward the regulatory process. That is, administrative procedures should be judged not only on their
actual effects, but also on the ways they will be perceived by affected interest groups. There are probably
few situations in which public attitudes toward agency procedures play a central role in shaping beliefs about
the basic legitimacy of the regulatory decision or program. Still, it seems clear that a widespread feeling that
a government bureaucracy makes decisions unfairly or arbitrarily can undermine the public's confidence in
the agency, and the willingness of the regulated industry to cooperate with the agency or comply with its
decisions.
2. Accuracy. The administrative decision-making process should attempt to minimize the risk of
wrong decisions. [The same can be said of courts, which only highlights the fact that courts are a form of
agency in terms of function -- even though the judicial branch of government is not subject to laws about
administrative action.] Defining and measuring accuracy is difficult. Since the goals of many regulatory
programs are not simple or clearly stated, and the consequences of agency decisions may be almost
impossible to identify clearly, there will often be differences of opinion as to whether a particular decision
was accurate or wise. In addition, the impact of process in a decision usually is difficult to determine, even in
hindsight. Furthermore, most people in a society, including influential government officials, are primarily
interested in the substance of important decisions rather than the process employed in reaching them.
3. Efficiency. Attempting to increase the fairness of an administrative process by expanding
opportunities to participate, or to improve decisional accuracy by gathering and evaluating additional
information, has costs in time, money and failing to do other things (economists use the term "opportunity
costs"). Since agency resources are always limited, and insufficient to carry out the full range of duties
expected of the agency by law, the agency must consider the efficiency of its processes for making decisions.
The fundamental trade-off is between the benefits in fairness and accuracy of additional procedural
safeguards, versus the costs (including delay) of these procedures. This principle is far easier to state than to
apply to complex and difficult issues, because both the costs and benefits are almost impossible to measure.
Put another way, specific measurement requires assumptions about matters that are unknowable or simply are
disguised policy preferences. [A simple example may be helpful. The present value of the right to receive 1
million barrels of oil pumped from a yet undeveloped oil filed requires assumptions about the quality of oil,
inflation, interest rates, and other factors.]
4. Fairness. The fairness of government decision-making procedures offers an important basis for
measuring the legitimacy of Government, and its popularity with the citizenry. In addition to the respect and
trust of the public, perceptions about the fairness of Government processes also are a major factor in the
investment decisions of entrepreneurs -- both local start-up businesses and multinational corporations.
C. Separation of Powers: Checks and Balances
Government authority can be divided into three categories: Legislative, Executive, and Judicial.
Powers normally exercised by any one, or all, of the three branches of government may be assigned to an
agency through the normal process of adopting laws. Indeed, agencies owe their very existence to such laws;
the very act of talking about administrative process presupposes a bias in law for an agency to exercise
substantive authority.
Agencies are sometimes referred to as the "fourth branch" of government, in important part because
they perform functions that are otherwise undertaken by the other three branches. Because of their long term
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
Administrative Agencies
5
(and largely apolitical) existence agencies often exercise broad powers, albeit in a limited sphere. An energy
development agency may exercise important legislative, executive, and judicial powers, and make decisions
that involve large sums of money, but the sphere of authority is limited in scope. While the authority that can
be exercised by administrative agencies is not limited by the separation of powers principle, the powers of
agencies are effectively checked by their subservience to the constitutional branches of Government.
D. Independent Regulatory Commission
Instead of governing directly through officials appointed by the chief executive of a country,
administrative powers might be vested in an "independent" agency -- an entity that is shielded (but not
immune) from political pressures, and which is not fully subject to direction by the executive or the legislative
branches of government. Important regulatory bodies commonly are set up as "independent entities.
However, the extent of independence may vary considerably.
In the context of governance, "agency" refers to the person or persons designated by law to lead the
body. This group "is" the agency in the same way that a corporate board of directors "is" the corporation. The
authority of the chief operating officer and lower officials to act on behalf of the agency or corporation is
derived from the consent (express or implied) of the governing body.
Agency independence is a function of several factors, so the level of independence will vary with the
agency structure. Among the important independence factors are the following:
1. Appointment. The chief executive appoints commissioners, with the concurrence of the
legislature. The legislature has the power to block an appointment, but not to make one. This structure makes
for a serious appointment process, normally including some form of background check. As a result, agency
members have real political and public credibility, at least initially.
2. Multiple Members. A multi-member commission (usually three, five, or seven members)
promotes independence in several ways, compared to a single agency head. Pressure cannot be focused on a
group as easily as on a single individual, and deliberations among agency members are possible. Multiple
members also increase continuity, and promote the expertise that is expected of an agency.
3. Term of Office. A lengthy term of office increases the independence of individual agency
members. Five to seven year terms are the most common duration. Staggered terms further protect the
independence of the agency. For an agency with five members, with each member serving five-year terms of
office, the term of one commissioner would expire each year. Where a position becomes vacant prior to
completion of the term of office, the replacement person completes the remainder of the predecessor's term of
office rather than receiving a full appointment, to ensure the regular expiration of terms of office. (This
regularity comes at the price of shorter terms of office for replacement members.)
4. Reappointment. Typically, a commissioner is eligible for reappointment upon completion of a
term of office, by the same procedures as used for initial appointments. In some instances reappointment is
prohibited, to avoid the temptation of a commissioner to bend to the will of the appointing authority in hope
of being reappointed.
5. Salary. Members of independent agencies are compensated well by government standards, but
they are paid much less than senior officers of multinational corporations. Salary protection during the term
of office shields agency members from political retribution for unpopular decisions.
6. Political Affiliation. Independence is much more likely to occur if agency members come from
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
Administrative Agencies
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different political parties. A provision that only a bare majority of agency commissioners (3 of 5, or 4 of 7)
may be members of the same political party can produce bi-partisan decision making, and reduce the political
pressure on an agency.
7. Geographic Balancing. Representation from throughout a country promotes independence by
increasing legitimacy, and the inclusion of different groups. Geography also offers an indirect way to give a
voice to different interest groups.
8. Removal. Perhaps the most important single guarantee of independence is protection against the
removal of an agency member from office except for cause. Grounds for removal are normally stated at a
high level of abstraction, such as "inefficiency, neglect of duty, or malfeasance in office." While this standard
is necessarily imprecise, it is clear that removal requires serious evidence of substantial wrongdoing.
Another possible independence factor is to permit the agency members to select their own Chairman.
This approach increases agency independence, but limits policy coordination, while appointment by the
President allows for better overall governance. The U.S. once provided for agency selection of the Chairmen,
but now the President selects the chair from among the agency members.
"Independent" agencies are not truly independent, nor should they be. The executive and legislative
branches of government superintend agencies. They cannot levy taxes, and their funding comes from
authorizing laws. (An agency might impose fines or collect fees, but only if expressly permitted by law.)
"Independent" agencies are somewhat shielded from the political branches of government, at least in the short
run. Adoption of the independent agency structure reflects a compromise between accountability and
expertise.
E. Predictability and Transparency
What businesses want most of all from a Government agency, once they have decided to engage in an
economic venture, is certainty and clarity about what an agency will do and how it will react to new
developments. This attitude is best expressed in an advertising slogan used by the Holiday Inn hotels: "the
best surprise is no surprise." Too often, Government changes policies and rules, whether in response to
political pressures or changed priorities, as one official or administration replaces another.
Environmental regulation of energy firms provides a useful example. Executives of multinational
energy companies will admit (at least in private) that environmental regulation is a sensible idea, even if they
may wish for less costly restrictions. These same executives will admit that they can adjust to any plausible
regime of rules, provided that it does not constantly change. Rules and regulations will (and should) change
over time, in response to changing circumstances, but such changes should be limited to situations of true
necessity.
When changes are being contemplated or thought to be needed, early notice to regulated firms is
appreciated, both because this is a sign of confidence and respect, and because reasonable advance notice
allows for adjustment to likely changes. In addition, regulated entities may have useful ideas about the
problems and policies under consideration. The suggestions from regulated firms will be motivated by selfinterest, but that is not necessarily a reason to reject an idea. Often, "win-win" solutions can be developed
that offer benefits to both Government and regulated firms. For example, if a lower cost and more effective
solution to an environmental problem are found, both the country (on whose behalf the agency is acting) and
the company are benefited. Optimum solutions to problems are often the result of the interchange of ideas
between agencies and the parties they regulate.
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Administrative Agencies
7
The interests of regulatory bodies and regulated firms are normally not the same, and tensions are
sure to arise, but this is just another reason to seek out cooperation (not capitulation) where available. There
is a vast range of possibilities between identical interest and completely opposed interests. Even if the
suggestions of regulated entities are not adopted, people appreciate being asked their opinions.
Agencies also benefit from an atmosphere of cooperation. An important reason to seek the advice of
outside experts, including but not limited to those associated with regulated entities, is to avoid embarrassing
miscalculations or mistakes. One cannot regulate at the frontier of technology or knowledge without making
decisions that appear mistaken or even foolish in the glare of 20-20 hindsight. Listening to the concerns of
regulated firms has saved many a regulator from embarrassing errors.
An important way to achieve transparency and predictability is through the consistent use of open
procedures, always provided that doing so is consistent with appropriate national interests. Consistent
compliance with administrative procedure laws, which include open meeting and open records provisions, is
important for business confidence. Conversely, information that is submitted in confidence must be kept
confidential.
F. Limitations on Benefits of Sound Procedural Rules
The benefits of sound procedures have their limitations. Even with the fairest and most complete
procedures, the people who are responsible for implementing them on a day-to-day basis may be foolish,
venal, or even corrupt. Conversely, talented and dedicated public servants can perform wonderfully even in
the absence of regular procedures. This does not demonstrate that administrative process is useless or
unimportant, but only that a sound regime of rules must be carried out by people of reasonable ability and
integrity.
Quality agency operations require a consistent record of sound administration over time. Everyone
makes mistakes, and (at least in modest number) these are easily forgiven. What severely undermine
confidence in an agency (and, by extension, Government itself) are decisions based on political influence
("crony capitalism") or dishonesty. Failure to honor prior promises also will quickly undermine confidence in
an agency. Operational integrity takes a good while for an agency to establish, but it can be quickly
dissipated.
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Administrative Agencies
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III. ADMINISTRATIVE AGENCY PROCEDURES
A. Introduction
A highly general statute, the Administrative Procedure Act (APA), governs the formal actions of
administrative agencies. The APA reflects an important policy decision, which is that a single set of
procedures applicable to all agencies is appropriate and useful, at least as a default provision. The law that
creates an agency can establish different procedural standards, which will displace the APA provisions, but
this must be done specifically and clearly. Most laws that govern the powers and actions of an agency are
directed at substantive issues rather than procedural matters. The materials in this Chapter present the major
provisions of the APA, and some of the issues that arise thereunder.
The APA embodies a model for administrative agencies that combines executive, judicial, and
legislative functions in a single entity. The separation of powers doctrine does not apply to federal agencies,
although specific safeguards are often employed to ensure fundamental fairness for those who deal with an
agency. Concern over the combination of functions is most pronounced in the case of agencies with
supervisory functions, where the agency acts as both prosecutor and judge. Frequently, an alleged offense is a
violation of a rule that has been "legislated" by the agency. The result is an agency with enormous power
regarding its areas of authority -- for example, the development of energy resources.
The APA sets forth procedural standards for the two types of formal administrative action: (1) the
adoption of substantive rules (rule making) and (2) the application of established rules to particular situations
in a trial-type hearing (adjudication). Rule making is the administrative analogue of legislation, while
adjudication is analogous to a judicial trial. Rule making is intended to produce law or policy for the future,
and adjudication involves the evaluation of past conduct. Agencies also may take informal action, subject to
limited procedural constraints.
Rule making and adjudication often are easy to distinguish, even being the antithesis of one another.
Rules (like statutes) are general in form, addressed to the world, and prospective in application. In contrast,
adjudication (like court decisions) is about an existing dispute between particular parties, with the resulting
order binding only the participating parties. In the context of comprehensive supervision and regulation of a
subject area or industry, however, the distinction between general and particular effects is not always easy to
identify. Since rule making and adjudication make use of quite different decision procedures, the distinction
can be of real importance. Where large amounts of money are at stake, as will often be the case in the energy
field, appropriate procedures and substantive results often are closely linked. These questions are best
explored through a case study, set forth in Section G: a rate making decision with both a majority and a
dissenting opinions that thoroughly airs the relevant arguments and policy consideration.
B. Rule Making
In order to adopt a valid rule, an agency must adhere to the rule making procedures specified in the
APA. A "rule" is a statement of general applicability and future effect by an agency that prescribes law or
policy or describes agency organization, procedure, or practice. ' The formulation, amendment, and repeal of a
rule are all subject to the APA requirements. Rule making is essentially legislative in character, because it
operates in the future and is primarily concerned with policy considerations.
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Administrative Agencies
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1. Notice and Comment Rule Making
The most important process by which administrative agencies promulgate substantive rules is called
"notice and comment" rule making. This process represents is sometimes referred to as "informal" rule
making, to distinguish it from on-the-record rule making (called "formal" rule making). [This unfortunate
usage is not followed in these materials because of the possible confusion with informal agency activity,
discussed in section D, below.] The most important point about notice and comment rule making is that the
requirements are entirely mechanical and are completely within the control of the agency. It decides whether
and when to propose a rule and the contents of the proposed rule.
The importance of the authority to adopt substantive rules is difficult to exaggerate. The British aptly
refer to such rules as "subordinate legislation." Although the Government has the power to legislate with
great specificity, thereby leaving little room for flexibility in agency implementation of a law, it does so
infrequently. Instead, the typical approach is for the law to identify a set of related problems and create an
agency to deal with them. This approach is particularly useful when close monitoring and ongoing
supervision are required, as with energy organizations. The authorizing law tends to be broadly written in
general language, in order that the regulators who implement the law have considerable discretion about how
to proceed.
A substantive rule adopted in accordance with the procedural formalities prescribed by the APA has
the same force of law as legislation. Of course, the agency action may not exceed the power delegated to the
agency by law. The final rule must contain a concise statement of its basis and purpose. The most salient
features of the rule making procedures are its simplicity and the ease of complying with the requisite
formalities. The primary procedural requirement is that notice of the proposed rule be given to the public
followed by an opportunity to comment, hence the name "notice and comment" rule making.
An agency formally initiates the notice and comment rule making proceeds by the publication of a
notice about the proposed rule in the Federal Register. The notice must identify the legal authority for the
proposed rule and set forth the substantive provisions of the rule. Where possible, agencies try to include the
full text of proposed rules. In addition, the notice must contain an explanation of the problems being
addressed and the proposed solutions. The agencies often solicit comments on specific questions or issues.
In addition to a general notice, the agencies inform trade associations, industry publications, affected
firms, and other interested persons when they propose a rule. Important rule making proceedings are preceded
by an extensive in-house review at the agency. Sometimes, the agency will use a published "pre-proposal"
that solicits public participation in the development of a proposed rule.
After giving notice of a proposed rule, an agency must permit any interested person to submit written
comments. Oral presentations may be made at the discretion of the agency. The agency must consider all
relevant comments before it can adopt a rule. Some agency employee must listen to or read all information
that is presented, but the agency members (unlike trial judges) can make their final decision on the basis of a
summary of the evidence. Agency members typically see only a summary of the comments, rather than the
full text of written or oral presentations. Any other procedure would be unworkable, because controversial
rule-making proceedings can generate hundreds of comments covering many thousands of pages.
An agency must provide a reasonable period of time for comment, but the APA does not provide a
specific minimum period. In practice, the comment period usually lasts at least sixty days. Since an agency,
like a legislative body, need not marshal substantial evidence in support of its position, the objective of the
comment period is to permit the statement of views on the agency's proposal, not to allow for the development
and presentation of data to counter an agency's factual premises. The agency is an expert body and is
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assigned the responsibility to determine whether and when to proceed with rule making, weigh evidence, and
resolve factual issues.
An agency must incorporate in the text of the final rule a concise general statement of its basis and
purpose. After final adoption, the rule is published in the Federal Register. The effective date may not be
earlier than thirty days after publication, except for rules granting an exemption or relieving a restriction, or
for good cause found and stated in the rule. Failure to publish a rule precludes enforcement against anyone
who did not have actual notice of its contents.
Internal agency rules may supplement but not contradict APA procedures. For example, an agency
(the Federal Deposit Insurance Corporation) has bound itself to withdraw a proposed rule if some action is not
taken within nine months after publication in the Federal Register. One kind of action is to extend the period
for considering the rule. Although prolonged delay is not to be applauded, this approach does have the merit
of apprising interested persons about the status of a rule-making proceeding and avoiding the adoption of a
rule after extended inaction. A failure to follow internal hearing procedures can provide a basis for
invalidation of agency action, at the behest of the adversely affected party.
Any interested person has the right to petition for the issuance, amendment, or repeal of a rule.
However, this "right" is illusory because the agency can take any action it pleases (including inaction) in
response to such a request and can do so without stating its reasons. An agency may terminate a rule making
proceeding at any time, and do so without offering any substantive explanation. (The sensible agency will,
however, state reasons for its action.) After soliciting and examining comments an agency can adopt
whatever rule it believes best, or no rule at all.
2. Rule Making Without A Hearing
Notice and comment procedures are not required for adoption of interpretive rules and procedural
rules -- rules governing agency organizations and management, personnel matters, and general statements of
policy. In a few instances, agencies have attempted to employ the exception for interpretive rules to
promulgate important policies that would arouse substantial controversy and opposition if subject to notice
and comment procedures.
Of course, agencies are permitted to adopt more extensive consultative procedures than the minimum
required by the APA. Doing so promotes transparency and confidence in the fairness of the agency, and may
even result in comments that allow the agency to promulgate better rules. The major cost is delay, but sound
advance planning by an agency can largely ameliorate this problem by allowing time for outside comment.
3. Flexible Guidelines as Regulations
Agency rules normally set forth mandatory standards of conduct and proscribe prohibited conduct,
often at great length and in excruciating detail. Since the consequence of failure to comply with the rules may
be large fines and other sanctions, this approach often makes sense. At the same time, the result often is
unfortunate in several respects:
1. Persons seeking to comply with the rules are faced with a welter of detail that obscures the
underlying purposes;
2. The resulting rules are needlessly rigid, often leading to numerous minor and technical violations;
and
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3. What should be management decisions become legal issues.
Some agencies have responded to this concern with flexible audit rules. The approach is to establish a basic
regulatory framework plus guidelines about compliance and then to allow the management of each firm to
implement these standards in a sensible manner. The audit rule is an auspicious one for the rule-and-guideline
approach because it is limited to large organizations, and the independent audits required under the rule
provide an independent check on the efficacy of management procedures and controls. The
rule-and-guidelines approach has been well received by the firms regulated thereunder.
In a related development, several agencies have begun to address the magnitude as well as the fact of
violations in their inspection and examination reports. Typically, a report provided to the board of directors of
a regulated firm is composed of a list of violations of statutes and regulations, without giving any indication
of how seriously they are regarded by the agency. Understandably, the agency does not want to publicly state
that some violations are of minor importance, or to rank order the importance of violations. After all, what
may be minor in one context may be considerably more serious in another context.
The defect of the undifferentiated list approach is that it provides no guidance to regulated firms
about what matters are of real importance, and require prompt attention. Sometimes multiple violations listed
are just the same violation repeated for many transactions, a common occurrence where businesses use printed
forms, uniform contract provisions, and uniform operating procedures. More disturbing, the reports often do
not indicate the magnitude of violations. This failure can needlessly alarm firms where violations of a fairly
technical nature are found, while at the same time keeping firms from focusing on the small number of really
serious problems.
4. Rule Making and the President
Recent presidents have expressed concern about executive coordination of action by agencies with
overlapping interests and authority. President Nixon instituted a quality of life review process for certain
regulations. President Ford required the executive branch agencies to prepare an inflation impact statement
(subsequently called an economic impact statement in order to reflect a broader concern) for every major
action undertaken by the agencies. A study of this procedure concluded that the evaluation took place too late
in the rule making process and had little impact on agency decisions, a defect that the Carter administration
sought to remedy. President Carter also ordered executive agencies to prepare an urban and community
impact analysis for each major policy initiative. To improve and coordinate the rule-making process, Carter
created the Regulatory Analysis Review Group. In addition, he established a Regulatory Council composed of
the heads of the executive branch agencies (the heads of independent agencies were invited to participate) to
coordinate agency rule making, resolve conflicts, and avoid duplication of effort. These efforts were
controversial and of questionable effectiveness.
President Reagan sought to reduce rule making and other action by executive agencies. His objective
was to decrease the burden of existing and future regulations, to ensure the issuance of reasoned and sensible
regulations, and to provide for presidential oversight of the regulatory process. Regulations were authorized
only if the potential benefits would outweigh the social costs, social benefits were maximized, and the least
costly alternative was selected. Such goals are much easier to state than to achieve, because social costs and
benefits are very difficult to measure.
C. Adjudication
The APA adjudication provisions deal with the procedural aspects of the adjudicatory process.
"Adjudication" is an administrative process that results in the formulation of an order. An "order" includes
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final dispositions other than rule making and can be affirmative, negative, injunctive, or declaratory in form.
The awarding of licenses, which might include a "license" to conduct energy activities, constitutes informal
adjudication, which means that procedural requirements are minimal and the standard of review is less strict
than in the case of formal adjudication. (See section D, below.)
1. Adjudicatory Procedures
The essence of formal adjudication is that decisions are made exclusively on the basis of a record
composed of evidence introduced by the parties, one of which is normally the agency or other unit of
Government. The presiding officer may not consult a person or party about a fact in issue until after giving
notice to all parties, who then must be afforded the opportunity to participate. The imposition of a sanction
(i.e., an order by the agency) must be supported by evidence in the adjudicatory record that is reliable,
probative, and substantial, a standard commonly referred to as the "substantial evidence" test.
Adjudicatory proceedings are normally open to the public and conducted in the orderly and dignified
manner associated with judicial trials, although often with less formality. Adjudication is commonly
conducted without lawyers. Cases are argued before hearing officers who have little or no legal training, but
who do possess expertise and experience concerning the subject matter under consideration.
The APA contains provisions designed to ensure that hearing officers make independent decisions
based on the evidence presented, and that they are not subject to what in the military is called "command
influence." The presiding officer may not be subject to the supervision of, or receive advice from, anyone
engaged in the performance of investigative or prosecutorial functions on behalf of the agency. Severe
restrictions are placed on ex parte (one party) contacts to protect the integrity of the process. These limitations
reflect the view that although there are advantages to mixing legislative and judicial functions in agencies
rather than adopting the separation of powers model built into the Constitution, the judicial model should be
used when adjudicative facts rather than legislative facts are at issue.
