B-160870, JUL. 27, 1967

B-160870, JUL. 27, 1967

FOREIGN AID - COMMERCIAL SOURCE WAIVER DECISION TO E. W. BLISS CO. RECONSIDERING DECISION OF 4/27/67, CONCERNING AWARD BY NAVY OF AN ARRESTING GEAR SYSTEM CONTRACT TO ALL AMERICAN ENGINEERING CO. FOR FED. REPUBLIC OF GERMANY. A MEMORANDUM BY SECY. OF DEFENSE WAIVING THE PROHIBITION IN SEC. 507/B), FOREIGN ASSISTANCE ACT OF 1961, 22 U.S.C. 2315/B), FOR COUNTRIES WITH SPECIAL INTERNATIONAL AGREEMENTS AND EXECUTION OF SUCH AN AGREEMENT WITH THE FED. REPUBLIC OF GERMANY MAY BE REGARDED AS A WAIVER OF THE COMPETITIVE COMMERCIAL SOURCE PROCUREMENT REQUIREMENT IN THE "NATIONAL INTEREST" ON THE BASIS OF INTERNATIONAL COMITY AND GOOD WILL AND STANDARDIZATION OF MILITARY EQUIPMENT AND SUPPORT ITEMS, THERE BEING NOTHING IN THE ACT OR REGULATIONS REQUIRING SUCH WAIVERS TO BE ON AN INDIVIDUAL CASE BY CASE BASIS.

TO H. GENE SHACKLE, ESQUIRE, SECRETARY AND GENERAL COUNSEL, THE E. W. BLISS COMPANY:

CONSIDERATION HAS BEEN GIVEN TO YOUR LETTER DATED APRIL 27, 1967, REQUESTING RECONSIDERATION OF OUR DECISION DATED APRIL 27, 1967, B 160870, WHEREIN WE CONSIDERED THE PROPOSED AWARD OF AN ARRESTING GEAR SYSTEMS CONTRACT TO THE ALL AMERICAN ENGINEERING COMPANY BY THE NAVAL AIR ENGINEERING CENTER (SI), PHILADELPHIA, PENNSYLVANIA, IN BEHALF OF THE FEDERAL REPUBLIC OF GERMANY UNDER AUTHORITY OF THE FOREIGN ASSISTANCE ACT OF 1961 (MILITARY ASSISTANCE PROGRAM), 22 U.S.C. 2315/B).

THE CIRCUMSTANCES OF THE MATTER ARE SET FORTH IN OUR CITED DECISION AND NEED NOT BE SET FORTH HERE.

IN OUR PRIOR DECISION WE STATED THAT:

"* * * THERE WERE FORWARDED HERE COPIES OF DOCUMENTS WHICH EVIDENCE THE FACT THAT THE SECRETARY OF DEFENSE, AS IN THE NATIONAL INTEREST, HAS WAIVED, THE STATUTORY PROHIBITION IN THE CASE OF SALES MADE PURSUANT TO SPECIAL INTERNATIONAL AGREEMENTS, AND THAT A SPECIAL INTERNATIONAL AGREEMENT HAS BEEN EXECUTED WITH THE FEDERAL REPUBLIC OF GERMANY. THEREFORE CONCLUDE THAT THE INSTANT PROCUREMENT IS NOT SUBJECT TO THE STATUTORY PROHIBITION.'

YOU CONTEND THAT THERE HAS NOT BEEN IN FACT A WAIVER BY THE SECRETARY OF DEFENSE AS REQUIRED BY LAW SO AS TO REMOVE THE PROHIBITIONS REGARDING THE APPLICABILITY OF THE FOREIGN ASSISTANCE ACT, AND IN THE ABSENCE OF SUCH A WAIVER "THE ENTIRE PROCUREMENT IS NOT PERMITTED UNDER THE ACT AS THE EQUIPMENT IS, OF COURSE, COMMERCIALLY AVAILABLE.' YOU URGE THAT TWO ACTIONS ARE REQUIRED TO EFFECT A WAIVER OF THE STATUTORY PROHIBITION: "THE SECRETARY MUST FIRST DETERMINE THAT THE WAIVER OF THE PROVISIONS OF THE ACT IS IN THE NATIONAL INTEREST AND, SECOND, EXERCISE HIS PREROGATIVE TO WAIVE THE PROVISIONS OF THE ACT.' YOU STATE THERE IS NO EVIDENCE THAT THE ASSISTANT SECRETARY OF DEFENSE HAS EXERCISED THE DELEGATED POWER AND WAIVED THE STATUTORY PROVISIONS PERMITTING THE PURCHASE OF COMMERCIALLY AVAILABLE ARTICLES IN THIS MATTER, AND CONTEND THAT THIS POWER SHOULD BE EXERCISED ON A "CASE BY CASE BASIS.' IN ADDITION IT IS CONTENDED THAT THE WAIVER AUTHORITY HAS BEEN MISAPPLIED SINCE THERE IS NO "NATIONAL INTEREST" INVOLVED; THAT THE PROCUREMENT WAS INSTITUTED SOLELY TO AVOID AN ALLEGED PATENT INFRINGEMENT SITUATION.