An adjudicatory proceeding differs in some significant ways from a trial. For example, administrative
proceedings do not use juries. Consequently, rules of evidence frequently are relaxed or even omitted
altogether in administrative trials because the agencies bring expertise to the issues that they examine.
Hearsay and other testimony that might be excluded in courts of law are regularly admitted into evidence. In
fact uncorroborated hearsay evidence can constitute substantial evidence. Compulsory process is available in
appropriate circumstances to require personal appearances or the production of documents.
Because hearing officers are experts about the subject matter under consideration, they usually
participate more actively in the agency proceedings than do judges in judicial proceedings. Oral presentations
of evidence followed by cross-examination do occur, but they do not play the same central role as in judicial
trials. Instead, written submissions are utilized to a far greater extent. The record in adjudications often
consists primarily of written evidence. Because the disputants and the decision maker are experts and the
issues are technical, this is a sound approach.
After the hearing phase of an adjudication is completed, the parties may submit proposed findings and
conclusions. At this time, the presiding officer makes an initial or recommended decision. Unless one of the
parties objects, it becomes the decision of the agency. If an objection is raised, the matter is brought to the
agency, which has the power to make a de novo decision. An agency does not use the same standards of
review as an appellate court, which upholds lower court determinations unless a specific defect is discovered.
The agency must consider the reasoning and proposed decision of the presiding officer, but the members of
the agency are not bound by the proposed decision and need not even accord it a presumption of correctness.
This is an appropriate policy because the presiding officer is merely an employee, whereas agency members
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occupy statutory positions and are appointed by the Government.
2. Evaluation of Charter and License Applications
Licensing decisions constitute adjudications, but they are not subject to the APA procedural
requirements for adjudications. The APA does not require the use of a formal hearing or the creation of a
record for this purpose. The licensing agency has almost complete discretion to approve or deny applications
for charters. Licenses can be auctioned to the highest bidder, or through some form of hybrid process where
qualified (by objective standards) bidders may compete.
3. Use of Rule Making to Limit Adjudication
Even when a right to an adjudicatory hearing exists, such a right can be circumscribed, and sometimes
even eliminated, through rule making. This is not a self-evident proposition, because an agency has much
broader discretion in rule making than in adjudication and because the practical consequence is to deny or
severely limit a hearing where, by hypothesis, a right to a hearing exists. The administrative convenience of
this approach is apparent. It also ensures consistency in the treatment of similar applications.
Administrative agencies can, and frequently do, use rules to structure adjudication by prescribing the
information that must be provided (often in great detail), the forms that must be used, the timing of hearings,
the issues to be addressed, and similar matters. Since these are procedural or interpretive matters, an agency
might not even need to solicit the views of interested persons before promulgating such a rule. A hearing
restricted by procedural rules will withstand judicial scrutiny if it meets standards of fundamental fairness.
4. Judicial Review
Judicial review of adjudicatory decisions is governed by the "substantial evidence" test. An agency
action will be upheld if it is supported by substantial evidence in the record. Only the decision on the merits
is subject to the substantial evidence test. A remedial order will be overturned only if it constitutes an abuse
of discretion. If an adjudicatory decision meets the substantial evidence test, the agency can impose any
sanction permitted by statute, and the reasonableness of the sanction is not subject to judicial review.
D. "Informal Action" by Administrative Agencies
"Informal action" is agency activity that is not subject to the rule making or adjudication provisions of
the APA. Much of the ongoing supervision involved in the pervasive regulation of the energy industry fits
this description. A court will overturn an informal agency decision only if the action is arbitrary and
capricious, a standard of proof that is extremely difficult to satisfy.
The early phases of formal administrative action are often informal and thus not constrained by the
APA. Examples of such activities include decisions not to undertake a prosecution, and an in-house
evaluation by an agency of whether to initiate a rule making proceeding. Agencies often adopt internal
procedures for the initiation of formal action and the processing of complaints. Failure of an agency to follow
its own rules may be actionable, even if the agency was not required to promulgate such rules.
The extensive Government supervision of the activities of energy projects is nearly always conducted
by informal process. For example, the frequency, duration, and thoroughness of site examinations are entirely
within the discretion of the responsible agency. Nearly all regulatory problems that arise are resolved
informally by mutual consent. Regulators and regulated firms interact frequently and know that they will
continue to do so for the foreseeable future. Therefore, prolonged enforcement battles are not in the best
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interests of anyone.
The major advantage of this informal day-to-day interaction between agency and regulated firms is
the speed and flexibility of regulatory response as problems arise. The principal risk is a lack of
accountability, because the regulated firm or industry is effectively precluded from challenging agency action
in formal proceedings before the agency or the courts. Another consequence is that there is little pressure on
the agency to explain its policies or to apply them consistently. Meanwhile, outsiders are concerned
(sometimes, with reason) that there is an unduly cozy relationship between the agency and the firms it
regulates.
E. Institutional Decisions by Agencies
Parties that deal with an agency sometimes believe that the stated reasons for taking a particular
course of action were not the real reasons, or that a statement of reasons was incomplete. Laws often require
that a named official must consider specific factors, or must base a decision on the record of evidence, or set
some other standard of procedure or conduct that the claimant believes has not been followed. A claimant
may believe that political considerations or other factors not contemplated by the applicable statute or
regulations played a part in the decision.
The courts have long recognized, both in the rule making and adjudicatory context, that
administrative decisions are made by an agency, not an individual. Although the institutional decision is
contrary to judicial norms, where reasoned opinions signed by individual judges are expected, this approach is
essential for large agencies to function sensibly.
The leading American case is United States v. Morgan," which involved a challenge to a stockyards
rate, order by the Secretary of Agriculture. The plaintiff sought to depose the Secretary in order to
demonstrate that his decision was based predominantly, if not entirely, on consultation with the agency staff,
instead of being based on the record developed by the agency, as required by the governing statute. The
Supreme Court refused to permit the plaintiff to probe the mind of the administrator, or to look behind the
formal agency findings.
Administrative proceedings, particularly for rule making, commonly produce a record that is
thousands of pages long and which may stretch out over several years. In the absence of an institutional
decision, a senior official might do little else but review records in agency proceedings. Given the rapid
turnover of senior government officials (what is pejoratively referred to as the "revolving door" phenomenon),
institutional decisions are essential to timely agency action. The result is that the senior officials at
government agencies, like the senior officers at major corporations, often make decisions on subjects about
which they have little personal knowledge, based entirely on the recommendations of subordinates.
The practical consequence of a different approach, even if challenges to an agency action are severely
restricted, would be to permit dissatisfied claimants to take the deposition of the highest agency official. A
deposition is an intense and time-consuming process (preparation takes far longer than the actual deposition),
which takes the official away from the assigned task of directing the agency. If senior administrators had to
make decisions based on their own knowledge, they would have to spend most of their time making a
relatively small number of decisions on contested issues, and participating in litigation. Meanwhile, day-today operations, planning, and other matters would be given short shrift or would be assigned to other officials,
who, in turn, might be challenged on their decisions. The judicialization of agency decision-making would not
produce good government.
F. Agency Inaction
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So far, this chapter has considered the activities agencies are permitted to undertake, and the
procedures that must be followed when an agency wants to take action. Now we turn to the converse
situation, where an agency declines to take action. Inaction can be the result of a considered decision, or a
simple failure to act. Often, regulated parties want nothing more from an agency than to be left alone;
taxpayers are a notable example. In many other instances, however, a regulated party wants or needs some
form of action by its regulatory agency -- and, the sooner the better. Taxpayers may overpay, and thus be
owed money by an arm of Government. A bidder for an energy or construction project wants to know
whether it has been selected. Getting goods through customs is another instance where prompt agency action
is desired. As an exercise, make a list of ten instances where the absence of a necessary government approval
could materially delay an energy development project.
Another variant of agency inaction is where a matter is opened for consideration, and then never
completed. Sometimes an agency gives notice of a proposed rule, takes comments thereon, and then takes no
immediate action. A person seeking a status report is likely to be told that the matter is under review, or
something similarly vague. Sometimes the agency is taking the time needed to deal with complicated issues;
sometimes there is delay due to the press of what the agency regards as more important business; sometimes
political considerations arise; and sometimes the agency decides that upon reflection it is not ready to adopt
any final rule. Bureaucracies are not famous for their speed of action, whether the reasons are good or bad.
Adjudication also provides examples of agency inaction. An investigation may be started, say of the
waste disposal practices of an energy production firm, and then the firm will not hear anything further for a
period of weeks or months. Fines may be hinted at, but the firm remains in a state of uncertainty. When
"mere" delay turns into "unreasonable" delay is a matter on which the firm and the agency are likely to differ.
Since businesses have to get along with the agency, and rely on the agency for a variety of needed approvals,
rapid agency action cannot be easily obtained from an unwilling agency.
The APA was adopted for the purpose of regularizing the procedures to be followed when an agency
decided to commence relatively formal administrative action adjudication or rule making) but the Act is silent
about the matter of inaction by an agency. Nothing in the APA requires agencies to undertake enforcement or
any other substantive action. As a result, regulated firms usually cannot do anything more than ask nicely
when action is required. (Bribery is not an acceptable option, although its use has been widespread for as long
as Government has played a central role in economic life.)
Courts are authorized to compel agency action that is "unlawfully withheld or unreasonably delayed,"
but the duty to take action must be found in the agency's organic statute. Even when administrative action
appears to be required by law, courts rarely order an agency to take a particular action because doing so
would involve the court in the executive function of setting priorities and allocating scarce resources.
G. Adjudication v. Rule Making: United States v. Florida East Coast Railway Company, 410 U.S. 224 (U.S.
Supreme Court 1973).
Mr. Justice REHNQUIST delivered the opinion of the Court.
Appellees, two railroad companies, brought this action in the [federal trial court] to set aside the
incentive per diem rates established by appellant Interstate Commerce Commission (ICC) in a rule-making
proceeding. The Court sustained appellees' position that the Commission had failed to comply with the
applicable provisions of the Administrative Procedure Act (APA) and therefore set aside the order without
dealing with the railroads' other contentions. The District Court held that the language of s 1(14)(a) of the
Interstate Commerce Act, required the Commission in a proceeding such as this to act in accordance with the
APA and that the Commission's determination to receive submissions from the appellees only in written form
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was a violation of that section because the respondents were "prejudiced" by that determination within the
meaning of that section.
We here decide that the Commission's proceeding was governed only by s 553 of [the APA] and that
appellees received the hearing required by s 1(14)(a) of the Interstate Commerce Act. We reverse the
judgment of the District Court.
I. BACKGROUND OF CHRONIC FREIGHT CAR SHORTAGES
This case arises from the factual background of a chronic freight-car shortage on the Nation's
railroads. The Commission's order is the latest chapter in a long history of freight-car shortages in certain
regions and seasons and of attempts to ease them. Congressional concern for the problem was manifested in
the enactment in 1966 of an amendment to s 1(14)(a) of the Interstate Commerce Act, enlarging the
Commission's authority to prescribe per diem charges for the use by one railroad of freight cars owned by
another. The Senate Committee on Commerce stated in its report accompanying this legislation: Car
shortages, which once were confined to the Midwest during harvest seasons, have become increasingly more
frequent, more severe, and nationwide in scope as the national freight car supply has plummeted.
The Commission in 1966 commenced an investigation "to determine whether information presently
available warranted the establishment of an incentive element increase, on an interim basis, to apply pending
further study and investigation." Statements of position were received from the Commission staff and a
number of railroads. Hearings were conducted at which witnesses were examined. In October 1967, the
Commission rendered a decision discontinuing the earlier proceeding, but announcing a program of further
investigation into the general subject.
In December 1967, the Commission initiated the rule making procedure, giving rise to the order that
appellees here challenge. It directed Class I and Class II long-haul railroads to compile and report detailed
information with respect to freight-car demand and supply at numerous sample stations for selected days of
the week during 12 four-week periods, beginning January 29, 1968.
Some of the affected railroads voiced questions about the proposed study or requested modification in
the study procedures outlined by the Commission in its notice of proposed rule making. In response to
petitions setting forth these carriers' views, the Commission staff held an informal conference in April 1968,
at which the objections and proposed modifications were discussed. Twenty railroads, including appellee
Seaboard, were represented at this conference, at which the Commission's staff sought to answer questions
about reporting methods to accommodate individual circumstances of particular railroads. The conference
adjourned on a note that undoubtedly left the impression that hearings would be held at some future date. A
detailed report of the conference was sent to all parties to the proceeding before the Commission.
The results of the information thus collected were analyzed and presented to Congress by the
Commission during a hearing before the Subcommittee on Surface Transportation of the Senate Committee
on Commerce in May 1969. Members of the Subcommittee expressed dissatisfaction with the Commission's
slow pace in exercising the authority that had been conferred upon it by the 1966 Amendments to the
Interstate Commerce Act. Members of the Senate Subcommittee on Surface Transportation expressed
considerable dissatisfaction with the Commission's apparent inability to take effective steps toward
eliminating the national shortage of freight cars. Comments were general that the Commission was conducting
too many hearings and taking too little action. Senators pressed for more action and less talk, but
Commission counsel expressed doubt respecting the Commission's statutory power to act without additional
hearings, and the Chairman of the Commission agreed.
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The Commission, now apparently imbued with a new sense of mission, issued in December 1969 an
interim report announcing its tentative decision to adopt incentive per diem charges on standard boxcars based
on the information compiled by the railroads. The substantive decision reached by the Commission was that
so-called "incentive" per diem charges should be paid by any railroad using on its lines a standard boxcar
owned by another railroad. Before the enactment of the 1966 amendment to the Interstate Commerce Act, it
was generally thought that the Commission's authority to fix per diem payments for freight car use was
limited to setting an amount that reflected fair return on investment for the owning railroad, without any
regard being had for the desirability of prompt return to the owning line or for the encouragement of
additional purchases of freight cars by the railroads as a method of investing capital.
The Commission concluded, however, that in view of the 1966 amendment it could impose additional
"incentive" per diem charges to spur prompt return of existing cars and to make acquisition of new cars
financially attractive to the railroads. It did so by means of a proposed schedule that established such charges
on an across-the-board basis for all common carriers by railroads subject to the Interstate Commerce Act.
Embodied in the report was a proposed rule adopting the Commission's tentative conclusions and a notice to
the railroads to file statements of position within 60 days, couched in the following language: "That verified
statements of facts, briefs, and statements of position respecting the tentative conclusions reached in the said
interim report, the rules and regulations proposed in the appendix to this order, and any other pertinent matter,
are hereby invited to be submitted pursuant to the filing schedule set forth below by an interested person
whether or not such person is already a party to this proceeding. Any party requesting oral hearing shall set
forth with specificity the need therefore and the evidence to be adduced."
Both appellee railroads filed statements objecting to the Commission's proposal and requesting an
oral hearing, as did numerous other railroads. In April 1970, the Commission, without having held further
hearings, issued a supplemental report making some modifications in the tentative conclusions earlier
reached, but overruling in toto the requests of appellees.
II. APPLICABILITY OF ADMINISTRATIVE PROCEDURE ACT
The language of s 1(14)(a) of the Interstate Commerce Act authorizing the Commission to act "after
hearing" is not the equivalent of a requirement that a rule be made "on the record after opportunity for an
agency hearing" as the latter term is used in s 553(c) of the APA. Since the 1966 amendment to s 1(14)(a),
under which the Commission was here proceeding, does not by its terms add to the hearing requirement
contained in the earlier language, the same result should obtain here unless that amendment contains language
that is tantamount to such a requirement. Appellees contend that such language is found in the provisions of
that Act requiring that:
The Commission shall give consideration to the national level of ownership of such type of freight
car and to other factors affecting the adequacy of the national freight car supply, and shall, on the
basis of such consideration, determine whether compensation should be computed.
While this language is undoubtedly a mandate to the Commission to consider the factors there set forth in
reaching any conclusion as to imposition of per diem incentive charges, it adds to the hearing requirements of
the section neither expressly nor by implication. We know of no reason to think that an administrative agency
in reaching a decision cannot accord consideration to factors such as those set forth in the 1966 amendment
by means other than a trial-type hearing or the presentation of oral argument by the affected parties. Congress
specified necessary components of the ultimate decision, but it did not specify the method by which the
Commission should acquire information about those components.
Inextricably intertwined with the hearing requirement of the APA is the meaning to be given to the
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language "after hearing" in s 1(14)(a) of the Interstate Commerce Act. Appellees contend that the ICC
procedure here fell short of that mandated by the hearing requirement of 1(14)(a), even though it may have
satisfied s 553 of the APA. The APA states that none of its provisions "limit or repeal additional requirements
imposed by statute or otherwise recognized by law. 5 U.S.C. s 559. Thus, the Commission was ... required to
accord the "hearing" specified in s 1(14)(a).
The term "hearing" in its legal context undoubtedly has a host of meanings. Its meaning undoubtedly
will vary, depending on whether it is used in the context of a rule making-type proceeding or in the context of
a proceeding devoted to the adjudication of particular disputed facts. It is by no means apparent what the
drafters of the Esch Car Service Act of 1917, which became the first part of s 1(14)(a), meant by the term.
What is apparent, though, is that the term was used in granting authority to the Commission to make rules and
regulations of a prospective nature.
The Railroads refer us to testimony of the Chairman of the Commission to the effect that if the added
authority ultimately contained in the 1966 amendment were enacted, the Commission would proceed with
"great caution" in imposing incentive per diem rates, and to statements of both Commission personnel and
Members of Congress as to the necessity for a "hearing" before Commission action. Certainly, the lapse of
time of more than three years between the enactment of the 1966 amendment and the Commission's issuance
of its tentative conclusions cannot be said to evidence any lack of caution on the part of that body. Nor do
generalized references to the necessity for a hearing advance our inquiry, since the statute by its terms
requires a hearing; the more precise inquiry of whether the hearing requirements necessarily include
submission of oral testimony, cross-examination, or oral arguments is not resolved by such comments as
these.
Confronted with a grant of substantive authority made after the APA was enacted, we think that
reference to that Act, in which Congress devoted itself exclusively to questions such as the nature and scope
of hearings, is a satisfactory basis for determining what is meant by the term "hearing" used in another statute.
Turning to that Act, we are convinced that the term "hearing" as used therein does not necessarily embrace
either the right to present evidence orally and to cross-examine opposing witnesses, or the right to present oral
argument to the agency's decision-maker.
Section 553 excepts from its requirements rule making devoted to interpretative rules, general
statements of policy, or rules of agency organization, procedure, or practice, and rule making when the
agency for good cause finds ... that notice and public procedure thereon are impracticable, unnecessary, or
contrary to the public interest. This exception does not apply, however, when notice or hearing is required by
statute; in those cases, even though interpretative rule making be involved, the requirements of s 553 apply.
But since these requirements themselves do not mandate any oral presentation, it cannot be doubted that a
statute that requires a "hearing" prior to rule making may in some circumstances be satisfied by procedures
that meet only the standards of s 553.
Similarly, even where the statute requires that the rule making procedure take place "on the record
after opportunity for an agency hearing," thus triggering the applicability of s 556(d), this section provides
that the agency may proceed by the submission of all or part of the evidence in written form if a party will not
be prejudiced thereby. Again, the Act makes it plain that a specific statutory mandate that the proceedings
take place on the record after hearing may be satisfied in some circumstances by evidentiary submission in
written form only.
We think this treatment of the term "hearing" in the APA affords sufficient basis for concluding that
the requirement of a "hearing" contained in s 1(14)(a); in a situation where the ICC was acting under the 1966
statutory rule making authority that Congress had conferred upon it, did not by its own force require the ICC
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either to hear oral testimony, to permit cross-examination of ICC witnesses, or to hear oral argument. Here,
the ICC promulgated a tentative draft of an order, and accorded all interested parties 60 days in which to file
statements of position, submissions of evidence, and other relevant observations. The parties had fair notice
of exactly what the Commission proposed to do, and were given an opportunity to comment, to object, or to
make some other form of written submission. The final order of the Commission indicates that it gave
consideration to the statements of the two appellees here. Given the "open-ended" nature of the proceedings,
and the Commission's announced willingness to consider proposals for modification after operating
experience had been acquired, we think the hearing requirement of s 1(14)(a) of the Act was met.
ICC v. Louisville and Nashville R. Co., 227 U.S. 88 (1913), involved what the Court there described
as a "quasi-judicial" proceeding of a quite different nature from the one we review here. The provisions of the
Interstate Commerce Act in effect at the time that case was decided, left to the railroad carriers the "primary
right to make rates," but granted to the Commission the authority to set them aside if, after hearing, they were
shown to be unreasonable. The proceeding before the Commission in that case had been instituted by the
New Orleans Board of Trade complaint that certain class and commodity rates charged by the Louisville and
Nashville Railroad from New Orleans to other points were unfair, unreasonable, and discriminatory. The type
of proceeding there, in which the Commission adjudicated a complaint by a shipper that specified rates set by
a carrier was unreasonable, was sufficiently different from the nationwide incentive payments ordered to be
made by all railroads in this proceeding so as to make the Louisville and Nashville opinion inapplicable in the
case presently before us.
The basic distinction between rule making and adjudication is illustrated by this Court's treatment of
two related cases. In Londoner v. Denver, the Court held that due process had not been accorded a landowner
who objected to the amount assessed against his land as its share of the benefit resulting from the paving of a
street. Local procedure had accorded him the right to file a written complaint and objection, but not to be
heard orally. This Court held that due process of law required that he "have the right to support his
allegations by argument, however brief; and, if need be, by proof, however informal." But in the case of BiMetallic Investment Co. v. State Board of Equalization, the Court held that no hearing at all was required
prior to a decision by state tax officers in Colorado to increase the valuation of all taxable property in Denver
by an identical percentage. The Court distinguished Londoner by stating that there a small number of persons
"exceptionally affected, in each case upon individual grounds."
Later decisions have continued to observe the distinction adverted to in Bi-Metallic. While the line
dividing them may not always be a bright one, these decisions represent a recognized distinction in
administrative law between proceedings for the purpose of promulgating policy-type rules or standards, on the
one hand, and proceedings designed to adjudicate disputed facts in particular cases on the other.
Here, the incentive payments proposed by the Commission in its tentative order, and later adopted in
its final order, were applicable across the board to all of the common carriers by railroad subject to the
Interstate Commerce Act. No effort was made to single out any particular railroad for special consideration
based on its own peculiar circumstances. Indeed, one of the objections of appellee Florida East Coast was
that it and other terminating carriers should have been treated differently from the generality of the railroads.
But the fact that the order may in its effects is thought more disadvantageous by some railroads than by others
does not change its generalized nature. Though the ICC obviously relied on factual inferences as a basis for
its order, the source of these factual inferences was apparent to anyone who read the order of December 1969.
The factual inferences were used in the formulation of a basically legislative-type judgment, for prospective
application only, rather than in adjudicating a particular set of disputed facts. The Commission's procedure
satisfied both the provisions of s 1(14)(a) of the Interstate Commerce Act and of the APA.
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Mr. Justice DOUGLAS, with Mr. Justice STEWART, dissenting.
The present decision makes a sharp break with traditional concepts of procedural due process. The
Commission order under attack is tantamount to a rate order. Charges are fixed that non-owning railroads
must pay owning railroads for boxcars of the latter that are on the tracks of the former. These charges are
effective only during the months of September through February, the period of greatest boxcar use. For
example, the charge for a boxcar that costs for $15,000 to $17,000 and that is five years of age or younger
amounts to $5.19 a day. Boxcars costing between $39,000 and $41,000 and that are five years of age or
younger cost the nonowning railroad $12.98 a day. The fees or rates charged decrease as the ages of the
boxcars lengthen. This is the imposition on carriers by administrative fiat of a new financial liability.
I do not believe it is within our traditional concepts of due process to allow an administrative agency
to saddle anyone with a new rate, charge, or fee without a full hearing that includes the right to present oral
testimony, cross-examine witnesses, and present oral argument that is required by the APA. Section 553(c)
provides that s 556 applies "when rules are required by statute to be made on the record after opportunity for
an agency hearing." A hearing under s 1(14)(a) of the Interstate Commerce Act fixing rates, charges, or fees
is certainly adjudicatory, not legislative in the customary sense.
The question is whether the ICC procedures used in this rate case "for the submission of evidence in
written form" avoided prejudice to the appellees so as to comport with the requirements of the APA.
In 1966, Congress amended s 1(14)(a) to require that the ICC investigate the use of methods of
incentive compensation to alleviate any shortage of freight cars and encourage the acquisition and
maintenance of a car supply adequate to meet the needs of commerce and the national defense." The ICC's
initial investigation was terminated without action because it "produced no reliable information respecting the
quantum of interim incentive charge necessary to meet the statutory standards." A subsequent study of
boxcar supply-and-demand conditions yielded data that were compiled in an interim report containing
tentative charges and that were submitted to the railroads for comment. Although the ICC was admittedly
uncertain whether its proposed charges would accomplish the statutory objective, and even though the
opportunity to present evidence and arguments was contemplated, congressional impatience militated against
further delay in implementing s 1(14)(a). Consequently, the Commission rejected the requests of the railroads
for further hearings and promulgated an incentive per diem rate schedule for standard boxcars.
Appellee Railroads then brought this action alleging that they were prejudiced within the meaning of
the APA by the Commission's failure to afford them a proper hearing. Seaboard argued that it had been
damaged by what it alleged to be the Commission's sudden change in emphasis from specialty to unequipped
boxcars and that it would lose some $1.8 million as the result of the Commission's allegedly hasty and
experimental action. Florida East Coast raised significant challenges to the statistical validity of the ICC’s
data, and also contended that its status as a terminating railroad left it with a surfeit of standard boxcars,
which should exempt it from the requirement to pay incentive charges.
Appellees, in other words, argue that the inadequacy of the supply of standard boxcars was not
sufficiently established by the Commission's procedures. Seaboard contends that specialty freight cars have
supplanted standard boxcars and Florida East Coast challenges the accuracy of the Commission's findings.
In its interim report, the Commission indicated that there would be an opportunity to present evidence
and arguments. The appellees could reasonably have expected that the later hearings would give them the
opportunity to substantiate and elaborate the criticisms set forth in their initial objections to the interim report.
That alone would not necessarily support the claim of prejudice. But I believe that prejudice was shown
when it was claimed that the very basis on which the Commission rested its finding was vulnerable because it
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lacked statistical validity or other reasoned basis.
The more exacting hearing provisions of the APA, ss 556-557, are only applicable, if the "rules are
required by statute to be made on the record after opportunity for an agency hearing." Id., s 553(c). The rules
in question here established incentive per diem charges to spur the prompt return of existing cars and to make
the acquisition of new cars financially attractive to the railroads. These rules involve the creation of a new
financial liability. Although quasi-legislative, they are also adjudicatory in the sense that they determine the
measure of the financial responsibility of one road for its use of the rolling stock of another road. The
Commission's power to promulgate these rules pursuant to s 1(14)(a) is conditioned on the preliminary
finding that the supply of freight cars to which the rules apply is inadequate. Moreover, in fixing incentive
compensation once this threshold finding has been made, the Commission "shall give consideration to the
national level of ownership of such type of freight car and to other factors affecting the adequacy of the
national freight car supply."
The majority finds ICC v. Louisville and Nashville R. Co., 227 U.S. 88, "sufficiently different" as to
make the opinion in that case inapplicable to the case now before us. I would read the case differently,
finding a clear mandate that where, as here, rate-making must be based on evidential facts, s 1(14)(a) requires
that full hearing which due process normally entails. There we considered Commission procedures for setting
aside as unreasonable, after a hearing, carrier-made rates. The Government maintained that the Commission,
invested with legislative ratemaking power, but required by the Commerce Act to obtain necessary
information, could act on such information as the Congress might. The Government urged that we presume
that the Commission's findings were supported by such information, "even though not formally proved at the
hearing." We rejected the contention, holding that the right to a hearing included "an opportunity to test,
explain, or refute. All parties must be fully apprised of the evidence to be considered, and must be given
opportunity to cross-examine witnesses, to inspect documents, and to offer evidence in explanation or
rebuttal"
Clearly, the Commission believed that it was required to hold a hearing on the record. In its final
report, the ICC apparently still believed that its proceedings had to comply with the provisions of s 556 of the
APA. The report stated that the parties had been granted a hearing in accordance with those provisions. This
interpretation, not of the APA, but of section 1(14)(a) of the Commission's own Act, is entitled to great
weight.
Section 1(14)(a) of the Interstate Commerce Act bestows upon the Commission broad discretionary
power to determine incentive rates. These rates may have devastating effects on a particular line. According to
the brief of one of the appellees, the amount of incentive compensation paid by debtor lines amounts to
millions of dollars each six-month period. Nevertheless, the courts must defer to the Commission as long as
its findings are supported by substantial evidence and it has not abused its discretion. "All the more insistent
is the need, when power has been bestowed so freely, that the safeguard of a fair and open hearing be
maintained in its integrity." Accordingly, I would hold that appellees were not afforded the hearing
guaranteed by section 1(14)(a) of the Interstate Commerce Act and the APA.
ADMINISTRATIVE PROCEDURE ACT (APA)
§ 551. Definitions
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For the purpose of this subchapter -(1) "agency" means each authority of the Government, whether or not it is within or subject to review by
another agency, but does not include: (A) the legislature; (B) the courts;
(2) "person" includes an individual, partnership, corporation, association, or public or private organization
other than an agency;
(3) "party" includes a person or agency named or admitted as a party, or properly seeking and entitled as
of right to be admitted as a party, in an agency proceeding, and a person or agency admitted by an agency as a
party for limited purposes;
(4) "rule" means the whole or a part of an agency statement of general or particular applicability and
future effect designed to implement, interpret, or prescribe law or policy, and includes the approval or prescription
for the future of rates, wages, corporate or financial structures, prices, facilities, appliances, services or allowances
therefore or of valuations, costs, or accounting, or practices bearing on any of the foregoing;
(5) "rule making" means agency process for formulating, amending, or repealing a rule;
(6) "order" means the whole or a part of a final disposition, whether affirmative, negative, injunctive, or
declaratory in form, of an agency in a matter other than rule making but including licensing;
(7) "adjudication" means agency process for the formulation of an order;
(8) "license" includes the whole or a part of an agency permit, certificate, approval, registration, charter,
membership, statutory exemption or other form of permission;
(9) "licensing" includes agency process respecting the grant, renewal, denial, revocation, suspension,
annulment, withdrawal, limitation, amendment, modification, or conditioning of a license;
(10) "sanction" includes: (A) an agency limitation, or other condition affecting the freedom of a person;
(B) withholding of relief; (C) imposition of penalty or fine; (D) destruction, taking, seizure, or withholding of
property; (E) assessment of damages, reimbursement, restitution, compensation, costs, charges, or fees; (F)
requirement, revocation, or suspension of a license; or (G) taking other compulsory or restrictive action;
(11) "relief" includes an agency: (A) grant of money, license, assistance, authority, exemption, exception,
privilege, or remedy; (B) recognition of a claim, right, immunity, privilege, exemption, or exception; or (C) taking
of other action on the application or petition of, and beneficial to, a person;
(12) "agency proceeding" means an agency process as defined by paragraphs (5), (7), and (9) of this
section;
(13) "agency action" includes the whole or a part of an agency rule, order, license, sanction, relief, or the
equivalent or denial thereof, or failure to act; and
(14) "ex parte communication" is a communication, whether oral or written, not on the public record with
respect to which prior notice to all parties is not given, but it shall not include requests for status reports on any
matter or proceeding.
§ 552. Freedom of Information Act
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§ 553. Rule Making
(a) This section applies, according to the provisions thereof, except to the extent that there is involved: (1)
a military or foreign affairs function of the United States; or (2) a matter relating to agency management or
personnel or to public property, loans, grants, benefits, or contracts.
(b) General notice of proposed rule making shall be published in the Federal Register, unless persons
subject thereto are named and either personally served or otherwise have actual notice thereof in accordance with
law. The notice shall include: (1) a statement of the time, place, and nature of public rule making proceedings; (2)
the legal authority under which the rule is proposed; and (3) either the terms or substance of the proposed rule or a
description of the subjects and issues involved. Except when notice or hearing is required by statute, this
subsection does not apply: (A) to interpretative rules, general statements of policy, or rules of agency organization,
procedure, or practice; or (B) when the agency for good cause finds (and incorporates the finding and a brief
statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.
(c) After notice required by this section, the agency shall give interested persons an opportunity to
participate in the rule making through submission of written data, views, or arguments with or without opportunity
for oral presentation. After consideration of the relevant matter presented, the agency shall incorporate in the rules
adopted a concise general statement of their basis and purpose. When rules are required by statute to be made on
the record after opportunity for an agency hearing, sections 556 and 557 of this title apply instead of this subsection.
(d) The required publication or service of a substantive rule shall be made not less than 30 days before its
effective date, except (1) a substantive rule which recognizes an exemption or relieves a restriction; (2)
interpretative rules and statements of policy; or (3) as otherwise provided by the agency for good cause found and
published with the rule.
(e) Each agency shall give an interested person the right to petition for the issuance, amendment, or repeal
of a rule.
§ 554. Adjudications
(a) This section applies, according to the provisions thereof, in every case of adjudication required by
statute to be determined on the record after opportunity for an agency hearing, except to the extent that there is
involved:
(1) a matter subject to a subsequent trial of the law and the facts de novo in a court;
(2) the selection or tenure of an employee;
(3) proceedings in which decisions rest solely on inspections, tests, or elections; or
(4) the conduct of military or foreign affairs functions.
(b) Persons entitled to notice of an agency hearing shall be timely informed of: (1) the time, place, and
nature of the hearing; (2) the legal authority and jurisdiction under which the hearing is to be held; and (3) the
matters of fact and law asserted. Agencies may by rule require responsive pleading. In fixing the time and place
for hearings, due regard shall be had for the convenience and necessity of the parties or their representatives.
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(c) The agency shall give all interested parties opportunity for: (1) the submission and consideration of
facts, arguments, offers of settlement, or proposals of adjustment when time, the nature of the proceeding, and the
public interest permit; and (2) hearing and decision on notice and in accordance with sections 556 and 557 of this
title.
(d) The employee who presides at the reception of evidence pursuant to section 556 shall make the
recommended decision or initial decision required by section 557, unless he becomes unavailable to the agency.
Except to the extent required for the disposition of ex parte matters as authorized by law, such an employee may
not: (1) consult a person or party on a fact in issue, unless on notice and opportunity for all parties to participate; or
(2) be responsible to or subject to the supervision or direction of an employee or agent engaged in the performance
of investigative or prosecuting functions for an agency.
Any person engaged in the performance of investigative or prosecuting functions for an agency in a case
may not, in that or a factually related case, participate or advise in the decision, recommended decision, or agency
review pursuant to section 557, except as witness or counsel in public proceedings. This subsection does not apply
(A) in determining applications for initial licenses; (B) to proceedings involving the validity or application of
rates, facilities, or practices of public utilities or carriers; or (C) to the agency or a member or members of the body
comprising the agency.
(e) The agency, with like effect as in the case of other orders, and in its sound discretion, may issue a
declaratory order to terminate a controversy or remove uncertainty.
§ 555. Ancillary matters
(b) A person compelled to appear in person before an agency or representative thereof is entitled to be
accompanied, represented, and advised by counsel or, if permitted by the agency, by other qualified representative.
A party is entitled to appear in person or by or with counsel or other duly qualified representative in an agency
proceeding. So far as the orderly conduct of public business permits, an interested person may appear before an
agency or its responsible employees ... in connection with an agency function. With due regard for the
convenience and necessity of the parties or their representatives and within a reasonable time, each agency shall
proceed to conclude a matter presented to it. This subsection does not grant or deny a person who is not a lawyer
the right to appear for or represent others in an agency proceeding.
(c) Process, requirement of a report, inspection, or other investigative act or demand may not be issued,
made, or enforced except as authorized by law. A person compelled to submit data or evidence is entitled to retain
or, on payment of lawfully prescribed costs, procure a copy or transcript thereof, except that in a nonpublic
investigatory proceeding the witness may for good cause be limited to inspection of the official transcript of his
testimony.
(d) Agency subpoenas authorized by law shall be issued to a party on request and, when required by rules
of procedure, on a statement or showing of general relevance and reasonable scope of the evidence sought. On
contest, the court shall sustain the subpoena or similar process or demand to the extent that it is found to be in
accordance with law. In a proceeding for enforcement, the court shall issue an order requiring the appearance of
the witness or the production of the evidence or data ... under penalty of punishment for contempt in case of
contumacious failure to comply.
(e) Prompt notice shall be given of the denial in whole or in part of a written ... request of an interested
person made in connection with any agency proceeding. A brief statement of the grounds for denial shall
accompany the notice.
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§ 556. Hearings; presiding employees; powers and duties; burden of proof; evidence; record as basis of
decision
(a) This section applies, according to the provisions thereof, to hearings required by section 553 or 554 of
this title to be conducted in accordance with this section.
(b) There shall preside at the taking of evidence: the agency; one or more members of the body which
comprises the agency; or one or more administrative law judges ... This subchapter does not supersede the
conduct of specified classes of proceedings ... by or before boards or other employees specially designated under
statute. The functions of presiding employees and of employees participating in decisions in accordance with
section 557 of this title shall be conducted in an impartial manner. ...
(c) Subject to published rules of the agency and within its powers, employees presiding at hearings may:
(1) administer oaths and affirmations;
(2) issue subpoenas authorized by law;
(3) rule on offers of proof and receive relevant evidence;
(4) take depositions or have depositions taken when the ends of justice would be served;
(5) regulate the course of the hearing; ...
(10) make or recommend decisions under section 557; and
(11) take other action authorized by agency rule.
(d) Except as otherwise provided by statute, the proponent of a rule or order has the burden of proof. Any
oral or documentary evidence may be received, but the agency as a matter of policy shall provide for the exclusion
of irrelevant, immaterial, or unduly repetitious evidence. A sanction may not be imposed or rule or order issued
except on consideration of the whole record or those parts thereof cited by a party and supported by and in
accordance with the reliable, probative, and substantial evidence.
A party is entitled to present his case or defense by oral or documentary evidence, to submit rebuttal
evidence, and to conduct such cross-examination as may be required for a full and true disclosure of the facts. In
rule making or determining claims for money or benefits or applications for initial licenses an agency may, when a
party will not be prejudiced thereby, adopt procedures for the submission of all or part of the evidence in written
form.
(e) The transcript of testimony and exhibits, together with all papers and requests filed in the proceeding,
constitutes the exclusive record for decision in accordance with section 557. When an agency decision rests on
official notice of a material fact not appearing in the evidence in the record, a party is entitled, on timely request, to
an opportunity to show the contrary.
§ 557. Initial decisions; conclusiveness; review by agency; submissions by parties; contents of decisions; record
(a) This section applies when a hearing is required to be conducted in accordance with section 556.
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(b) When the agency did not preside at the reception of the evidence, the presiding employee or, in cases
not subject to section 554(d), an employee qualified to preside at hearings pursuant to section 556, shall initially
decide the case unless the agency requires, either in specific cases or by general rule, the entire record to be
certified to it for decision.
When the presiding employee makes an initial decision, that decision then becomes the decision of the
agency without further proceedings unless there is an appeal to, or review on motion of, the agency within time
provided by rule. On appeal from or review of the initial decision, the agency has all the powers which it would
have in making the initial decision except as it may limit the issues on notice or by rule. When the agency makes
the decision without having presided at the reception of the evidence, the presiding employee shall first
recommend a decision, except that in rule making or determining applications for initial licenses ... the agency
may issue a tentative decision or one of its responsible employees may recommend a decision; or
(c) Before a recommended, initial, or tentative decision, or a decision on agency review of the decision of
subordinate employees, the parties are entitled to a reasonable opportunity to submit for the consideration of the
employees participating in the decisions: (1) proposed findings and conclusions; or (2) exceptions to the decisions
or recommended decisions of subordinate employees or to tentative agency decisions; and (3) supporting reasons
for the exceptions or proposed findings or conclusions. The record shall show the ruling on each finding,
conclusion, or exception presented.
All decisions, including initial, recommended, and tentative decisions, are a part of the record and shall
include a statement of: (A) findings and conclusions, and the reasons or basis therefore, on all the material issues
of fact, law, or discretion presented on the record; and (B) the appropriate rule, order, sanction, relief, or denial
thereof.
(d) In any agency proceeding subject to subsection (a) except for disposition of ex parte matters as
authorized by law:
(A) no interested person outside the agency shall make or knowingly cause to be made to any member of
the body comprising the agency, administrative law judge, or other employee who is or may reasonably
be expected to be involved in the decisional process of the proceeding, an ex parte communication
relevant to the merits of the proceeding;
(B) no member of the body comprising the agency, administrative law judge, or other employee, who is
or may reasonably be expected to be involved in the decisional process of the proceeding, shall make or
knowingly cause to be made to any interested person outside the agency an ex parte communication
relevant to the merits of the proceeding;
(C) a member of the body comprising the agency, administrative law judge, or other employee who is or
may reasonably be expected to be involved in the decisional process of such proceeding who receives, or
who makes or knowingly causes to be made, a communication prohibited by this subsection shall place
on the public record of the proceeding: (i) all such written communications; (ii) memoranda stating the
substance of all such oral communications; and (iii) all written responses, and memoranda stating the substance of all oral responses, to the materials described in clauses (i) and (ii) of this subparagraph;
(D) upon receipt of a communication knowingly made or knowingly caused to be made by a party in
violation of this subsection, the agency [or official] presiding at the hearing may, to the extent consistent
with the interests of justice and the policy of the underlying statutes, require the party to show cause why
his claim or interest in the proceeding should not be dismissed, denied, disregarded, or otherwise
adversely affected on account of such violation; and
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(E) the prohibitions of this subsection shall apply beginning at such time as the agency may designate, but
in no case shall they begin to apply later than the time at which a proceeding is noticed for hearing unless
the person responsible for the communication has knowledge that it will be noticed, in which case the
prohibitions shall apply beginning at the time of his acquisition of such knowledge.
(e) This subsection does not constitute authority to withhold information from the legislature.
§ 558. Imposition of sanctions; licenses;
(a) This section applies, according to the provisions thereof, to the exercise of a power or authority.
(b) A sanction may not be imposed or a substantive rule or order issued except within jurisdiction
delegated to the agency and as authorized by law.
(c) When application is made for a license required by law, the agency, with due regard for the rights and
privileges of all the interested parties or adversely affected persons, shall set and complete proceedings required to
be conducted in accordance with sections 556 and 557 of this title or other proceedings required by law and shall
make its decision.
Except in cases ... in which public health or safety requires otherwise, the withdrawal, suspension,
revocation, or annulment of a license is lawful only if, before the institution of agency proceedings, the licensee
has been given (1) written notice of the facts or conduct which may warrant the action; and (2) opportunity to
demonstrate or achieve compliance with all lawful requirements. When the licensee has made timely and sufficient
application for a renewal or a new license in accordance with agency rules, a license [for] ... an activity of a
continuing nature does not expire until the application has been finally determined by the agency.
§ 559. Effect on other laws; effect of subsequent statute
This chapter does not limit or repeal additional requirements imposed by statute or otherwise recognized
by law. ... Each agency is granted the authority necessary to comply with the requirements of this subchapter
through the issuance of rules or otherwise. Subsequent statute may not be held to supersede or modify this chapter
... except to the extent that it does so expressly.
Chapter 7--Judicial Review
§ 701. Application; definitions
(a) This chapter applies, according to the provisions thereof, except to the extent that:
(1) statutes preclude judicial review; or
(2) agency action is committed to agency discretion by law.
§ 702. Right of review
A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency
action within the meaning of a relevant statute, is entitled to judicial review thereof. An action in a court of the
United States seeking relief other than money damages and stating a claim that an agency or an officer or
employee thereof acted or failed to act in an official capacity or under color of legal authority shall not be
dismissed nor relief therein be denied on the ground that it is against the United States or that the United States is
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an indispensable party. The United States may be named as a defendant in any such action, and a judgment or
decree may be entered against the United States. Nothing herein:
(1) affects other limitations on judicial review or the power or duty of the court to dismiss any action or
deny relief on any other appropriate legal or equitable ground; or
(2) confers authority to grant relief if any other statute that grants consent to suit expressly or impliedly
forbids the relief that is sought.
§ 704. Actions reviewable
Agency action made reviewable by statute and final agency action for which there is no other adequate
remedy in a court are subject to judicial review. A preliminary, procedural, or intermediate agency action or ruling
not directly reviewable is subject to review on the review of the final agency action. Except as otherwise expressly
required by statute, agency action otherwise final is final for the purposes of this section ... unless the agency
otherwise requires by rule and provides that the action meanwhile is inoperative, for an appeal to superior agency
authority.