AS STATED IN OUR EARLIER DECISION, SECTION 507/B) OF THE FOREIGN ASSISTANCE ACT OF 1961, AS AMENDED, 22 U.S.C. 2315/B), PROVIDES THAT THE PRESIDENT MAY ENTER INTO CONTRACTS FOR THE PROCUREMENT OF DEFENSE ARTICLES OR DEFENSE SERVICES FOR SALE TO ANY FRIENDLY COUNTRY, OR INTERNATIONAL ORGANIZATION UNDER CERTAIN STATED FINANCIAL ARRANGEMENTS, AND FURTHER THAT:

"NO SALES OF UNCLASSIFIED DEFENSE ARTICLES SHALL BE MADE TO THE GOVERNMENT OF ANY ECONOMICALLY DEVELOPED NATION UNDER THE PROVISIONS OF THIS SUBSECTION UNLESS SUCH ARTICLES ARE NOT GENERALLY AVAILABLE FOR PURCHASE BY SUCH NATIONS FROM COMMERCIAL SOURCES IN THE UNITED STATES: PROVIDED, HOWEVER, THAT THE SECRETARY OF DEFENSE MAY WAIVE THE PROVISIONS OF THIS SENTENCE WHEN HE DETERMINES THAT THE WAIVER OF SUCH PROVISIONS IS IN THE NATIONAL INTEREST.'

THE MEMORANDUM OF SEPTEMBER 8, 1962, OF THE SECRETARY OF DEFENSE PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"1. THIS MEMORANDUM PRESCRIBES THE POLICY TO BE FOLLOWED IN SALES BY THE DEPARTMENT OF DEFENSE OF DEFENSE ARTICLES TO ELIGIBLE FOREIGN COUNTRIES UNDER THE FOREIGN ASSISTANCE ACT OF 1961, AS AMENDED.

"2. NO SALES OF UNCLASSIFIED DEFENSE ARTICLES SHALL BE MADE TO THE GOVERNMENT OF ANY ECONOMICALLY DEVELOPED COUNTRY UNLESS SUCH ARTICLES ARE NOT GENERALLY AVAILABLE FOR PURCHASE BY SUCH COUNTRIES FROM COMMERCIAL SOURCES IN THE UNITED STATES.

"B. PURSUANT TO THE AUTHORITY VESTED IN ME BY SECTION 507/B) OF THE ACT, I HEREBY DETERMINE IT TO BE IN THE NATIONAL INTEREST THAT THE FOREGOING PROHIBITION NOT APPLY TO:

(1) SALES MADE PURSUANT TO SPECIAL INTERNATIONAL AGREEMENTS.

(2) SALES TO COUNTRIES WHICH DO NOT HAVE ADEQUATE LOGISTICS CAPABILITY FOR PRUDENT PURCHASES DIRECTLY FROM COMMERCIAL SOURCES IN THE UNITED STATES.

"C. THE AUTHORITY VESTED IN ME BY SECTION 507/B) OF THE ACT TO WAIVE THE FOREGOING PROHIBITION IS HEREBY DELEGATED TO THE ASSISTANT SECRETARY OF DEFENSE (INTERNATIONAL SECURITY AFFAIRS).

"3. THE ASSISTANT SECRETARY OF DEFENSE (INTERNATIONAL SECURITY AFFAIRS) SHALL KEEP THE DEFENSE SUPPLY AGENCY AND THE MILITARY DEPARTMENT CURRENTLY INFORMED: (A) AS TO WHICH COUNTRIES ARE ECONOMICALLY DEVELOPED WITHIN THE MEANING OF 2 ABOVE, (B) OF THE SPECIAL INTERNATIONAL AGREEMENTS, REFERRED TO IN 2.B./1) ABOVE, (C) OF THE IDENTITY OF THE COUNTRIES REFERRED TO IN 2.B./2) ABOVE, AND (D) OF DETERMINATIONS MADE UNDER 2.C. ABOVE. * * * .'