§ 705. Relief pending review
When an agency finds that justice so requires, it may postpone the effective date of action taken by it,
pending judicial review. ... A reviewing court, may issue all necessary and appropriate process to postpone the
effective date of an agency action or to preserve status or rights pending conclusion of the review proceedings.
§ 706. Scope of review
To the extent necessary to decision and when presented, the reviewing court shall decide all relevant
questions of law, ... and determine the meaning or applicability of the terms of an agency action. The reviewing
court shall:
(1) compel agency action unlawfully withheld or unreasonably delayed; and
(2) hold unlawful and set aside agency action, findings, and conclusions found to be:
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege, or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law; or
(E) unsupported by substantial evidence in a case subject to sections 556 and 557 or otherwise
reviewed on the record of an agency hearing provided by statute.
In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a
party, and due account shall be taken of the rule of prejudicial error.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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IV. GOVERNMENT ACQUISITION OF INFORMATION
National governments have at their disposal almost unlimited power to regulate economic activities
that take place within the territorial boundaries of a country. Reporting requirements can be imposed that
govern all aspects of an economic undertaking. The Government may further specify the frequency of
reports, the manner in which the information is to be organized, the forms on which it must be submitted, the
number of copies, and the place where report are delivered. Sanctions, even criminal sanctions, can be
imposed for failure to comply with reporting rules.
Not even the widely recognized privilege against self-incrimination stands in the way of enforcing
business reporting requirements, because the privilege is available exclusively to individuals. Not even the
sole proprietor of a business, or the custodian of records at a firm, may use the privilege against selfincrimination as a basis for declining to turn over required records because the duty is imposed on the
business. Failure to turn over records in response to a proper request, or a failure to keep required records,
provide a basis for imposing criminal or civil sanctions.
On-site inspections raise concerns about privacy, but such inspections often are essential to
monitoring health and safety requirements, as well as other obligations imposed by law or by contract. Where
the possibility of wrongdoing arises, largely unlimited investigatory powers are available to a Government.
While the legitimate exercise of power by Government is not unlimited, and the applicable law will
vary from one country to another, it is convenient for present purposes to assume that a Government has the
power to acquire any reasonably necessary or useful information from energy and other firms operating in the
country. The objective here is not to establish the outer limits of government power, but simply to
demonstrate that governments clearly have more than adequate powers to regulate local economic activity,
even when conducted by multi-national firms. Anyway, almost any information practice that a Government
agency might want to adopt is clearly legal.
Apart from the imposition of criminal sanctions, the power to require reports, perform on-site
examinations, and conduct investigations can be delegated to an administrative agency. Fines may be levied
by an agency, provided they are denominated "civil" rather than "criminal" sanctions. Even better from the
agency perspective, and worse from the perspective of regulated parties, civil actions normally required a
lower standard of proof (preponderance of the evidence) than criminal cases.
Sanctions are commonly available to agencies in the event that regulated parties fail to comply in a
timely manner with reporting requirements. The range of available sanctions is commonly found in the law
creating the agency. An agency can be authorized to establish sanctions within a prescribed range, but there
must be a basis in law for sanctions. In the absence of such authority, an agency can obtain an injunction
from a court enjoining the failure to comply (properly adopted) agency rules and regulations. Then, a
subsequent failure to comply with the law could be the subject of judicial sanctions based on the failure to
comply with the court injunction. This option is, however, available only in theory; it is unworkable in
practice.
Fortunately for agencies, there normally is little need to resort to the use of formal enforcement
powers for failure to comply with reporting requirements, particularly in an area like energy exploration and
production, because the supervisory agencies and the firms they regulate interact with each other on a regular
basis. They will have to work together over a period of years, probably decades, and all parties to the
relationship understand this fact.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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The informal sanctions available to agencies normally are more than sufficient to deter withholding of
information. The energy and construction firms associated with the energy industry will need variances,
waivers, postponement of due dates, and other forms of reasonable accommodation that the agency can grant
or deny. This gives the agency a fair amount of latitude to reward otherwise cooperative firms and to punish
otherwise uncooperative firms. It is the nature of mega-projects that difficulties, so instances will regularly
arise where an agency may authorize or reject a request for a financial allowance, or extend a deadline.
Indeed, one concern about administrative agencies is that they may have too much discretion, and that they
may exercise this power in an unfair or even corrupt manner.
Information gathering should not be limited to submission of paper. In addition, compliance must be
confirmed at construction sites and other places where physical operations take place. It is said of bank real
estate lending departments that if people do not have mud on their shoes then the bank is in trouble. Reports
are likely to say what the agency wants to hear, or the contract between the parties requires. Progress in
building a pipeline, compliance with quality specifications, and many other matters can only be determined by
spot-checking that performance is in accord with paper claims.
So far, this section has addressed the power of agencies to obtain information about the activities of
regulated persons, and the responses available to an agency in the event of non-compliance. To oversimplify
only slightly, a Government body can obtain whatever information it needs or wants, in whatever form the
agency specifies. Job sites could be inspected daily, if the agency had the personnel to do so, but this would
not make sense. The collection of information whether through paper reports, on-site physical inspections,
and laboratory tests or by other methods, is not an end in itself. Rather, it is means for achieving operational
objectives.
Often agencies request or require the submission of reports or other information just because they
have the power to do so, and then the reports sit unread on a shelf collecting dust -- or, even worse, people are
hired to read useless reports. This approach is obviously wasteful. It is important to recognize that the creation
and dissemination of information is a cost, and that reporting requirements should not imposed lightly. More
data is not automatically better data. Submission of a report is just as much a cost of exploring for oil as
seismic testing or digging a hold in the ground. The goal, which is far easier to state in theory than to
implement in practice, is an optimum level of reporting that provides a government agency accurate
information in a timely manner.
Reporting requirements must be considered on a Government-wide as well as an agency perspective.
The ability to require a report from someone is a form of power, particularly when that someone is associated
with a large money operation like energy development, so many agencies want a piece of the action. Just as a
thought experiment, think of all the government bodies, both national and local, bodies that might have a
plausible basis for requiring that an energy project make some form of report to it, and thus be subject to
regulation by that agency. Even worse, many of these agencies will require that similar information be
organized in somewhat different ways.
The regulated multi-national energy firms (and construction contractors as well) are willing to
provide whatever information is required of them, and permit unlimited access to operational sites. They may
not prefer this approach, but they know that such compliance is a normal part of doing business. What truly
upsets the firms is duplicative requirements, or the collection of information that never gets used by anyone.
Regulated firms generally prefer to deal with a single agency rather than being subject to multiple and
conflicting directives from different agencies. In many instances, a Government does not want to place full
authority over as important a matter as energy development in a single agency, and it is difficult to prevent
agencies from exercising their core authority. Will housing for energy workers not be subject to building
codes and regular inspections? Will imported goods and services for an energy project not go through
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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customs procedures? Energy affects national security, foreign policy, and the environment. Persons and
agencies charged with oversight of these (and many other) functions will (legitimately) claim a role in energy
development -- and good quality, current information is essential to meaningful participation. Note that the
power struggles here are not between the Government and a regulated firm or industry, but among agencies
within Government.
One approach to this problem is creating an inter-agency taskforce charged with coordinating the
collection of information, and to resolve disputes about regulatory authority.
Once an agency has information, there arises the question of what persons within the agency may
have access to various sorts of information. Information is not fungible, so some system for classifying it is
necessary. To the extent that access to any class of information is limited, there then arises the need for a
system of determining what information falls into what category, and who has access to various classes of
information. Further, a system must be devised for inter-agency access to information --that is, under what
circumstances can information collected by one agency be made available to an official of another agency.
Competing interests within Government are at work here. The agency that collects information is
likely to limit access, while other agencies will seek access to such information. Failure to allow inter-agency
access can result in duplicative and wasteful information collection by several agencies. At the same time, the
widespread dissemination of sensitive information (say, test drilling results) will inhibit timely, accurate, and
detailed information disclosure to the Government in the future. (After all, minimum compliance with
reporting requirements is far short of full and immediate reporting of important information.) The disclosure
of agency information to the public is the topic of the next section, but Government must also be concerned
about the improper disclosure of information ("leaks") from within.
Nations commonly adopt laws that provide for the imposition of criminal sanctions on government
officials who improperly disclose confidential information in areas such as taxation, national security and
energy exploration, but these laws are difficult to enforce. Besides, the usual concern regarding Government
information practices is that too little rather than too much is disclosed. The imposition of penal sanctions on
even a few government officials would exacerbate the undue proclivity of bureaucrats to share information.
The legal response to that concern is the topic of the next chapter.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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V. PUBLIC ACCESS TO AGENCY INFORMATION
This Chapter addresses the right of persons to obtain, upon request, information from the
Government, and the circumstances under which agencies must comply with such requests. (The authority of
the Government to obtain information from persons is the subject of Chapter VI.) The term "person" is used
in the broadest sense, and includes corporations, associations and other groups, as well as individuals. The
philosophical basis for mandating public access to agency information is that the government exists to serve
the people, and thus this information belongs to the public. There are, of course, many circumstances in which
Government disclosure of information would be unwise, and harmful to the national interest.
General principles do not decide hard questions, so a useful discussion of Government information
practices requires that we examine the costs and benefits of various disclosure practices. The vehicle for doing
so will be the Freedom of Information Act (FOIA), which is part of the Administrative Procedure Act (APA).
(An edited version of FOIA is the next item in these materials.) FOIA addresses the central issues regarding
Government information rules and practices, so study of its provisions is valuable even if the reader prefers a
different approach to disclosure policy.
FOIA does two things: it establishes a regime for the public disclosure of information by
Government, and it requires that each agency must publish and update certain specified about the agency.
Before turning to these functions, consideration must be given to two definitions, which appear in subsection
(f) -- almost at the end of the FOIA, rather than at the beginning where definitions belong. The scope of the
FOIA is defined by the term "agency," which is broader than under the rest of the APA, mainly in the
inclusion of military functions and more important for purposes of energy development, "Government
corporations" and "Government controlled corporations." (The legislative and judicial branches of
government are still excluded.)
"Record" is a computer-age term that is designed to encompass information that is maintained only in
electronic format. Record and information are used interchangeably in these materials. The definition of
"record" might appear unnecessary; it reflects the fear than an agency might keep information only in
machine-readable form, and then deny requests for information because the requested information does not
exist in the agency's records. Fundamental to understanding this and other provisions of the FOIA is the
perception that senior agency personnel commonly have an undue and inappropriate penchant for secrecy, and
that agencies need to be coerced into disclosing more information or "records."
A. General Agency Disclosure Requirements
FOIA imposes an affirmative duty on agencies to make available to the public specified information
about the agency, and to update this material to reflect change in agency operations or procedures. Each
agency is responsible for disseminating basic (and current) information about the agency by publication in the
Federal Register (the Government's official publication of record), including:
1. Organizational structure and location of offices;
2. How agency operates, notably the procedures (both formal and informal) used, with attendant requirements
for each;
3. Forms used, with instructions, and how to obtain them;
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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4. Substantive rules of general applicability (i.e., rules adopted pursuant to APA rule making standards);
5. Statements of general policy and interpretations adopted by the agency; and
6. Changes or amendments to any of the above.
The consequence of agency noncompliance is that no person may be "adversely affected" by an
unpublished agency policy (absent actual knowledge). This is obvious enough: imposing adverse
consequences on someone for violation of rules they could not know about simply is incompatible with the
rule of law. The practical importance of the FOIA disclosure provisions is that Government expressly
commits itself to a policy of openness and disclosure.
Considerable information about the operations and activities of an agency must be made available to
the public for inspection and copying at the agency's office(s). These include:
1. Final orders and adjudicatory opinions;
2. Interpretations and policy statements not published in the
Federal Register; and
3. Staff manuals that set forth procedures for dealing with members of the public.
Note that these materials are much more specific and detailed than those which must be published in
the Federal Register.
Finally, agencies must prepare, and make publicly available, a guide for obtaining information about
agency activities and its records. This requirement reflects the reality that agencies hold vast amounts of
information, which can be accessed only with the assistance of a roadmap. Such information systems must
exist for agency staff, so creating an indexing system useful to a reasonably sophisticated member of the
public is not a major burden. There is a message in these agency disclosure requirements that transcends their
specific provisions, and that message is one of Transparency. It says that Government operations are
conducted openly and fairly.
B. Disclosures in Response to Individual Requests
Notwithstanding the importance of the disclosure requirements imposed directly on agencies by the
FOIA discussed in Section A, the Act is known for imposing on agencies a broad duty to promptly disclose
records upon the request of any person. The FOIA is a largely unfettered disclosure statute. A requested
record must be disclosed by an agency unless it is subject to one of the nine exemptions set forth in section
552(b), and discussed below. There is no "for good cause shown" or similar general exemption.
Originally, the information disclosure provisions of the FOIA provided the agencies with greater
flexibility in deciding whether and when to release documents, and to redact significant portions of a record
before release thereof. However, amendments to the FOIA have progressively reduced this power, reflecting a
widely shared belief that the agencies were insufficiently cooperative in releasing information.
The consequence of the "any person" standard is that no reason must be given for seeking records,
and no "interest" must be shown in order to receive records. Put another way, agencies may not use a "need to
know" standard for releasing records. Generally, neither the source of a request nor the reason it is made is
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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relevant to the determination of whether the requested information must be disclosed.
An agency may, of course, impose a "need to know" standard on access to records by its employees,
whether or not the records might be subject to disclosure pursuant to an FOIA request. The reasons for
limiting access to disclosable information might be privacy, efficiency, and good management considerations.
Where records are protected from disclosure under one of the nine exemptions, the reasons for nondisclosure
will also apply to limiting intra-agency access. The most common and important use of a "need to know" or
similar standard is in the context of military and foreign affairs matters.
The FOIA only applies to existing records. It does not require an agency to create records or to obtain
additional information from the businesses that they regulate. However, in responding to a request, an agency
might be required to compile existing information that has not previously been put together in a single
document. To a limited extent, an agency should obtain known relevant information from other agencies, but
a requester cannot require an agency to make a search for records that might exist at some other agency.
Rather, the agency may respond that it has searched its records, and made available such records (if any) that
meet the request and are not covered by an exemption.
Requests for information must reasonably describe the desired records. This seems an obvious
requirement: an agency can hardly be held accountable for failing to produce records that have not been
reasonably identified, and attempts at responses to vague or general requests will waste the time of the agency
(and scare funds that could be put to productive uses). Yet, there is a concern, which is that Government can
shield information from disclosure on the basis of inadequate specificity in the request, or directing the
request to the wrong agency. Since the requester does not have the information sought, and often will not
know the format used by the agency for organizing information, the making of a proper request is a more
daunting prospect from the perspective of the person seeking a record than it appears from the perspective of
the agency that possesses the record.
C. Freedom of Information Act Exemptions
If an agency possesses a requested record, it must be disclosed unless the record is covered by one of
nine exemptions enumerated in section 552(b), and commonly referred to by number. Discussion is limited to
the exemptions that are likely to be applicable in the regulation of commercial enterprises, notably in the
context of energy development and related activities.
Exemption 1 is the most important disclosure exception from the perspective of the nation, because it
covers national defense and foreign policy. It also is the most important exemption in the sense that the
adverse consequence of too much disclosure is of the greatest importance. By way of contrast, it is unlikely in
the extreme that there could be severe (or even modest) harm to the national interest from the disclosure of
agency personnel rules and practices (Exemption 2), or the unwarranted disclosure of individual medical files
(Exemption 6). Disclosure of medical files would constitute a "clearly unwarranted invasion of personal
privacy," and potential serious harm to the individual(s) involved, but not impinge on the interests of the
nation.
Exemption 3 covers information that is specifically protected from disclosure by other laws. This
result should obtain in any event, because when two laws are in apparent conflict, the more specific governs
over the more general one. Statement of this rule is important because it clarifies the situation, avoids a
potential ambiguity, and precludes resort to other considerations. (There is, for example, another commonly
followed maxim of interpretation that when two laws are in apparent conflict the later governs over the
former. Absent Exemption 3, a conflict between these usually helpful maxims would cause uncertainty.)
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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Exemption 4 covers privileged or confidential commercial information obtained from a person,
including trade secrets. This exemption is of enormous importance for large regulated businesses, notably in
the energy sector, because agency regulations require the disclosure of vast amounts of commercial/financial
information at regular intervals -- monthly, quarterly, or annually, depending on the type of information.
Exemption 9 is of particular interest in the energy context because it protects from disclosure
"geological and geophysical information and data, including maps, concerning wells." While this provision is
probably redundant, in view of the protection afforded by Exemption 4, but it nevertheless is reassuring to
people in the energy business who are nervous about disclosing such potentially valuable information to
anyone, particularly the agency that regulates the firm and might use the information in a manner that
adversely affects the firm's interests.
Exemption 5 and Exemption 7 have a common focus: protection from disclosure of records related to
enforcement activities. The language of Exemption 7 speaks specifically of law enforcement, and is addressed
to records of policing agencies. Sometimes agencies are granted broad enforcement powers, and this is
commonly the case in the energy context. These powers might include the imposition of monetary fines,
shutting down a facility with environmental or safety problems, and certification of compliance with any
number of rules or requirements establishes by regulation and contract. The common theme of Exemptions 5
and 7 is that in both instances people with an interest adverse to the government want to find out as much as
possible about what evidence or information the government has that might be used against them.
Any legal system has (typically complex) rules about the extent to which one party in a civil suit can
gain access to information from the other party, and the same rules should apply when the Government, or an
agency thereof, is in a dispute with a regulated party. In many circumstances, however, the analogy between a
government agency exercising supervisory power and an ordinary civil litigant is a tenuous one. Since much
is at stake, this area gives rise to a considerable amount of disputation.
D. Objection to Disclosure by; Provider of Information
The FOIA permits agencies to withhold records in certain instances, but nothing in the FOIA requires
an agency to refuse disclosure. Sometimes, a regulated business that has supplied information to an agency
will seek to prevent the agency from disclosing that information, in what has been dubbed a "reverse FOIA
claim." The FOIA was designed exclusively as a disclosure statute and was adopted in response to concerns
that far too much information was being withheld from the public. Little, if any, thought was given to the
converse situation, where an agency decides to release information that is arguably protected from disclosure.
Since nothing in the FOIA provides a basis for the provider of information to an agency to prevent its
disclosure, such disclosure cannot be blocked based on the FOIA (Of course, a regulated firm can ask the
agency to withhold disclosure, and if sound reasons are offered the agency may well accede to the request.)
The point is that the FOIA provides no independent basis for not disclosing a requested record. Rather,
nondisclosure must be based on some other law. For businesses, trade secrets law is the most likely general
source. A specific law, such as an energy code, also might provide a basis for nondisclosure.
A specific example might be helpful here. Suppose that an energy development law, or a contract
with a multi-national firm, mandates the employment and training of specified numbers of hostnationals, or
the construction of housing for local employees. The law or contract (probably both) also requires periodic
compliance reports. Then someone -- perhaps an enterprising writer for a local newspaper or a competing
energy company -- seeks a copy of this employment data from the agency. If the agency could refuse to
disclose this data as privileged and confidential financial information, the agency still may go ahead with
disclosure. To prevent disclosure, the source of the record would have to prove to a court that this data was a
protected trade secret -- a claim that surely would be rejected.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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A few particular laws override the FOIA by requiring that in certain instances an agency consult with
a party that provided information before releasing it to the public, or at least giving notice of disclosure.
Potentially valuable commercial data is the context in which such laws have been adopted.
E. Processing of Information Requests
The FOIA establishes detailed disclosure procedures, and then imposes rigorous deadlines for
compliance by agencies. On receipt of a request for information, an agency must decide within ten business
days whether it will comply with the request. The agency must immediately inform the applicant of its
determination. If the agency's decision is favorable to the applicant, the requested information must be
provided promptly. If the agency decides not to disclose the information, it must inform the applicant that he
is entitled to appeal the determination to the head of the agency, who must decide such an appeal within
twenty business days. Both procedures are used if the agency decides to disclose some but not all of the
requested information.
These deadlines may be extended for an additional ten working days, but only for large volume
requests and those that require data that must be obtained from another agency or a field office. Upon the
expiration of these time limits, the applicant has exhausted all administrative remedies and may file a law suit
to compel disclosure. The court must undertake a de novo review of the agency action, and the burden of
proof is on the agency to demonstrate a basis under the FOIA exemptions for not disclosing requested
records.
In practice, the FOIA disclosure deadlines frequently cannot be met, even by agencies that make
response to FOIA requests a high priority. It is striking that the drafters of the FOIA ventured to establish
such detailed provisions about day-to-day operations, and to do so on an across-the-board basis for all
agencies. There is an explanation for this apparently foolish example of "micromanagement," which is so
different from the usual broad discretion ordinarily given to agencies in determining their operational
practices and procedures. This approach is based on a profound and widespread concern that administrative
agencies too often are unresponsive to the public they are supposed to serve. The next section examines this
concern.
F. Agency Recalcitrance Regarding Disclosure Laws
A student of government cannot read the FOIA without noting that something is amiss. The typical
legal instructions to an agency provide a broad delegation of authority accompanied by an injunction to act in
the public interest, promote justice, treat everyone equally and be fair to all who come in contact with the
agency. That is, operational goals are stated at a high level of generality, and the agency is given wide latitude
in how it goes about achieving the stated goals. The best evidence of this approach is the existence of the
Administrative Procedure Act (APA), the provisions of which were discussed in Chapter 3. The adoption of
enacting a law that sets out procedural rules applicable to all agencies makes it inevitable that these rules will
be general in form and flexible in application.
Unlike the rest of the APA -- and it is worth remembering that despite its separate name, FOIA is part
of the APA -- FOIA is detailed and specific, providing detailed rules to agencies about how they are to
implement the law. As noted in the previous subsection, this approach is best illustrated by the actions
deadlines specified in FOIA. The limited number of exemptions, most of which are themselves quite specific,
and the absence of a "good cause" or similar exemption, similarly demonstrates a lack of faith in government
agencies.
This distrust is based on much experience with government bureaucracies throughout the world. (It
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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should be noted that many similar things also happen in large organizations outside government, including
large energy companies, but that is a topic for another day.) The often-stated observation that "knowledge is
power" is accurate. In the realm of work (as opposed to the realm of family and charity) people commonly are
no more anxious to give away power than they are to give away money. (This is not a law of behavior but a
common tendency.)
There are structural reasons to expect that disclosure of information will at best be a low priority, and
at worst will be actively opposed. Information disclosure is usually not helpful to an agency, while making
disclosures may reveal ineptitude or inaction, and perhaps worse -- "fraud, waste and abuse" is the common
catch-all term. (Agencies are quite capable of getting favorable information out to government and business
elites without any prompting from outside requests.) In addition, the processing of information requests is a
distraction from mission for which the agency exists -- such as promoting the development of energy
resources in the national interest. Time and money devoted to information requests are time and money not
devoted to furthering the agency's mission. Such a focus also explains why the compliance by government
agencies with environmental rules is often much worse than the compliance record of private firms. This
focus also suggests why it might make sense to assign responsibility for environmental compliance to a
different agency than the one charged with promoting and regulating energy exploration and production.
In closing, it should be noted that information disclosure is not just a matter of efficiency and jostling
for power. Public access to information from the government, whose raison d'etre is to serve the nation and its
people, is essential to the creation and maintenance of a Government that has the respect of the public. In the
economic context, "transparency" is the name for openness, and it is an essential component of an investor
friendly environment. Achievement of this goal requires a constancy of purpose, and a willingness to stick
with the disclosure principle when some of the disclosures are uncomfortable. Even unpleasant disclosures are
often less bad than what outsiders imagine to be occurring in the absence of transparency.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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FREEDOM OF INFORMATION ACT (FOIA)
§ 552. Public information; agency rules, opinions, orders, records.
(a) Each agency shall separately state and currently publish in the Federal Register for the guidance of
the public -(1) descriptions of its central and field organization and the established places at which, the
employees (and in the case of a uniformed service, the members) from whom, and the methods
whereby, the public may obtain information, make submittals or requests, or obtain decisions;
(2) statements of the general course and method by which its functions are channeled and determined,
including the nature and requirements of all formal and informal procedures;
(3) rules of procedure, descriptions of forms available or the places at which forms may be obtained,
and instructions as to scope and contents of all papers, reports, or examinations;
(4) substantive rules of general applicability adopted as authorized by law, and statements of general
policy or interpretations of general applicability formulated and adopted by the agency; and
(5) each amendment, revision, or repeal of the foregoing.
Except to the extent that a person has actual and timely notice of the terms thereof, a person may not
be adversely affected by, a matter required to be published in the Federal Register and not so published.
(b) Each agency, in accordance with published rules, shall make available for public inspection and
copying -(1) final opinions, including concurring and dissenting opinions, as well as orders, made in the
adjudication of cases;
(2) those statements of policy and interpretations which have been adopted by the agency and are not
published in the Federal Register; and
(3) administrative staff manuals and instructions to staff that affect a member of the public.
Each agency shall also maintain and make available for public inspection and copying current indexes
providing identifying information for the public as to any matter ... required by this paragraph to be made
available or published. A final order, opinion, statement of policy, interpretation, or staff manual or
instruction that affects a member of the public may be relied on by an agency against a party other than an
agency only if (i) it has been indexed and either made available or published as provided by this paragraph; or
(ii) the party has actual and timely notice of the terms thereof.
(c) Each agency, upon any request for records which (1) reasonably describes such records and (2) is
made in accordance with published rules stating the time, place, fees (if any), and procedures to be followed,
shall make the records promptly available to any person.
(d) In making any record available to a person under this paragraph, an agency shall provide the
record in any form or format requested by the person if the record is readily reproducible by the agency in that
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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form or format.
(1) In order to carry out the provisions of this section, each agency shall promulgate regulations,
pursuant to notice and after receipt of public comment ....
(2) Such agency regulations shall provide that ... fees shall be limited to reasonable standard charges
for document search and duplication. ... No agency may require advance payment of any fee unless
the requester has previously failed to pay fees in a timely fashion, or the agency has determined that
the fee will exceed $250. ... Nothing in this subparagraph shall supersede fees chargeable under a
statute specifically providing for setting the level of fees for particular types of records.
(e) On complaint, a district court of the United States has jurisdiction to enjoin the agency from
withholding agency records and to order the production of any agency records improperly withheld from the
complainant. In such a case the court shall determine the matter de novo, and may examine the contents of
such agency records in camera to determine whether such records or any part thereof shall be withheld under
any of the exemptions set forth at the end of this section, and the burden is on the agency to sustain its action.
(1) Notwithstanding any other provision of law, the defendant shall serve an answer or otherwise
plead to any complaint made under this subsection within thirty days after service upon the defendant
of the pleading in which such complaint is made, unless the court otherwise directs for good cause
shown. ...
(2) The court may assess against the United States reasonable attorney fees and other litigation costs
reasonably incurred in any case under this section in which the complainant has substantially
prevailed.
(f) Each agency having more than one member shall maintain and make available for public
inspection a record of the final votes of each member in every agency proceeding.
(g) Each agency, upon any request for records made under this subsection, shall—
(1) determine within 20 [business] days after the receipt of any such request whether to comply with
such request and shall immediately notify the person making such request of such determination and
the reasons therefore, and of the right of such person to appeal to the head of the agency any adverse
determination; and
(2) make a determination with respect to any appeal within ten [business] days after the receipt of
such appeal. If on appeal the denial of the request for records is in whole or in part upheld, the agency
shall notify the person making such request of the provisions for judicial review.
(h) In unusual circumstances as specified herein, these time limits may be extended by written notice
to the person making such request setting forth the unusual circumstances for such extension and the date on
which a determination is expected to be dispatched.
(1) If the delay will exceed ten working days, the agency shall provide the requester an opportunity to
limit the scope of the request so that it may be processed within that time limit or an opportunity to
arrange with the agency an alternative time frame for processing the request or a modified request.
(2) As used in this subparagraph, "unusual circumstances" means, but only to the extent reasonably
necessary to the proper processing of the particular requests -© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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(i) the need to search for and collect the requested records from field facilities or other establishments
that are separate from the office processing the request;
(ii) the need to search for, collect, and appropriately examine a voluminous amount of separate and
distinct records which are demanded in a single request; or
(iii) the need for consultation with another agency having a substantial interest in the determination
of the request or among two or more components of a single agency.
(i) Each agency may promulgate regulations, pursuant to notice and receipt of public comment,
providing for the aggregation of certain requests by the same requestor, or by a group of requestors acting in
concert, if the agency reasonably believes that such requests actually constitute a single request, which would
otherwise satisfy the unusual circumstances specified in this subparagraph, and the requests involve clearly
related matters. Requests that involve unrelated matters shall not be aggregated.
(j) Each agency may promulgate regulations, pursuant to notice and receipt of public comment,
providing for multitrack processing of requests for records based on the amount of work or time (or both)
involved in processing requests.
FOIA EXEMPTIONS
(b) This section does not apply to matters that are -(1)(A) specifically authorized under criteria established by an Executive order to be kept secret in the interest
of national defense or foreign policy and (B) are in fact properly classified pursuant to such Executive order;
(2) related solely to the internal personnel rules and practices of an agency;
(3) specifically exempted from disclosure by statute, provided that such statute (A) requires that the matters
be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes
particular criteria for withholding or refers to particular types of matters to be withheld;
(4) trade secrets and commercial or financial information obtained from a person and privileged or
confidential;
(5) inter-agency or intra-agency memorandums or letters which would not be available by law to a party other
than an agency in litigation with the agency;
(6) personnel and medical files and similar files the disclosure of which would constitute a clearly
unwarranted invasion of personal privacy;
(7) records or information compiled for law enforcement purposes;
(8) contained in or related to examination, operating, or condition reports prepared by or for the use of an
agency responsible for the regulation or supervision of financial institutions; or
(9) geological and geophysical information and data, including maps, concerning wells.
(c) Any reasonably segregable portion of a record shall be provided to any person requesting such
record after deletion of the portions that are exempt under this subsection. The amount of information deleted
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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shall be indicated on the released portion of the record, unless including that indication would harm an
interest protected by the exemption in this subsection under which the deletion is made. If technically
feasible, the amount of the information deleted shall be indicated at the place in the record where such
deletion is made.
(d) This section does not authorize withholding of information or limit the availability of records to
the public, except as specifically stated in this section. This section is not authority to withhold information
from Congress. ...
(f) For purposes of this section, the term -(1) "agency" includes any executive department, military department, Government corporation,
Government controlled corporation, or other establishment in the executive branch of the
Government (including the Executive Office of the President), or any independent regulatory agency;
and
(2) "record" and any other term used in this section in reference to information includes any
information that would be an agency record subject to the requirements of this section when
maintained by an agency in any format, including an electronic format.
(g) Each agency shall prepare, and make publicly available upon request, reference material or a
guide for requesting records or information from the agency, including an index of all major information
systems of the agency.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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VI. AGENCY MEETINGS (OPEN TO THE PUBLIC)
Section 552b of the Administrative Procedure Act, titled Open Meetings (also known as the
Government in the Sunshine Act), requires that formal meetings of specified government bodies be open to
the public (and the press). Portions of meetings may be closed, pursuant to specified exemptions. Unlike the
rest of the APA, the Open Meetings provision is regarded as unsatisfactory by many observers, including your
author. The defects will appear in the discussion that follows, but solutions are not apparent. As a slogan,
open meetings sound fine, but implementation often is not practical, and serious negotiations in a fishbowl is
not conducive to good government.
The definition of "agency" is different from that used for the rest of the APA, being far narrower in
general but broader in a few instances. Section 552b(a) limits "agency" to collegial bodies whose members
require appointment by the President and confirmation by the legislature. This excludes most government
administration, almost all of which is encompassed by the more general definition of "agency" in the APA.
Even very important bodies are excluded if headed by a single individual.
For open meetings purposes, whether a multi-member body is an "agency" depends on the method of
appointment rather than the functions carried out by the body, its intrinsic importance, or whether the body is
part of the Government. Thus a corporation created by the state to develop state resources often is designed
to operate independently of the Government, and clearly would not be regarded as part of the Government for
purposes of the Act of State doctrine, nevertheless will be an agency for open meetings purposes because the
Government appoints the persons responsible for the governance of the organization. Such bodies are
commonly referred to as "quasi-governmental" or "parastatal" bodies. The corporate form of organization is
common, but not essential.
Here the "agency" is not the hundreds of employees who do day-to-day work, not the accountants
who monitor finances, and often not even the chief executive officer. Rather the "agency" is the governing
board, which makes policy and provides general oversight but is not responsible for operations.
A "meeting" includes any deliberations among a majority of the agency members. For three-member
bodies, any conversation or telephone call in which two members participate at least arguably constitutes a
"meeting." In larger bodies, the members usually meet infrequently and the real deliberations take place prior
to the "meeting." Agency subcommittees do much preparatory work, and their gatherings are not subject to
the open meetings law.
While this approach may seem an evasion, and may in fact be used to avoid public deliberation about
sensitive or divisive issues, there is no other practical way for a body composed of part-time persons who
meet four to six times a year to operate.
Indeed, any consideration by agency members of specific issues or policy proposals often is preceded
by extensive background work by agency staff. Failure to proceed in this manner would result in much waste
of the valuable time of senior agency officials, and much worse governance.
In many instances, public discussion is foolish. Suppose an energy development agency wants to
make a substantial purchase of equipment from a trans-national supplier. The agency is prepared to authorize
staff to negotiate such a transaction, and establish a maximum price for the purchase. If this discussion were
public, the seller would learn the maximum price and hold out for that amount. This is hardly in the interest
of the nation, on whose behalf the agency is spending money. Confidential geological or well data should not
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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be disclosed. Business organizations have rational reasons for keeping plans and information confidential. In
practice, an agency can close its meetings, or otherwise avoid the open meetings law, for any matter of
confidence.
By this point, the reader might wonder why, in view of the enumerated problems, anyone would
regard an open meetings law as a sound idea. There are important purposes served by open access to agency
operations. The most important is accountability to the nation, on whose behalf and for whose benefit the
agency operates. An agency is a type of trustee, with the nation being the beneficiary. Transparency is also
important to firms that are present investors in a country, or which are considering such investments.
Agencies, like other organizations and individuals, tend to trumpet their triumphs and hide their
failures, so access to information about agency operations and activities may turn up problems. To the extent
no problems are seen, confidence in the agency stewardship of the public interest will improve. Among those
wanting to know is the Government itself. An agency with problems is unlikely to quickly disclose them to
the senior officials in the Government.
Finally, there is the matter of creating an attitude, or culture. A tilt toward openness will beget more
openness, while a tilt toward excessive secrecy will beget more secrecy. While the objectives that underlie
open meeting requirements are valid, prior experience with such requirements for multi-member agencies has
not been salutary.
GOVERNMENT IN THE SUNSHINE ACT
§ 552b. Open meetings
(a) For purposes of this section—
(1) "agency" means any agency headed by a collegial body composed of two or more individual members, a
majority of whom is appointed to such position by the President with the advice and consent of the Senate,
and any subdivision thereof authorized to act on behalf of the agency;
(2) "meeting" means the deliberations of at least the number of individual agency members required to take
action on behalf of the agency where such deliberations determine or result in the joint conduct or disposition
of official agency business, but does not include deliberations required or permitted by subsection (d) or (e);
and
(3) "member" means an individual who belongs to a collegial body heading an agency.
(b) Members shall not jointly conduct or dispose of agency business other than in accordance with
this section. Except as provided in subsection (c), every portion of every meeting of an agency shall be open
to public observation.
(c) [The exceptions are lengthy, and similar to those of the Freedom of Information Act.]
(d) Action under subsection (c) shall be taken only when a majority of the entire membership of the
agency votes to take such action. A separate vote of the agency members shall be taken with respect to each
agency meeting a portion or portions of which are proposed to be closed to the public pursuant to subsection
(c), or with respect to any information which is proposed to be withheld under subsection (c). A single vote
may be taken with respect to a series of meetings, a portion or portions of which are proposed to be closed to
the public, so long as each meeting in such series involves the same particular matters and is scheduled to be
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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held no more than thirty days after the initial meeting in such series. The vote of each agency member
participating in such vote shall be recorded and no proxies shall be allowed.
(e) Whenever any person whose interests may be directly affected by a portion of a meeting requests
that the agency close such portion to the public the agency, upon request of any one of its members, shall vote
by recorded vote whether to close such portion of the meeting.
(f) Votes regarding the closing of a meeting, in whole or in part, shall be made publicly available in
written form, and reflect the vote of each member on the question, together with a full written explanation of
its action closing the portion.
(g) Any agency, a majority of whose meetings may properly be closed to the public pursuant to
subsection (c) may provide by regulation for the closing of such meetings or portions thereof in the event that
a majority of the members of the agency votes by recorded vote at the beginning of such meeting, or portion
thereof, to close the exempt portion or portions of the meeting, and a copy of such vote, reflecting the vote of
each member on the question, is made available to the public.
(h) In the case of each meeting, the agency shall make public announcement, at least one week before
the meeting, of the time, place, and subject matter of the meeting, whether it is to be open or closed to the
public, and the name and phone number of the official designated by the agency to respond to requests for
information about the meeting.
(1) Such announcement shall be made unless a majority of the members of the agency determines by
a recorded vote that agency business requires that such meeting be called at an earlier date, in which
case the agency shall make public announcement of the time, place, and subject matter of such
meeting, and whether open or closed to the public, at the earliest practicable time.
(2) The time or place of a meeting may be changed following the public announcement only if the
agency publicly announces such change at the earliest practicable time.
(i) For every meeting closed pursuant to subsection (c), the General Counsel or chief legal officer of
the agency shall publicly certify that, in his or her opinion, the meeting may be closed to the public and shall
state each relevant exemptive provision.
(j) The agency shall maintain a complete transcript of the proceedings of each meeting, or portion of a
meeting, closed to the public, or a complete set of minutes that shall fully and clearly describe all matters
discussed and shall provide a full and accurate summary of any actions taken, and the reasons therefore,
including a description of each of the views expressed on any item and the record of any roll call vote
(reflecting the vote of each member on the question). All documents considered in connection with any action
shall be identified in such minutes.
(2) The agency shall make promptly available to the public, in a place easily accessible to the public, the
transcript, electronic recording, or minutes (as required by paragraph (1)) of the discussion of any item on the
agenda, or of any item of the testimony of any witness received at the meeting, except for such item or items
of such discussion or testimony as the agency determines to contain information which may be withheld
under subsection (c). Copies of such transcript, or minutes, or a transcription of such recording disclosing the
identity of each speaker, shall be furnished to any person at the actual cost of duplication or transcription. The
agency shall maintain a complete verbatim copy of the transcript, a complete copy of the minutes, or a
complete electronic recording of each meeting, or portion of a meeting, closed to the public, for a period of at
least two years after such meeting, or until one year after the conclusion of any agency proceeding with
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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respect to which the meeting or portion was held, whichever occurs later.
(g) Each agency subject to the requirements of this section shall promulgate regulations to implement the
requirements of subsections (b) through (f) of this section.
(h) District courts of the United States shall have jurisdiction to enforce the requirements of subsections (b)
through (f) of this section by declaratory judgment, injunctive relief, or other relief as may be appropriate.
Such actions may be brought by any person against an agency prior to, or within sixty days after, the meeting
out of which the violation of this section arises, except that if public announcement of such meeting is not
initially provided by the agency in accordance with the requirements of this section, such action may be
instituted pursuant to this section at any time prior to sixty days after any public announcement of such
meeting. The burden is on the defendant to sustain his action. In deciding such cases the court may examine in
camera any portion of the transcript, electronic recording, or minutes of a meeting closed to the public, and
may take such additional evidence as it deems necessary. The court, having due regard for orderly
administration and the public interest, as well as the interests of the parties, may grant such equitable relief as
it deems appropriate, including ordering the agency to make available to the public such portion of the
transcript, recording, or minutes of a meeting as is not authorized to be withheld under subsection (c) of this
section.
(i) The court may assess against any party reasonable attorney fees and other litigation costs reasonably
incurred by any other party who substantially prevails in any action brought in accordance with the provisions
of subsection (g) or (h) of this section, except that costs may be assessed against the plaintiff only where the
court finds that the suit was initiated by the plaintiff primarily for frivolous or dilatory purposes. In the case of
assessment of costs against an agency, the court against the United States may assess the costs.
(j) Each agency subject to the requirements of this section shall annually report to the Congress regarding the
following: (1) The changes in the policies and procedures of the agency under this section that have occurred
during the preceding 1-year period; (2) A tabulation of the number of meetings held, the exemptions applied
to close meetings, and the days of public notice provided to close meetings; (3) A brief description of
complaints concerning the implementation of this section by the agency; and (4) A brief explanation of any
changes in law that have affected the responsibilities of the agency under this section.
(k) Nothing herein expands or limits the present rights of any person under the Freedom of Information Act.
(l) This section does not constitute authority to withhold any information from Congress, and does not
authorize the closing of any agency meeting or portion thereof required by any other provision of law to be
open.
(m) Nothing in this section authorizes any agency to withhold from any individual any record, including
transcripts, recordings, or minutes required by this section, which is otherwise accessible to such individual
under section the Privacy Act.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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VII. ADVISORY COMMITTEES
Government entities frequently create advisory committees to provide input and suggestions
regarding important policy issues. Areas involving large amounts of money, and areas of technical
complexity, are prime candidates for the use of advisory bodies. Energy development qualifies under both
criteria.
The advantages and usefulness of outside advisory groups are largely self-evident, at least to the
governments throughout the world that so commonly create such bodies. Advisory committees provide
expertise and disinterested judgment, from persons out-side the agency. Typically, these committees are
composed of highly talented and accomplished persons who receive little if any compensation, so the
Government receives expert advice, at hardly any cost, from individuals that the Government could not afford
to employ.
There are also concerns about advisory committees. Many are composed largely of representatives of
firms who have an economic or professional interest in the subject about which the advice is given. An
agency can appoint persons to its advisory committees who are sympathetic to agency goals. Governments
are composed of sub-units that sometimes have different views about particular policy issues, and advisory
committees may be used as allies for promoting particular positions. Advisory bodies tend to continue long
after their usefulness is at an end, which is wasteful. (An appointment to a government advisory body confers
prestige on the appointee, and is a source of important contacts, so neither the agency nor committee members
have an incentive to terminate the committee or radically change its functions.)
The United States has responded to these concerns, as well as a desire to establish uniform advisory
committee procedures, by enactment of the Federal Advisory Committee Act (FACA), parts of which are set
out below. Any government that utilizes advisory committees, whether or not a general advisory committee
law is adopted, must consider the issues covered by FACA.
Section 2(d) defines "advisory committee" broadly to ensure that agencies do not avoid coverage
under FACA by creating some form of advisory body that is outside the statute. Section 2(c) mandates
uniform treatment of advisory bodies, except where FACA is explicitly superseded by another law. Section
2(a) recognizes the benefits of advisory committees, but 2(b) identifies some concerns about advisory bodies.
Section 7 assigns responsibility for oversight of advisory committees to the Administrator of General
Services, the senior official of the body responsible for Government administration. [Assignment of
administration functions regarding government agencies is sensible, quite apart from whether advisory bodies
are part of that portfolio. If nothing else, this responsibility should encompass ministerial tasks such as
maintaining a complete list of agencies and advisory bodies, along with their addresses, telephone numbers,
and the names of senior officers along with their titles.] Section 8 provides for appointment of an agency
advisory committee officer, an approach that makes sense only for large agencies with multiple advisory
bodies.
Section 10 requires that meetings of advisory committee must (in most instances) be open to the
public (including the press). Minutes must be kept, and documents presented to or prepared by advisory
committees must be available to the public, subject to the limitations of the Freedom of Information Act.
Section 11 requires that transcripts of advisory committee meetings must be made available to the public at
cost. In short, advisory bodies are subject to open meetings and open records standards parallel to those
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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applicable to agencies.
Section 10(f) makes meetings of advisory committees subject to a designated Government employee.
The Government also may set the agenda for advisory committee meetings. The objective is to avoid "run
away" committees that seek to develop their own goals and agendas. Advisory committees have a specific,
limited role, which is to advise Government on matters about which their advice is sought.
FACA does not address conflict of interest concerns, perhaps because the people who are most
knowledgeable in an area are also people who will have views and previously stated opinions. In a general
sense expertise can be regarded as a bias: physicians are likely to think that Government should spend more
on health care while petroleum engineers are likely to attach relatively greater importance to energy
development. A separate statute makes it a crime for a government official, including advisory committee
members, to render advice in "any matter" in which the person, spouse, or business associates "has a financial
interest." See 18 U.S.C. section 205.
FEDERAL ADVISORY COMMITTEE ACT (FACA)
?.2. Finding and purpose
(a) There are many committees, boards, commissions, councils, and similar groups created to advise
officers and agencies and that they are frequently a useful and beneficial means of furnishing expert advice, ideas,
and diverse opinions to the Government.
(b) The Congress further finds and declares that: (1) the need for many existing advisory committees has
not been adequately reviewed; (2) new advisory committees should be established only when they are determined
to be essential and their number should be kept to the minimum necessary; (3) advisory committees should be
terminated when they are no longer carrying out the purposes for which they were established; (4) standards and
uniform procedures should govern the establishment, operation, administration, and duration of advisory committees; (5) the Government and the public should be kept informed with respect to the number, purpose,
membership, activities, and cost of advisory committees; and (6) the function of advisory committees should be
advisory only, and that matters under their consideration should be determined, in accordance with law, by the
official, agency, or officer involved.
(c) The provisions of this Act, or of any regulation adopted pursuant to this Act, shall apply to each
advisory committee except to the extent that any Act of Congress establishing any such advisory committee
specifically provides otherwise. ...
(d) The term "advisory committee" means any committee, board, commission, council, conference, panel,
task force, or other similar group, or any subcommittee or other subgroup thereof that is: (1) established by statute
or reorganization plan, or (2) established or utilized by the President, or (3) established or utilized by one or more
agencies, in the interest of obtaining advice or recommendations, except that such term excludes any committee
which is composed wholly of full-time officers or employees of the Federal Government.
? 7. Responsibilities of the Administrator of General Services.
(a) The Administrator shall establish and maintain a Committee Management Secretariat, which shall be
responsible for all matters relating to advisory committees.
(b) The Administrator shall [conduct an annual] review of the activities and responsibilities of each
advisory committee to determine whether such committee is carrying out its purpose.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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(c) The Administrator shall prescribe management guidelines and controls applicable to advisory
committees, and, to the maximum extent feasible, provide advice and assistance to advisory bodies to improve
their performance.
(d) The Administrator shall establish guidelines with respect to uniform fair rates of pay for comparable
services of members, staffs, and consultants of advisory committees. Such regulations shall provide that:
(1) no member of any advisory committee or of the staff of any advisory committee shall receive
compensation at a rate in excess of the rate specified for [senior civil servants]; and
(2) such members, while engaged in the performance of their duties away from their homes or regular
places of business, may be allowed travel expenses, including per diem in lieu of subsistence, as
authorized for persons employed intermittently in the Government service.
? 8. Agency heads; Advisory Committee Management Officer.
(a) Each agency head shall establish uniform administrative guidelines and management controls for
advisory committees established by that agency, which shall be consistent with directives of the Administrator
under section 7 and section 10. Each agency shall maintain systematic information on the nature, functions, and
operations of each advisory committee within its jurisdiction.
(b) The head of each agency that has an advisory committee shall designate an Advisory Committee
Management Officer who shall:
(1) exercise control and supervision over the establishment, procedures, and accomplishments of advisory
committees established by that agency;
(2) assemble and maintain the reports, records, and other papers of any such committee during its
existence; and
(3) carry out, on behalf of that agency, the provisions of the Freedom of Information Act, with respect to
such reports, records, and other papers.
? 10. Advisory committee procedures; meetings; notice.
(a) Each advisory committee meeting shall be open to the public, except when the President determines
otherwise for reasons of national security. Interested persons shall be permitted to attend, appear before, or file
statements with any advisory committee, subject to such reasonable rules or regulations as the Administrator may
prescribe.
(b) Subject to the Freedom of Information Act, all documents which were made available to or prepared
for or by each advisory committee shall be available for public inspection and copying
(c) Detailed minutes of each advisory committee meeting shall be kept and shall include a complete and
accurate description of matters discussed and conclusions reached, and copies of all reports received, issued, or
approved by the advisory committee. The chairman of the advisory committee shall certify to the accuracy of all
minutes.
(d) Subsection (a) of this section shall not apply to any portion of an advisory committee meeting where
the President, or the head of the agency to which the advisory committee reports, determines in writing that such
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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portion of such meeting may be closed to the public in accordance with the Open Meetings Act.
(e) There shall be designated an officer or employee of the Federal Government to chair or attend each
meeting of each advisory committee. The officer or employee so designated is authorized, whenever he determines
it to be in the public interest, to adjourn any such meeting. No advisory committee shall conduct any meeting in
the absence of that officer or employee.
(f) Advisory committees shall not hold any meetings except at the call of, or with the advance approval of,
a designated officer or employee of the Federal Government, and in the case of advisory committees (other than
Presidential advisory committees), with an agenda approved by such officer or employee.
? 11. Availability of transcripts; "agency proceeding"
Agencies and advisory committees shall make available to any person, at actual cost of copying, complete
transcripts of agency proceedings or advisory committee meetings.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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VIII. GOVERNMENT CONTRACTING
Governments spend massive amounts for the acquisition of goods and services. Payment normally is
made in cash, but it may also be made in kind, as with oil and gas contracts. Exploration and production
agreements seem to place the Government in the position of selling interests in land, but the transaction can
equally be seen as the purchase of the payments that are received by the Government. In either event,
potentially vast sums of money are involved, as well as major impacts on the environment, transportation
infrastructure, employment, etc.
Given the enormous importance of government contracting, and the vast sums of money involved,
one might expect that it would be a central concern of administrative procedure. This is not the case,
however. Procurement is generally thought to be so different from other government activities that it is
subject to a separate body of law. The Administrative Procedure Act (APA) specifically exempts from
coverage: "loans, grants, benefits, and contracts." Sec. 553(a)(2). U.S. Government contracts are instead
governed by an extensive body of rules, the Federal Acquisition Regulations (FAR). FAR states contracting
principles of general applicability for all agencies; these are supplemented by rules adopted by individual
agencies, as authorized by FAR or separate law, to meet their special needs.
Government contracting is an enormously complex process that presents far more major issues than
could be covered in even a cursory fashion by these materials. At the same time, contract activities by
Government are much too important to ignore. The coverage here is necessarily cursory, and does not
address many aspects of government contracting. Two documents are presented, after this introduction, for
your reading. The first consists of the basic acquisition policies and principles set forth in FAR, and these
will be discussed further below.
The second document is a newspaper story about problems in the administration of road contracts in
Houston, Texas. Here the focus is on the performance stage of government contracts -- what happens after
the process of selecting a contractor is complete. Performance means doing on the ground what has been
promised on paper -- build a pipeline, feed the workers, build housing, or deliver computers. Simply
performing these tasks is not enough: compliance also is required with promised regarding, quality, cost, and
timely completion. Monitoring compliance requires the employment of persons (or firms) with technical
expertise in such diverse areas as accounting, engineering, materials testing, and geology. Senior agency
officials often have to decide disputes between agency staff and the contractor about highly technical issues
relating to cost accounting or the adequacy of the steel reinforcement used in the foundation of a building.
The central point to keep in mind is that the awarding of a contract is just the beginning of the contracting
process for an agency.
The most important thing to note about the FAR System that it is a system. Acquisitions policy
cannot consist of a series of ad hoc or loosely related policy. A carefully thought out and coordinated system
is essential for any Government that wants to operate efficiently and avoid widespread corruption.
Government contracting has to simultaneously meet several goals:
1. obtain quality goods or services,
2. in a timely manner,
3. at modest prices,
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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4. through a competitive, public bidding process,
5. conducted in a fair and equitable manner,
6. while maintaining public confidence, and
7. meeting public policy objectives.
All this must be accomplished with limited staff, while incurring only modest administrative costs.
The FAR basic policies are responsive to issues that must be addressed by any Government
contracting system, whether adopted by law, regulation, or specifically for the needs of a natural resources
exploration and production agency. What follows are some topics and questions that you should think
regarding the topics covered by the FAR basic policies document.
1. Are there circumstances where the seven goals enumerated above will be in conflict, with tradeoffs being necessary? Think of specific examples that present such trade-offs, being careful to identify the
underlying values at issue.
2. Under what circumstances might the use of a sole source bidder be appropriate, in lieu of
competitive bidding?
3. How might one design a streamlined bidding process for smaller acquisitions or urgently needed
items?
4. What sort of safeguard can be adopted to guard against exceptional processes becoming the norm,
whether due simply to a desire for administrative simplicity or from motives such as favoritism toward
favored suppliers?
5. Consider the need for and composition of an acquisition team for a large, long-term project such as
a pipeline or an oil exploration contract. What person or agency will be in charged? How will interagency
disputes be settled? How will disputes between Government and contractor be resolved? What sanctions are
available to the Government in the event of various types of default? What types of professional skills are
needed at various stages of the project?
6. Develop several problem scenarios that might arise in the course of an energy development
project, anywhere from conception to completion years later, and suggest solutions.
7. Under FAR, there is a separate agency for coordinating contracting activities, the General Services
Administration (GSA). Is this a sound approach? What sorts of conflicts might arise between such a body
and a mission-oriented body such as an energy exploration agency?
8. The use of general acquisition regulations means that individual agencies will need to adopt
supplementary rules specific to their needs. Under what circumstances may such rules be inconsistent or in
conflict with FAR principles, and what body will settle inter-agency disputes?
9. To what extent should Government purchasing of staple items such as office supplies and
equipment be centralized? What of government offices that are not in the capitol city? 10. FAR establishes a
basic dichotomy between military and civilian contracting authority. Is this a sound approach? If so, is there
still room for joint purchasing of basics like office supplies, and for policy coordination?
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10. How can Government promote cooperation among different agencies? (Control over the
disbursement of money is among the clearest forms of power, and there much experience to suggest that
agencies will struggle mightily to obtain or retain the authority to spend or allocate money.)
11. Note how FAR handles exceptions from normal contracting rules and procedures [called
"deviations" in FAR], and that there are separate provisions for individual and class deviations. Do you agree
with the FAR approach? Is it workable in practice, and will it be followed regularly by Government bodies?
12. The responsible contracting officer is the key to high quality government acquisitions and project
management. (In the end, excellent personnel can overcome poor or nonexistent policy guidance, but no set
of procedures is good enough to compensate for incompetent, venal, or dishonest administering personnel.)
Carefully consider and evaluate the FAR approach.
13. For important contract actions, written documentation should be required, perhaps on specified
forms -- what FAR calls a "determinations and findings" (DandF). Individual and class DandFs are treated
separately. Design a system of written documentation for a major energy project (that is, a long-term project
that will involve major expenditures of funds). In doing so, consider the needs and uses of a paper trial for
contract actions, for a range of officials including accountants, lawyers, senior agency officials, and
construction personnel.
These and related questions should help you to consider the practices, procedures, and problems
surrounding the making and administration of contracts by Government agencies. For each situation,
consider how a problem or issue could be avoided or recognized earlier and what might be done by way of
prevention or mitigation of harm. The best administrators do not simply carry out assigned tasks well, or
merely do a good job of dealing with the problems when they appear. The best administrators are proactive in
working to anticipate problems before they arise, and take action to prevent a problem from happening, or to
limit its impact.
FEDERAL ACQUISITION REGULATIONS [FAR] SYSTEM
48 Code of Federal Regulations (1998)
PART 1 -- BASIC POLICIES
This part sets forth basic policies and general information about the Federal Acquisition Regulations
System including purpose, authority, applicability, issuance, arrangement, dissemination, implementation,
supplementation, maintenance, administration, and deviation. Subsequent parts prescribe administrative
procedures for maintaining the FAR System.
The Federal Acquisition Regulations System is established for the codification and publication of
uniform policies and procedures for acquisition by all executive agencies. The Federal Acquisition
Regulations System consists of the Federal Acquisition Regulation (FAR), which is the primary document,
and agency acquisition regulations that implement or supplement the FAR. The FAR System does not
include internal agency guidance.
A. STATEMENT OF GUIDING PRINCIPLES
The statement of Guiding Principles for the Federal Acquisition System (System) represents a concise
statement designed to be user-friendly for all participants in Government acquisition. The following
discussion of the principles is provided in order to illuminate the meaning of the terms and phrases used. The
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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framework for the System includes the Guiding Principles for the System and the supporting policies and
procedures in the FAR.
(a) The vision for the Federal Acquisition System is to deliver on a timely basis the best value product
or service to the customer, while maintaining the public's trust and fulfilling public policy objectives.
Participants in the acquisition process should work together as a team and should be empowered to make
decisions within their area of responsibility.
(b) The Federal Acquisition System will-(1) Satisfy the customer in terms of cost, quality, and timeliness of the delivered product or service
by, for example, maximizing the use of commercial products and services; using contractors who
have a track record of successful past performance or who demonstrate a current superior ability to
perform; and promoting competition;
(2) Conduct business with integrity, fairness, and openness;
(3) Minimize administrative operating costs; and
(4) Fulfill public policy objectives.
(c) The Acquisition Team consists of all participants in Government acquisition including not only
representatives of the technical, supply, and procurement communities but also the customers they serve, and
the contractors who provide the products and services.
(d) The role of each member of the Acquisition Team is to exercise personal initiative and sound
business judgment in providing the best value product or service to meet the customer's needs. In exercising
initiative, Government members of the Acquisition Team may assume if a specific strategy, practice, policy or
procedure is in the best interests of the Government and is not addressed in the FAR nor prohibited by law,
Executive order or other regulation, that the strategy, practice, procedure or policy is a permissible exercise of
authority.
B. PERFORMANCE STANDARDS
(a) Satisfy the customer in terms of cost, quality, and timeliness of the delivered product or service.
(1) The principal customers for the product and services of the FAR System are the users and line
managers, acting on behalf of the taxpayer.
(2) The System must be responsive and adaptive to customer needs, concerns, and feedback.
Implementation of acquisition policies and procedures, as well as timeliness, quality and cost
throughout the process, must take into account the perspective of the user of the product or service.
(3) When selecting contractors to provide products or perform services the Government will use
contractors who have a track record of successful past performance or who demonstrate a current
superior ability to perform.
(4) The Government must not hesitate to communicate with the commercial sector as early as
possible in the acquisition cycle to help the Government determine the capabilities available in the
commercial marketplace. The Government will maximize its use of commercial products and
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services in meeting Government requirements.
(5) It is the policy of the System to promote competition in the acquisition process.
(6) The System must perform in a timely, high quality, and cost-effective manner.
(7) All members of the Team are required to employ planning as an integral part of the overall
process of acquiring products or services. Although advance planning is required, each member of
the Team must be flexible in order to accommodate changing or unforeseen mission needs. Planning
is a tool for the accomplishment of tasks, and application of its discipline should be commensurate
with the size and complexity of a task.
(b) Minimize administrative operating costs.
(1) To ensure that maximum efficiency is obtained, rules, regulations, and policies should be
promulgated only when their benefits clearly exceed the costs of their development, implementation,
administration, and enforcement. This applies to internal administrative processes, including
reviews, and to rules and procedures applied to the contractor community.
(2) The System must provide uniformity where it contributes to efficiency or where fairness or
predictability is essential. The System should also, however, encourage innovation, and local
adaptation where uniformity is not essential.
(c) Conduct business with integrity, fairness, and openness. An essential consideration in all aspects
of the FAR System is to maintain public trust. Not only must the System have integrity, but also the actions
of each member of the Team must reflect integrity, fairness, and openness. The foundation of integrity within
the System is a competent, experienced, and well-trained, professional workforce. Accordingly each member
of the Team is responsible and accountable for the wise use of public resources as well as acting in a manner
that maintains the public's trust. Fairness and openness require open communication among team members,
internal and external customers, and the public.
(1) To achieve efficient operations, the System must shift its focus from "risk avoidance" to one of
"risk management." The cost to the taxpayer of attempting to eliminate all risk is prohibitive. The
Executive Branch will accept and manage the risk associated with empowering local procurement
officials to take independent action based on their professional judgment.
(2) The Government shall exercise discretion, use sound business judgment, and comply with
applicable laws and regulations in dealing with contractors and prospective contractors. All
contractors and prospective contractors shall be treated fairly and impartially but need not be treated
the same.
(d) Fulfill public policy objectives. The System must support the attainment of public policy goals
adopted by the Congress and the President. In attaining these goals, and in its overall operations, the process
shall ensure the efficient use of public resources.
C. ACQUISITION TEAM
The purpose of defining the Federal Acquisition Team (Team) in the Guiding Principles is to ensure
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that participants in the System are identified -- beginning with the customer and ending with the contractor of
the product or service. By identifying the team members in this manner, teamwork, unity of purpose, and
open communication among the members of the Team in sharing the vision and achieving the goal of the
System are encouraged. Individual team members will participate in the acquisition process at the appropriate
time.
(a) Government members of the Team must be empowered to make acquisition decisions within their
areas of responsibility, including selection, negotiation, and administration of contracts consistent with the
Guiding Principles. In particular, the contracting officer must have the authority to the maximum extent
practicable and consistent with law, to determine the application of rules, regulations, and policies, on a
specific contract.
(b) The authority to make decisions and the accountability for the decision made will be delegated to
the lowest level within the System, consistent with law.
(c) The Team must be prepared to perform the functions and duties assigned. The Government is
committed to provide training, professional development, and other resources necessary for maintaining and
improving the knowledge, skills, and abilities for all Government participants on the Team, both with regard
to their particular area of responsibility within the System, and their respective role as a team member. The
contractor community is encouraged to do likewise.
(d) The System will foster cooperative relationships between the Government and its contractors
consistent with its overriding responsibility to the taxpayers.
(e) The FAR outlines procurement policies and procedures that are used by members of the
Acquisition Team. If a policy or procedure, or a particular strategy or practice, is in the best interest of the
Government and is not specifically addressed in the FAR, nor prohibited by law (statute or case law),
Executive order or other regulation, Government members of the Team should not assume it is prohibited.
Rather, absence of direction should be interpreted as permitting the Team to innovative and use sound
business judgment that is otherwise consistent with law and within the limits of their authority. Contracting
officers should take the lead in encouraging business process innovations and ensuring that business decisions
are sound.
D. COUNCILS AND SECRETARIAT
(a) FAR revisions will be prepared and issued through the coordinated action of two councils, the
Defense Acquisition Regulatory (DAR) Council and the Civilian Agency Acquisition (CAA) Council
Members of these councils shall-(1) Represent their agencies on a full-time basis;
(2) Be selected for their superior qualifications in terms of acquisition experience and professional
expertise; and
(3) Be funded by their respective agencies.
(b) The General Services Administration is responsible for establishing and operating the FAR
Secretariat to print, publish, and distribute the FAR through the Code of Federal Regulations (C.F.R.) system.
(c) Additionally, the FAR Secretariat shall provide the two councils with centralized services for -© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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(1) Keeping a synopsis of current FAR cases and their status;
(2) Maintaining official files;
(3) Assisting parties interested in reviewing the files on completed cases; and
(4) Performing miscellaneous administrative tasks pertaining to the maintenance of the FAR.
E. AGENCY IMPLEMENTATION
(a)(1) Subject to other statutory authority, an agency head may issue or authorize the issuance of
agency acquisition regulations that implement or supplement the FAR and incorporate, together with the
FAR, agency policies, procedures, contract clauses, solicitation provisions, and forms that govern the
contracting process or otherwise control the relationship between the agency, including any of its
suborganizations, and contractors or prospective contractors.
(2) Subject to other statutory authority, an agency head may issue or authorize the issuance of
internal agency guidance at any organizational level (e.g., designations and delegations of authority,
assignments of responsibilities, work-flow procedures, and internal reporting requirements).
(b) Agency heads shall establish procedures to ensure that agency acquisition regulations are
published for comment in the Federal Register when they have a significant effect beyond the internal
operating procedures of the agency or have significant cost or administrative impact on contractors or
offerors. However, publication is not required for issuances that merely implement or supplement higherlevel issuances that have previously undergone the public comment process, unless such implementation or
supplementation results in an additional significant cost or administrative impact on contractors or offerors or
effect beyond the internal operating procedures of the issuing organization.
(d) Agency acquisition regulations to implement or supplement the FAR shall be limited to-(1) Those necessary to implement FAR policies and procedures within the agency; and
(2) Additional policies, procedures, solicitation provisions, or contract clauses that supplement the
FAR to satisfy the specific needs of the agency.
(e) Agencies shall control and limit issuance of agency acquisition regulations and, in particular, local
agency directives that restrain the flexibility found in the FAR, and shall establish formal procedures for the
review of these documents to assure compliance with this part 1.
(f) Agency acquisition regulations shall not unnecessarily repeat, paraphrase, or otherwise restate
material contained in the FAR or higher-level agency acquisition regulations, and they shall not conflict or be
inconsistent with FAR content.
(g) Agencies shall evaluate all regulatory coverage in agency acquisition regulations to determine if it
could apply to other agencies. Coverage that is not peculiar to one agency shall be recommended for
inclusion in the FAR.
F. DEVIATIONS
(a) This subpart sets forth the policies and procedures for authorizing deviations from the FAR. A
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"Deviation" means any one or combination of the following:
(1) The issuance or use of a policy, procedure, solicitation provision, contract clause, method, or
practice of conducting acquisition actions of any kind at any stage of the acquisition process that is
inconsistent with the FAR.
(2) The omission of any solicitation provision or contract clause when its prescription requires its use.
(3) The use of any solicitation provision or contract clause with modified or alternate language that is
not authorized by the FAR.
(4) The use of a solicitation provision or contract clause prescribed by the FAR on a "substantially as
follows" or "substantially the same as" basis if such use is inconsistent with the intent, principle, or
substance of the prescription or related coverage on the subject matter in the FAR.
(5) The authorization of lesser or greater limitations on the use of any solicitation provision, contract
clause, policy, or procedure prescribed by the FAR.
(6) The issuance of policies or procedures that govern the contracting process or control contracting
relationships that are not incorporated into agency acquisition regulations.
(7) Deviations are not authorized with respect to Accounting Standards. [These are subject to
separate waiver procedures.]
(b) Deviations in General. Unless precluded by law, executive order, or regulation, deviations from
the FAR may be granted as specified in this subpart when necessary to meet the specific needs and
requirements of each agency. The development and testing of new techniques and methods of acquisition
should not be stifled simply because such action would require a FAR deviation. The fact that deviation
authority is required should not, of itself, deter agencies in their development and testing of new techniques
and acquisition methods.
(c) Individual deviations. Individual deviations affect only one contracting action, and may be
authorized by agency heads or their designees. The justification and agency approval shall be documented in
the contract file.
(d) Class deviations. Class deviations affect more than one contracting action. When it is known that
a class deviation will be required on a permanent basis, an agency should propose an appropriate FAR
revision to cover the matter. For civilian agencies other than NASA, a copy of each approved class deviation
shall be furnished to the FAR Secretariat.
(1) For civilian agencies, class deviations may be authorized by agency heads or their designees.
Delegation of this authority may not be made below the head of a contracting activity. Authorization
of class deviations by agency officials is subject to the following limitations:
(2) For DOD, class deviations shall be controlled, processed, and approved in accordance with the
Defense FAR Supplement.
G. OPPORTUNITY FOR PUBLIC COMMENTS
(a) Views of agencies and nongovernmental organizations or individuals will be considered in
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formulating acquisition policies and procedures.
(b) The opportunity to submit written comments on proposed significant revisions shall be provided
by placing a notice in the Federal Register. Each of these notices shall include -(1) The text of the revision or, if it is impracticable to publish the full text, a summary of the
proposal;
(2) The address and telephone number of the individual to who comments thereon should be
addressed;
(c) A minimum of thirty (30) days, and normally at least sixty (60) days, will be given for the receipt
of comments.
(d) Exceptions. Comments need not be solicited when a proposed coverage does not constitute a
significant revision, or when urgent and compelling circumstances make doing so impracticable prior to the
effective date of the coverage, such as when a new statute must be implemented in a relatively short period of
time. In such case, the coverage shall be issued on a temporary basis and shall provide for at least a 30-day
public comment period.
H. CONTRACTING OFFICERS
(a) Unless specifically prohibited by another provision of law, authority and responsibility to contract
for authorized supplies and services are vested in the agency head. The agency head may establish
contracting activities and delegate broad authority to manage the agency's contracting functions to heads of
such contracting activities. Contracts may be entered into and signed on behalf of the Government only by
contracting officers. In some agencies, a relatively small number of high-level officials are designated
contracting officers solely by virtue of their positions.
(b) Agency heads may mutually agree to (1) assign contracting functions and responsibilities from
one agency to another, and (2) create joint or combined offices to exercise acquisition functions and
responsibilities.
(c) Contracting officers have authority to enter into, administer, or terminate contracts and make
related determinations and findings. Contracting officers may bind the Government only to the extent of the
authority delegated to them. Contracting officers shall receive from the appointing authority clear instructions
in writing regarding the limits of their authority. Information on the limits of the contracting officers'
authority shall be readily available to the public and agency personnel.
(d) No contract shall be entered into unless the contracting officer ensures that all requirements of
law, executive orders, regulations, and all other applicable procedures, including clearances and approvals,
have been met.
(e) Contracting officers are responsible for ensuring performance of all necessary actions for effective
contracting, ensuring compliance with the terms of the contract, and safeguard the interests of the
Government in its contractual relationships. In order to perform these responsibilities, contracting officers
should be allowed wide latitude to exercise business judgment. Contracting officers shall -(1) Ensure that funds are available for obligation;
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(2) Ensure that contractors receive impartial, fair, and equitable treatment; and
(3) Obtain the advice of specialists in audit, engineering, law, transportation, and other fields, as
appropriate.
(f) In selecting contracting officers, the appointing official shall take account of the complexity and
financial value of the acquisitions to be assigned and the candidate's business acumen, experience, training,
education, judgment, and character. Examples of selection criteria include -(1) Experience in Government contracting and administration, commercial purchasing, or related
fields;
(2) Education or special training in business administration, law, accounting, engineering, acquisition
or related fields;
(3) Knowledge of acquisition policies and procedures; and
(4) Specialized knowledge in the subject area of contracting.
(g) Contracting officers shall be appointed in writing on the standard Certificate of Appointment
form, which shall state any limitations on the scope of authority to be exercised, other than limitations
contained in applicable law or regulation. Appointing officials shall maintain files containing copies of all
current appointments.
(h) Agency heads are encouraged to delegate micro-purchase authority to individuals who are
employees of an executive agency or members of the Armed Forces of the United States who will be using
the supplies or services being purchased. Persons delegated this authority shall be appointed in writing in
accordance with individual agency procedures.
(i) Termination of a contracting officer appointment will be by letter, unless the Certificate of
Appointment contains other provisions for automatic termination. Terminations may be effected for reasons
such as reassignment, termination of employment, or unsatisfactory performance.
(j) No termination shall operate retroactively.
I. DETERMINATIONS AND FINDINGS
(a) Definition. "Determination and Findings" (DandF) means a special form of written approval by an
authorized official that is required by statute or regulation as a prerequisite to taking certain contracting
actions. The "determination" is a conclusion or decision supported by the "findings." The findings are the
facts or rationale essential to support the determination and must cover each requirement of the statute or
regulation.
(b) A DandF shall ordinarily be for an individual contract action. Unless otherwise prohibited, class
DandF's may be executed for classes of contract action. The approval granted by a DandF is restricted to the
proposed contract action(s) reasonably described in that DandF. DandF's may provided for reasonable
flexibility. In their application, reasonable variations in estimated quantities or prices are permitted, unless
the DandF specifies otherwise. When an option is anticipated, the DandF shall state the approximate quantity
to be awarded initially and the extent of the increase permitted by the option.
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(c) Class determinations and findings. A class DandF provides authority for a class of contracting
actions. A class may consist of contracting actions for the same or related supplies or services or other
contracting actions that require essentially identical justification.
(1) The findings in a class DandF shall fully support the proposed action either for the class as a
whole or for each action. A class DandF shall be for a specified period, with the expiration date
stated in the document.
(2) The contracting officer shall ensure that individual actions taken pursuant to the authority of a
class DandF are within the scope of the DandF.
(d) Content. Each DandF shall set forth enough facts and circumstances to clearly and convincingly
justify the specific determination made. As a minimum, each DandF shall include, in the prescribed agency
format, the following information:
(1) Identification of the agency and of the contracting activity and specific identifications of the
document as a "Determination and Findings."
(2) Nature and/or description of the action being approved.
(3) Citation of the appropriate statute and/or regulation upon which the DandF is based.
(4) Findings that detail the particular circumstances, facts, or reasoning essential to support the
determination. Needed supporting documentation shall be obtained from appropriate requirements
and technical personnel.
(5) A determination, based on the findings, that the proposed action is justified under the applicable
statute or regulation.
(6) The signature of the official authorized to sign the DandF and the date signed.
(e) Supersession. If another DandF supersedes a DandF, that action shall not render invalid any
action taken under the original DandF prior to the date of its supersession.
(f) Modification. A modification of the DandF will not require cancellation of the solicitation if the
DandF, as modified, supports the contracting action.
(g) Expiration. Expiration dates are required for class DandF's and are optional for individual
DandF's. When a solicitation has been furnished to prospective offerors before the expiration date, the
authority under the DandF will continue until award of the contract(s) resulting from that solicitation.
Procurement is expressly excluded from the coverage of the Administrative Procedure Act. However,
the Procurement Act requires the adoption and implementation of procedures for effective and timely
solicitation of comments from interested parties prior to the adoption of new or amended procurement
policies, regulations, procedures, and forms. Procedures analogous to rule making are widely used by the
agencies.
The central figure to whom procurement rules and procedures is addressed in "the Contracting
Officer, because this person is the key actor in planning for, entering into, and administering a Government
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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contract or class of contracts.
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Bob Burtman, “See No Evil,” Houston Press, December 3, 1997, at 13. [Excerpts, reprinted with permission
of the author.]
On July 7, 1995, Gator Recycles International deposited $824 in the account of Paul Gilmore, a
senior inspector with the city's Public Works and Engineering Department. The transaction likely would have
raised more than a few eyebrows, if any of Gilmore's superiors had known about it: Gator produced an asphalt
additive used by the city in paving jobs, and Gilmore was responsible for determining if the material was
worth buying. A year later, contractor Anthony Karam bought a boat trailer hitch from Trailer Wheel and
Frame Co. on his credit card. The $260 hitch didn't end up on any of Karam's vehicles, however -- it was
tailored for Paul Gilmore's 1986 Ford Aerostar van. Karam had worked on projects supervised by Gilmore.
[These improper transactions came to light] when Karam complained about a $3,800 bribe he claimed
Gilmore solicited to buy Gilmore's daughter a car. "He was trying to squeeze me," Karam recalls, "I got
angry." The contractor told a public works investigator about the trailer hitch, which he now describes as a
loan, not a gift. "He said he'll pay me back," says Karam. "He never paid me back." The matter was turned
over to the Houston Police Department's Public Integrity Review Group (PIRG), which verified the [improper
payments to Gilmore. In May, the police confronted Gilmore with the evidence. Within two months, the
inspector had resigned from his job and pleaded guilty to one count of accepting an illegal gift, for the
Rockets tickets. He received deferred adjudication, meaning his record will be clean at the end of a two-year
probation period.
Prior to his departure, Gilmore had worked on a number of projects in the public works department's
Street and Bridge Division, and at one time oversaw the multi-million-dollar overlay program that has been
responsible for tons of fresh asphalt laid on Houston streets. Though hard evidence was lacking until Karam
came forward, at least some of Gilmore's colleagues had long suspected him of improprieties. "He was a time
bomb waiting to explode," says a city engineer.
Gilmore admits he took the two gifts but says the givers got nothing in return. And he denies that he
accepted or solicited any other gratuities, including the $3,800 car payment alleged by Karam, though he can't
say the same for his former colleagues. "I was not the only person that took presents from contractors,"
Gilmore claims.
Under the circumstances, public works managers might have been expected to review Gilmore's work
for indications that his decisions had been influenced by something other than professional judgment. That
never happened. "Maybe we should have," admits deputy director Buddy Barnes. Maybe indeed. Four letters
from testing laboratories obtained by the Press indicate that on several overlay projects, Gilmore was
instrumental in keeping the labs from checking asphalt samples at job sites during construction. Those
projects later failed post-construction tests, though the city never held the contractors accountable for
substandard work. (Gilmore says he doesn't recall ordering the labs not to conduct the field tests.)
Not only did the public works department allow Gilmore to resign and quietly disappear, it never
considered sanctions against the firms that illegally gave him gifts. Anthony Karam continues to do business
with the city and currently works on two municipal projects. "The city's primary focus was on its employee,"
explains street and bridge chief John Hatch. But it is unlike the department to worry too much about the past,
what with more than $700 million to spend every year on new pavement, storm sewers and other projects.
Close scrutiny of inspections or any other aspect of project design and construction might mean delays or
unpleasant confrontations with contractors or consultants over shoddy work. That seems especially low on
the priority list of the public works department.
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The Press uncovered numerous instances where overlays and other paving projects collapsed within
months of completion, at a cost to taxpayers of many millions of dollars. But with the exception of one
ongoing lawsuit filed after a developer complained, the city has taken no action against those responsible. In
addition, the Press has uncovered a number of other problems with inspections that raise questions about the
public works department's ability to maintain control of its projects:
•
In a dozen cases, the results of tests performed during and just after construction indicated that the work
or materials were substandard. Final inspections were later conducted for each project, but they do not
mention testing irregularities.
•
Though testing results are supposed to be widely distributed to public works administrators so that
substandard work doesn't escape notice, the project files the city maintains often don't contain the reports.
Several higher-ups say they didn't know about any failed tests.
•
The department has an inadequate number of inspectors to cover the array of projects under construction
at any given time, and those in the field are often poorly trained and lack the authority to challenge
contractors when conflicts arise.
•
Despite the fact that all projects are covered by a warranty period (usually 1 year) the department
conducts no inspections near the end of the period to see if work is holding up -- despite widespread
knowledge in the department of a number of projects that lasted less than a year before noticeably
deteriorating.
Not only are inspections lacking, but the city has generally been distancing itself from oversight of
public works projects. Controller Lloyd Kelley abandoned the tough audits of the Greater Houston
Wastewater Program and other projects that had irritated contractors and consultants and put his predecessor
at odds with the Mayor of Houston. Public Works Department internal auditing of programs has stopped as
well. And the increased use of consultants rather than city employees to manage the department's programs
has created additional distance from scrutiny.
In fact, in the Street and Bridge and Water and Storm Sewer Construction divisions, the consultants
are now providing their own inspectors for certain projects -- policing themselves, in other words -- and
leaving the city almost entirely out of the oversight loop. Without proper controls in place, of course, it's
impossible to tell how much of the $1 billion spent each year on public works projects has been thrown away.
The Safe Schools Sidewalks program provides funds for building sidewalks in school area, to
promote the safety of children. In front of several schools where contractor Bert Harrop contracted with the
city to pour sidewalks, there was no pavement in sight. If an alert city worker hadn't happened to discover,
months after the fact, that a water meter had been improperly installed with PVC [plastic] pipe instead of a
sturdier copper line, the missing sidewalks might never have come to light. But a spot check of the project -a sidewalk construction job that included the relocation of water meters -- revealed several meters with the
substandard pipe. Still other meters weren't replaced at all.
The city may recover some of its money, but a very important question has yet to be resolved: Since
the sidewalks weren't built as directed and the meters were installed with the wrong pipe, why did two city
inspectors repeatedly sign off on the projects? On daily reports in the field, as well as on the final inspection
form required before a close-out payment to a contractor can be made, inspector Janet Turner and her
supervisor, Frank Ellis, verified that the work had been according to plan.
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Neither Turner nor Ellis could be reached for comment. But in the city's eyes, at least, that question
has been answered. In a deposition taken for the lawsuit last May, public works deputy director Richard Scott
indicated that both Turner and Ellis were fired after the sidewalk problems were confirmed. He said he
suspected that Harrop knew he was getting paid for work that wasn't done, and that the inspectors were in
cahoots with the contractor, though he had no concrete evidence to back that speculation. "This has happened
before in the city," Scott testified. Turner and Ellis were never prosecuted, because the police were unable to
establish that cash or other gifts had changed hands.
According to Scott's deposition for the Harrop lawsuit, Turner offered the excuse that she had too
many jobs to inspect and simply couldn't be in several places at once to monitor the projects on a daily basis.
Instead, she relied on the contractor's word that the work had been performed. That doesn't explain why she
and Ellis signed the final inspection documents. But Turner had a point: the department does suffer from a
chronic shortage of inspectors. "No [division] has enough," says an engineer who's been with the city for
more than ten years. With several projects to inspect on a daily basis, the engineer says, "It's physically
impossible for the inspector to do his job."
In a November 1996 report, a consulting firm identified a shortage of inspectors in the Water and
Storm Sewer Construction Division. "We have determined that there have been few or even no progress
meetings with the contractors," the consultant reported, noting that responsibility for conducting the meetings
belongs to the senior inspectors. "Meetings must be held at least every two weeks in order to ensure the
orderly conduct of the construction management.” The reason for no meetings, the report continued, "is that
nobody is available to prepare for meetings, conduct meetings, prepare minutes and then take needed action.
Lack of oversight has been the norm on city sidewalk projects. Each project had multiple job sites,
and with some inspectors carrying a load of five projects at a time, just getting to the sites once a day was
tough enough. To do a thorough job, however, an inspector must be present at crucial times -- such as when
the concrete is poured -- to ensure that the work is done right. "The sidewalk jobs are really bad,” says one of
many engineers who have left the city in the past few years. "It's difficult to keep tabs on what the contractors
are doing." The shortage of manpower is only one impediment to the inspectors, who serve as the city's
primary defense against abuses by contractors. Training for new inspectors has been minimal, according to
sources in several public works divisions, meaning that they're not in a position to question contractors about
matters that are often highly technical.
Without adequate inspections, the city can't know if its billions have been well spent. Anecdotal
evidence suggests that many millions have been wasted or will have to be re-spent in relatively short order, as
a number of street overlays and other paving projects have cracked or collapsed within several months of
completion. An overlay job is supposed to last seven to nine years. When a contractor laid asphalt up to a curb
line last June instead of milling down the old pavement first, the inspector somehow didn't notice. Instead, it
took angry neighbors whose yards flooded at the first rain to get the city to fix the problem.
The city has several checks and balances besides inspections to ensure that contractors live up to their
obligations. However, as with the inspection process, their flaws seriously limit their effectiveness. For most
public works construction projects, testing labs are hired to measure materials and conditions in order to
guarantee they're up to standard. To ensure that concrete meets the standards for maximum strength, for
example, it must be properly mixed and heated to a certain temperature before it's poured. Laboratories check
core samples of pavement, take soil samples and perform any number of technical tasks. If problems arise,
they can be quickly corrected, thus avoiding the need to redo work.
In 1995, the consulting firm HBC Engineering issued a report for the Greater Houston Wastewater
Project on estimating the cost of testing services. The report pointed out differences between the money
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budgeted for testing and the amount actually spent. But truly alarming was another of the findings: In a
number of cases reviewed by the consultant, the testing wasn't being performed. "It is apparent that the city
has not been receiving the level of testing services that have been contracted for."
When a September, 1995 testing lab report showed that concrete used to rebuild several intersections
in southwest Houston was badly failing important durability tests, project manager Joanne Oropeza was
alarmed enough to circle the numbers and scribble a warning on the reports. "Too low!" Oropeza wrote.
"Comment?" The files contain no further comment or indication that the matter was resolved. Oropeza says
that the issue was discussed internally, and that she decided not to pursue it with the contractor. For one
thing, she says, the tests were invalid (though no additional tests were ordered). In the end, Oropeza says, the
standards aren't intended to be hard and fast, and they allow for some flexibility. We felt like if we got close
enough with the loose interpretation [of the standards], that we would count it as good," she explains.
Sometimes it's easier to avoid the whole problem of defending bad test results. Starting in February
1993, when the overlay program was expanded, inspector Paul Gilmore and his boss gave testing labs a new
directive: Instead of testing the asphalt on the job site, as was the custom, the labs should limit their activities
to the "batch plant," where the asphalt was produced. This radical departure from standard procedure spurred
several of the labs to write the city with their concerns. "We have been instructed not to perform field
inspections at the site," wrote Kurt Leus of Terra Inc. "It is our opinion that some field inspection could be
helpful in assuring the project is completed as best it can to serve the city of Houston."
-----------------------------To keep its huge fleet of cars and trucks running, the city maintains 15 gas depots, managed by the
public works department. The depot at 801 Gillette is the largest, pumping almost a million gallons a year.
Over the course of a given day, dozens of city employees fill up their tanks at the depot's 16 pumps. After
refueling, they are required to fill out a log with the following information: name, department, employee and
vehicle identification numbers, odometer reading and the amount of gas they pumped. The honor system is
convenient, but it may not be cost-effective.
The employee who demonstrated the system says that although he always fills in the log correctly,
many city workers don't, using phony information while filling up their personal vehicles -- a violation of the
rules. In addition, he says, a small group of employees supplement their incomes by several thousand dollars
a month by filling up several times a day, and then siphoning and selling the gas.
The fuel logs, which are meticulously entered into a massive database, reveal a number of
inconsistencies and omissions that could easily translate into petty fraud: A Ford that was filled up 16 times in
a month and averaged, according to odometer readings, a mere 10.8 miles per gallon; another auto whose
driver somehow squeezed 26 gallons into its economy size tank; numerous vehicles whose drivers pumped
lots of gas but never reported any changes in odometer readings; and numerous entries where the driver
neglected to write down the vehicle ID number or other required information. The inconsistencies might be
explained away by user carelessness or data-entry errors. But it might also make sense for the public works
department to audit the depots or otherwise perform spot checks to ensure that no abuses are occurring.
Careful analysis of programs and systems is deemed more of a nuisance than a necessity.
Besides, managers themselves apparently feel free to stretch the rules as it suits them, so why spoil a
good thing? A number of sources complain that the department routinely violates its own policy by allowing
favored workers to take their city vehicles home, which is permissible only in limited circumstances. Joanne
Oropeza, for example, who spends almost all her time at department headquarters, commutes to and from
work in her city car. "She is one of my key people," explains John Hatch.
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But being a "key" employee is not reason enough, at least according to department policy, for taking
home a city vehicle. Hatch himself doesn't meet the guidelines, for that matter. He commutes in his city
vehicle, even though the distance exceeds the 30-mile maximum allowed under the policy. When an
administrator questioned the exception, Hatch's boss, Buddy Barnes, interceded. Barnes also lives outside the
30-mile commute limit.
----------------------The use of outside consultants to manage public works programs provides yet another layer of
insulation from bad news. That practice has recently taken a new twist: In addition to providing the usual
design and construction services, the consultants now use their own inspectors to make sure the work passes
muster, creating a clear conflict of interest. Notes a city engineer sarcastically, "You can just bet the
consultant's inspectors will be knocking down the doors to report mistakes by their superiors."
--------------------On September 3, John Hatch ordered NBG Constructors to stop work on a bridge project. The project
had already been delayed when a pile driver encountered an unexpected layer of sand that couldn't be
penetrated. After a few shattered piles, some tests and many hours of discussion between the city project
manager, the design engineer and NBG, a solution was agreed upon: A path would be cleared through the
sand by "jetting," a common process that uses a high-pressure stream of water to move the sand out of the
way as the pile is being driven. Without consulting the project manager, Hatch called a halt to the pile
operation and engaged Geotest Engineering for a second opinion.
A few weeks later, Geotest came back with a new solution: Drive the piles into the sand and leave
them. But design engineer Charles Tamborello found the idea unacceptable and told Hatch he wouldn't
participate if the city tried to use the alternate pile plan. Eventually, Hatch cleared NBG to proceed with the
original design, using jetting. NBG, which had to keep its construction crew on standby while the issue
percolated, has billed the city $277,000 for the delay.
Hatch used Geotech to study the matter on a recommendation from the chief engineer, who in turn,
says she suggested Geotech because of the firm's expertise in pile-driving. It had nothing to do, the chief
engineer insists, with the fact that her stepdaughter worked for Geotech at the time. To pay the firm its fee of
more than $7,000, Hatch billed the work to another city contract Geotech held, though he doesn't know
exactly which one. "I was told they had a contract they could do it under," Hatch says. Hatch can't say why
he left the project manager out of the initial decision to hire a consultant. But he defends his decision to stop
the project, even though it might cost taxpayers over $250,000. Others familiar with the project disagree. "It
was a total waste of money, because the guy in charge [Hatch] had no idea what he was doing," says one
engineer.
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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Lori Rodriguez, Persistence Pays Off: Hispanics Gain Share in Construction of Sports Facilities, Houston
Chronicle, January 7, 2001.
In the fall of 1997, when the political push to approve the ballpark at Enron Field gave way to the pouring
of concrete, the lone Mexican-American on the Harris County-Houston Sports Authority showed up for the
first meeting. The bill creating the entity had been co-sponsored by state Sen. Mario Gallegos, Harris
County's highest-ranking elected Hispanic. All Hispanic lawmakers save one had supported the bill; most
Republicans opposed it.
Yet Al Luna that September joined a GOP-, Anglo- and male-dominated board that included three
African-Americans and Luna. A former state representative who is now a lawyer-lobbyist, Luna watched
warily as contracts that seemed to be done deals were flipped out for formal approval. HOK Sports Facilities
Group was lead architect, Brown and Root was construction manager in a venture with Barton Malow, and
the law firm Mayor, Day, Caldwell and Keeton was general counsel. On the minority side, Empire
Construction, a well-connected, black-owned Denver firm, was spliced into the management team. Black
attorney James Lemond, a former chief of staff for County Commissioner El Franco Lee, was co-general
counsel. And black architect Ruben Brown, another Lee intimate, was on board to connect minorities to
contracts. He was, in the jargon of the trade, a "gatekeeper."
On the eve of the critical 1996 ballpark referendum, Astros owner Drayton McLane Jr. promised
minorities nearly a third of the work to build and operate the ballpark in exchange for public support. Now,
blacks had begun to collect. When a move was made to also hire a black accounting firm, Luna, no stranger to
parliamentary maneuvers, exercised the first "tag" of an agenda item, delaying the vote. What transpired
privately later is not public record. But at subsequent meetings, the accounting work was split between a black
firm and a Hispanic one, Hispanic attorney Michael J. Solar was made litigation counsel and, most prophetic,
Brown and Root was forced to hire engineer D.V. "Sonny" Flores to work alongside Brown. The board now
had a "Hispanic gatekeeper," separate and equal.
In this majority-minority city, where the 2000 Census will show Hispanics are the numerically dominant
group, Enron Field’s celebrated construction offers a look at accommodations to come and racial rivalries
already here. Mostly, the raising of the ballpark and other sports venues is about power and money and
cutting deals, and who gets what and why. "You've got to look for the ball because they try to hide it," Luna
says today. "Then when you find it, you've got be able to say, `Wait a minute,' and be willing to do whatever
it takes to hold on to it."
Luna today isn't the most popular member of the sports authority, but he says nice guys finish last "In
politics, to be effective, you've got to be a jerk sometimes," he says. "You've got to pick your shots, but
you've got to be one. They've got to know that you can be one." That should be the mindset. You're the only
one there. If you don't do it, nobody else will. And why else are you there? Are you there to make friends and
be sociable and have everybody like you, or are you there to actually try to accomplish something?”
"And accomplishing something means getting some of the money." A case in point: A few weeks before
voters last Election Day approved construction of a downtown sports arena, 200 Hispanic leaders gathered at
an east-side restaurant for a breakfast briefing. Luna assured Latinos that the engineering and design team
selected by a committee representing the Houston Rockets and the sports authority included the Hispanicowned Bovay Engineers Inc. and Sunland Engineering Co. Their share, Luna said to enthusiastic applause,
would be a near-even split of the initial minority action with the black-owned John S. Chase Architect Inc.
and Nathelyne Kennedy and Associates Inc.
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"It was a way to test the commitment of the Rockets as to what kind of minority involvement we're going
to have in the process," Luna told the assembled leaders. "I'm very satisfied with the results." To more fanfare,
Councilman Gabriel Vasquez said the Rockets had also promised to fund Vecinos Unidos (Neighbors
United), a Hispanic-aimed program that will provide at least $50,000 in grants annually to civic clubs and
other nonprofit groups for inner-city improvements. Councilman John Castillo, a veteran of decades of grassroots campaigns, urged leaders to take yard signs with them, join door-to-door efforts, drag out Christmascard lists, get on the phones and otherwise help the measure pass. Castillo stressed that the Rockets had
promised to give at least 30 percent of the construction and concessions business at a new arena to minorityand women-owned business enterprises, or MWBEs.
Then, in the most telling sign of the evolving hardball Hispanic stance, Richard Torres, president of the
Hispanic Chamber of Commerce, cut to the chase. "Of 30 percent minority participation, how much would
go to Hispanic-owned companies?" he asked. "We need to be asking those questions right now, and we need
to be preparing ourselves as business owners to approach the organization about contracting with them.
"We're not just looking to jump behind this issue because we want to build an arena. We really want it to be
an economic development tool for our community."
George Postolos, Rockets chief operating officer, said all the right inclusive things. Former Reliant Chief
Executive Officer Don Jordan, co-chairman of the "Let's Build It Together" campaign, was also on point.
Ditto, sports authority Chairman Billy Burge. But no amount of politically correct rhetoric obscured the
bottom line.
Sergio Davila, an east-side civic leader and brother of former state Rep. Diana Davila, D-Houston, made
two observations. At a recent Vecinos Unidos meeting in Rockets offices, Davila said, "The director of
community services introduced her staff, and the vice president of marketing introduced her staff, and I
couldn't help but notice that there weren't any Hispanics. "Secondly, as a season-ticket holder for the Astros,
when I attended games at Enron Field, I couldn't help but notice that the staffing was surely not reflective of
the makeup of the city and, of the Hispanics that I did see, a good number of them were mopping or sweeping
floors. "My question to Mr. Postolos is, `What commitment to the Hispanic community can you give us as far
as staffing levels, not only on the arena but on your management team?' " Postolos gamely responded that the
organization aims for inclusiveness and called to the stage special-projects coordinator Andrea Bouchey, a
blond, blue-eyed, fair-skinned Cuban-American. "We're trying to do better," Postolos said, somewhat
weakly. "There's going to be a sustained effort in that regard."
Apparently so. The Rockets since have hired an executive-level Hispanic woman. That is what publicprivate enterprises have come to in Houston as the city builds its sports shrines for the new millennium:
counting heads, counting contracts and, especially, counting money. By common agreement across ethnic and
racial lines, that is more a good thing than bad. Even at Enron Field, after all, white-male-owned firms got at
least 70 percent of the $225.7 million in construction funds, as well as the concession action.
"The assault on affirmative action has left governmental bodies in the position where they can't impose
the kind of expectations that a lot of people in the public would think appropriate," says sports authority
counsel Gene Locke. Governments can set participation goals. In the same electoral coup that led to the
ballpark, the city beat back a voter attack on its MWBE program. But the core legal requirement for even
goals, which typically are rigidly enforced, is a historical pattern of discrimination. "Because the sports
authority is a very new body," says Locke, who served as city attorney under former Mayor Bob Lanier,
"we're not in the position where we could have that kind of history."
What the sports authority and downtown leaders led by Lanier could and did do, says Locke,
diplomatically, was "encourage the private sector to step up to the plate and voluntarily adopt goals." The
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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strong-arming worked. "But if something had gone real bad, the sports authority wouldn't have been in a
position to enforce anything, because the law requires that we be in only at arm's length," he says. "That's the
tragedy."
At the end of the day, Enron Field, the Houston Texans' under-construction Reliant Stadium and,
especially, minorities hope, the downtown arena to come are inclusive public-private efforts only because the
power establishment wants it so. There is a consensus "that we're going to do what we need to do to make
sure everybody's involved and feels like they're a part of the city, and it doesn't bother me one bit," said arena
campaign manager Dave Walden, chief of staff and Lanier's inner-circle intimate during the pivotal stadium
referendum. "I say that because I know how it worked before."
Public business in Houston doesn't always get done because of raw power, just a lot of the times. There is
tit for tat and quid pro quo, and when McLane and other downtown leaders asked minorities to pull the
ballpark referendum from the fire in return for some of the spoils, they lived up to the bargain. How some of it
happened is like the proverbial sausage you may not want to know. But however late at the gate. Hispanics
were at Enron Field, they scored a home run by installing Flores as the Hispanic gatekeeper of contracts.
There are euphemisms for his role: affirmative-action consultant, community liaison, contract specialist.
What it comes down to is that Flores was the Hispanic counterpart to Ruben Brown, and both were there to
connect Hispanic and black businesses to available contracts. They also had to safeguard sometimes
competing interests. "Whatever Anglos thought of it, Latinos believed they needed to have a separate
gatekeeper," says Flores, who currently is serving the same role for the NFL stadium construction. "It's about
dividing the pie and protecting interests. It's about reaching parity, just like they do in football."
They did reach it. As the mantra goes, Enron Field was built on time and under budget, and by the time it
opened with epic fanfare, a "we are the world" spectrum of minority firms had shared the construction dollars.
It wasn't quite the 30 percent McLane promised, but 27 percent is better than most public entities in Houston
and the state historically have managed.
Empire's piece of the management contract gave African-Americans a $3 .9 million head start. But in the
end, Hispanic-owned firms got 9.9 percent of the total contracts let, or $22.3 million. Black-owned firms got
8.9 percent, or $21.2 million. Anglo women-owned firms got 8.1 percent, or $18.3 million; and AsianAmerican firms got 0.2 percent, or $332,000.
Today, everyone from the Astros to the sports authority touts the MWBE program as a best of the breed.
That it was publicly driven but privately implemented should be a source of civic pride, says sports authority
member Howard J. Middleton, a former Port of Houston commissioner and veteran of affirmative-action
struggles. "Not only did we have minorities, black and white, but we had black, white and brown. And the
browns and blacks got a very even portion of that work," Middleton says carefully. "The browns might have
got a little bit more, but simply because of the size of the contracts. As well as the work could be equalized, it
was."
Middleton, like most prominent minority leaders, shrinks from the competitive side of the black-Hispanic
relationship. What Hispanics sometimes get, blacks sometimes do not, and vice versa. Even faced with the
Hispanic demand for a separate gatekeeper, black leaders vehemently deny there was a struggle for clout and
contracts. "Ruben Brown’s leader. "Ruben's job was to be inclusive.
"I guess there was a feeling that the Hispanic community in particular was not going to be addressed, and
maybe they felt as though we needed Sonny Flores, and he has his own outstanding reputation as a
businessman and community servant. That was an easy choice. "But if we take this community and start
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battling between the Hispanic piece, black piece, small-business piece, white piece, that's divisive and we as a
community ought not stand for it." Former mayor Lanier=s legacy includes saving the city's MWBE program
and hammering home the benefits of inclusion. Enron Chief Executive Officer Ken Lay, Reliant's Jordan and
Brown and Root followed his lead.
"At no point did any of these folks blink," says Flores. "Who would have thought that a sports entity
would be a prototype for how to do things?" When white-owned contractors resisted breaking down jobs or
splicing in minority firms for work they could do themselves or subcontract to companies they already knew
and trusted, they faced Brown and Flores. Brown delivered civil-rights speeches, and Flores evoked the
McLane promise. The main constraint ultimately was time.
"The project was on the fast track," says Flores. "Brown and Root was cooperative enough but only to a
point. They had to stay on schedule. We had some debates back and forth. Eventually, there were
compromises and results." Brown and Root early on agreed to what Flores considers a vital, if costly,
concession. It doled out $500,000 worth of bid plans and specifications to interested MWBEs for free.
Requests for proposals, or RFPs, were also widely distributed through the offices of the Hispanic Chamber of
Commerce, the African American Contractors Association, the Hispanic Contractors Association, the
Minority Business Council and similar groups.
"MWBEs could walk into a friendly place and look at what was up for grabs," says Flores. "All those
pieces really helped, and the grapevine also worked well." Dale Trevino, who sits on the Hispanic Contractors
board, recalls Flores' coming to meetings more than two years ago and laying out opportunities for work. One
was the daunting renovation of Union Station, which now serves as the stadium's opulent main entrance. The
Trevino Group, a construction firm launched by Bill Trevino in 1976 as a one-man show that now includes
sons Dale and David and Dale's wife, Erin, was the low bidder.
The firm's $7 million contract was 3 .13 percent of the total construction project and the largest let to an
MWBE. It also was competitively bid, and not one of the architectural, engineering or other professionalservices contracts that are most used to include minorities. The Trevinos credit Flores and others for prying
open the process. "We were at Union Station because of people like him and Mr. Luna, with his pressing to
say, `Hey, let's get some minority contractors in here,' " says Dale Trevino. "If Mr. Luna hadn't done what he
did, I doubt very seriously we would have been in there. "To be honest, Brown and Root, No. 1, could have
done it all themselves or, No. 2, could have gone to those much larger general contractors, Williams
Industries being one, and just said, `Hey, guys, come over here.' They normally would, a handshake over
lunch. "But we would not have done anything differently from what those people would have done, period."
The Trevino Group last year billed $24 million in contracts. Its forte is health facilities, a specialty that
began with a $1,200 contract to install an ice machine at the Texas Medical Center and last year earned the
firm national recognition for a $5 million state-of-the-art intensive-care unit at the Methodist Hospital. The
Enron Field contract was the Trevino Group's first experience as a subcontractor. Arguably, the renovation
was also one of the most problematic and least lucrative parts of the project. "The only reason we took this
job was because of the prestige," admits Dale Trevino. "We're hoping to break even." The Trevinos have no
regrets. Their name is on the building, and the job is on their resume. And for those looking for spillover
economic benefits to building sports venues, of more than 400 employees hired by the Trevinos and their
subcontractors, 65 percent were Hispanic and 25 percent African-American.
"They didn't open the whole process up," concludes Flores. "They only opened the part of the process that
they had to open, and the only reason they did that was because we wouldn't go away. It wasn't a volunteer
opening on the power side. It was a wedging-open. "But now we're in, and it's an indication of times that are
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not to come but that are already here."
On the eve of the unsuccessful 1999 basketball-arena vote, consultant Walden recalls a weekend call to
Lanier's home from the Rev. William Lawson, pastor of the Wheeler Avenue Baptist Church, and NAACP
leaders Howard Jefferson and Al Green. Rockets owner Leslie Alexander was not dealing with blacks in good
faith, they said, and some were threatening to oppose the project. The former mayor called Alexander's Boca
Raton home, chartered a jet and flew a black contingent to Florida, where they cut their deal. "These three
guys' picking up a phone and calling Lanier on a Sunday, that ain't the first time that happened," says Walden.
"I really don't want to characterize it too much as getting in your face; they’re just persistent."
In January 1992, when Lanier was mulling the city attorney slot, the same leaders had dropped off a letter
at Lanier's River Oaks home that made an impassioned pitch for Benjamin Hall, an Ivy League grad. "It was
pure poetry, literature," recalls Walden. Lanier picked Hall, and to this day Walden still calls Lawson, Green
and Hall's three friends."
"Those three guys have inserted themselves into a leadership position going back long before we thought
there were going to be new stadiums in this town," says Walden. "And they're not the be-all and end-all in the
black community. They don't control all the votes, but you don't want to start off with those guys
complaining. I went through it before, and it's just not worth it." For Walden during the Lanier years, there
was no equally formidable set of Hispanic leaders to reckon with. "They would get in your face but not like
that," says Walden. "I don't see that commonality of purpose in the Hispanic community as strong as in the
African-American."
Walden points to the tempestuous election of Councilman Vasquez two years ago. Backed by whites in
the Heights portion of the demographically mixed District H, Vasquez was labeled in public a vendido, or
sellout, by most elected Hispanic leaders. Gallegos mounted an anybody-but-Gabe campaign. Vasquez
overwhelmingly won, among Hispanic voters as well as white. But in the recent push to approve the arena,
Vasquez, Gallegos and virtually every major Hispanic leader put aside private differences to portray a united
front; the breakfast briefing looked like a lovefest.
It was a lesson learned, this one from blacks, who have emerged from centuries of discrimination with the
discipline to fight their major internal fights behind closed doors and come out with one voice. "You won't
catch them voting against each other too often. It all gets all patched up, worked out," sports authority
member Luna says with admiration. "When push comes to shove, they're going to vote together; you've got to
realize that. On a key issue, an issue that's important to them as a community."
There was backroom tussling among Hispanics. State Reps. Rick Noriega and Joe Moreno groused that
they were not quite comfortable with the arena. They were each given several thousand dollars for "early
voting" efforts. Noriega and fellow state Rep. Jessica Farrar groused about being excluded from the Vasquezinspired Vecinos Unidos program and demanded a meeting with the Rockets. They were each allowed to
submit names of people to serve on the board of directors.
Whatever the price of support, when everyone gathered for breakfast that morning, they were on the same
page. "There's an effort to try and work together on issues that are important to the Hispanic community and
the city of Houston," says Vasquez. "That was always my commitment, but this is the first time we had an
opportunity to test that on all sides." Haunted by the failed arena referendum, the downtown-led campaign
last year poured hundreds of thousands of dollars into wooing the minority vote. At least twice as much was
spent on the black effort as on the Hispanic, but it was the largest amount devoted to the Latino vote by such
campaigns to date, says Vasquez.
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"We had television, we had radio, we had walks, we had direct mail, we had ads in the newspaper. We
made a sincere and strong, aggressive effort to reach out and involve the Hispanic community," he says. "This
is the first time that the Hispanic campaign had so many resources and the first time all of us were working
together at the leadership level." It paid off, says Vasquez. Deluged with arena propaganda and propelled also
by the presidential election, turnout in Hispanic precincts was upward of 30 percent, normally a feat handily
managed by black voters but elusive to Latinos. Turnout in their neighborhoods typically languishes at 10 to
12 percent.
Hispanic voters also backed the arena at a rate of 72 percent to 75 percent, close to the black approval rate
of 75 percent to 80 percent and well above the 50 percent to 55 percent of Hispanics who favored the arena in
the earlier go-round. "There has to be a first step, and I think this was it," Vasquez says of the concerted
effort by Hispanics to unite behind a common goal. "I hope this was it."
Former sports authority Chairman Rains, who resigned his seat rather than be dumped, says he had to
physically separate Luna and Middleton at the conference table, so passionate were their pleas for Hispanic
and black inclusion. To Luna and Middleton, it was just necessary. To Rains, it was racial myopia.
Despite the Denver-based Empire and a few other connected firms, Enron Field contracts included dozens
of companies like the Trevino Group, whose foray into the public arena was neither typical nor necessary.
Rains is openly proud that happened on his watch. "You had not seen those faces, and we worked very hard
to do that," says Rains. "But it was my undoing with El Franco Lee and all those guys because it was not the
black and brown princes and princesses getting all the work."
Rains is apoplectic on the subject of insiders, saying that cronyism is alive and well in Houston,
regardless of ethnic or racial background. He notes that Manhattan Construction Co., the construction
manager for the ongoing Reliant Stadium construction in a venture with Beers Construction Co., is partnered
with current sports authority Chairman Burge in the ongoing construction of the new Harris County Jail. At
the city and county, contracts routinely go to the same stable of firms, most of them regular contributors to
mayoral, City Council and county-commissioner campaigns. The recent arena election was funded by a
flotilla of business hopefuls. The Mayor, Day law firm, general counsel to the sports authority, coughed up
$10,000. Morris Architects and HOK Sports, the arena's two lead architects, gave $2,500 each. Another
$2,500 came from Beers Construction, co-construction manager of the NFL stadium and arena wannabe.
Minority hopefuls are similarly well-represented on the donors list. The concession side of Enron Field's
money pie featured a kaleidoscope of politically connected blacks and Hispanics. Among them: National
Urban League chairman Darryl King, one of the blacks flown by Lanier to Boca Raton to negotiate with
Alexander, and former City Council members John Peavy and Gracie Saenz, a former mayoral hopeful and
now a lawyer-lobbyist.
In the wake of Enron Field's raising, Rains maintains he is most often asked by Anglos how he managed
to get it built while having to splice in MWBEs "who don't want to work and who just want to be handed
something." "That's the impression that was created," says Rains. "That it was, `Give me mine where's my
slice of the pie?' "But I have to spend a lot of time saying the minority contractors on that construction job
performed just like everybody else. That comes as a big surprise "They go, `No kidding, I thought you just
had to give them something to get rid of them,' because that happens."
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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IX. COUNTRY-SPECIFIC MATERIALS AND EXERCISES
The contents of this Chapter will be different for each of the countries where this Administrative
Process course is taught. It should include a selection of fundamental documents relating to national
governance in general, and to energy development in particular. Several general exercises are appended to
assist you in thinking about the issues raised by this course.
Documents and materials, which might usefully be examined by course participants, include the
following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Constitution of the country.
General law regarding government procedures.
Law creating agency responsible for energy matters.
Law regarding mining and mineral concessions.
Law regarding government contracts and purchasing.
Government collection and disclosure of information.
Health and safety laws relevant to energy development.
Procedures for adoption of regulations by agencies.
Rules and regulations specific to energy issues.
This listing is both too long and too short. It is too long because just the documents listed would run
to hundreds of pages. It is too short because, for a particular country, there will be other documents of greater
importance than those included above.
Exercise 1: Performance Norms for Oil Contractors
Assume that your government has decided to use the following language in its standard oil
exploration and production contract. [The language is borrowed from a form contract used by Qatar, and other
countries have employed similar provisions.]
"After discovery of Crude Oil in Commercial Quantities in the Contract Area Contractor shall, in
accordance with good oil-field practices, proceed to develop all productive structures, to install the facilities
which are necessary to production, storage and transportation, and to produce Crude Oil therefrom in
reasonably substantial quantities having regard to the world demand for Crude Oil and the economic
exploitation of Petroleum in the Contract Area, all in accordance with the Development and Production
Program and Budgets established [in the Contract]."
This provision presents numerous possibilities for disputes. Consider what procedures might
appropriately be used for deciding the following matters in a manner that promotes oil development and a
sound working relationship between agency and contractor:
1. Determining when a crude oil discovery is sufficient to constitute "commercial quantities."
2. Giving content to the term "good oil field practices."
3. What is meant by "necessary" facilities for production, storage, and transportation of crude oil -the developer is likely to want to spend less on constructing such facilities than is desired by the
contracting country.
4. Regarding production, how much is sufficient to meet the "reasonably substantial quantities"
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
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standard?
5. Do the "world demand" and "economic exploitation" tests modify the "reasonable substantial
quantities" standard?
6. What other disputes might arise under this contract?
Whatever the issue, administrative procedures are needed for handling disputes that cannot be
resolved through negotiation, and these procedures must be applied in a uniform manner to all similarly
situated contractors.
Exercise 2: Regulation of Petroleum Operations
A fellow law professor observed that an appropriate level of government control over energy
exploration and production could be obtained through adoption of: "regulations applicable to all petroleum
operations in the country."
1. What topics should be covered, and in what detail?
2. What rules can be waived, under what circumstances, and by which agency official(s)?
3. How can prompt compliance be assured: that is, how does an agency translate well crafted written
regulations into an effective operational system of regulation?
© 2002 by Institute for Energy, Law & Enterprise, University of Houston Law Center. All rights reserved.
Administrative Agencies
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