ON JANUARY 14, 1963, THE OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE (INTERNATIONAL SECURITY AFFAIRS) ISSUED A MEMORANDUM SETTING FORTH IN ATTACHMENTS THE DATA REQUIRED BY PARAGRAPH 3 OF THE SECRETARY OF DEFENSE MEMORANDUM DATED SEPTEMBER 8, 1962. ATTACHMENT TAB A DATED NOVEMBER 1, 1962, LISTED THE FEDERAL REPUBLIC OF GERMANY AS ONE OF THE COUNTRIES ELIGIBLE TO PURCHASE DEFENSE ARTICLES AND DEFENSE SERVICES FROM THE UNITED STATES UNDER THE PROVISIONS OF SECTION 507 OF THE FOREIGN ASSISTANCE ACT OF 1961, AS AMENDED. ATTACHMENT TAB B, ALSO DATED NOVEMBER 1, 1962, DOES NOT LIST THE FEDERAL REPUBLIC OF GERMANY AS ONE OF THE COUNTRIES SUBJECT TO THE PROHIBITION ON CERTAIN SECTION 507 SALES. A THIRD ATTACHMENT TAB C, DATED NOVEMBER 1, 1962, IS AS FOLLOWS:

"GERMANY

AN AGREEMENT BETWEEN THE UNITED STATES AND THE FEDERAL REPUBLIC OF GERMANY, DATED 8 OCTOBER 1956 (TIAS 3660, 7 U.S.C. 2787), PROVIDES THAT THE UNITED STATES GOVERNMENT, ON THE BASIS OF REQUESTS SUBMITTED BY THE GERMAN GOVERNMENT, WILL UNDERTAKE TO SELL MILITARY EQUIPMENT, MATERIALS, AND SERVICES TO THE GERMAN GOVERNMENT, -IN CASES WHERE SUCH ITEMS AND SERVICES CAN BE MADE AVAILABLE FOR THAT PURPOSE. - AN AGREEMENT WAS EXECUTED 24 NOVEMBER 1961 WITH GERMANY WHICH PROVIDES FOR THE U.S. TO PROCURE ITEMS WHICH ARE NOT STANDARD MILITARY ITEMS BUT WHICH ARE DIRECTLY RELATED TO, OR ESSENTIAL FOR, THE OPERATIONAL CAPABILITY OF THE ARMED FORCES OF GERMANY. THESE ARE ITEMS NOT HERETOFORE PROCURED FOR OR SOLD TO GERMANY.'

IT APPEARS QUITE OBVIOUS TO US THAT THE MEMORANDUM OF SEPTEMBER 8, 1962, IS DIRECTIVE IN NATURE, AND THAT THE DIRECTIVES AND DETERMINATIONS INCLUDED THEREIN ESTABLISH THE POLICY TO BE FOLLOWED. WE VIEW THE MEMORANDUM AS SELF-ADMINISTERING AND NOT DEPENDENT ON THE ISSUANCE OF SUBSEQUENT REGULATIONS TO BECOME OPERATIVE. THE ARMED SERVICES PROCUREMENT REGULATION PROVISIONS ON THIS SUBJECT MUST BE CONSIDERED ONLY AS ADMINISTRATIVE DETAILS IN THE APPLICATION OF THE DIRECTIVES AND DETERMINATIONS TO SPECIFIC INSTANCES.

THE AUTHORITY TO WAIVE IN THE NATIONAL INTEREST, THE STATUTORY PROHIBITION AGAINST SALES OF UNCLASSIFIED DEFENSE ARTICLES TO ECONOMICALLY DEVELOPED COUNTRIES, SHOULD, IN OUR OPINION, BE BROADLY CONSTRUED, BUT NOT BEYOND THE LIMITATION EXPRESSED IN THE STATUTE. THE STATUTE DOES NOT REQUIRE THE EXERCISE OF THE WAIVER ON A CASE-BY-CASE BASIS NOR ARE WE AWARE OF ANY OTHER BASIS FOR SO CONCLUDING. THE SECRETARY OF DEFENSE DETERMINED THAT IT WOULD BE IN THE NATIONAL INTEREST TO WAIVE THE PROHIBITION IN THE TWO CIRCUMSTANCES QUOTED ABOVE. THIS DIRECTIVE OF THE SECRETARY DOES NOT INDICATE THE CONTEMPLATION OF SEPARATE WAIVERS, BUT, ON THE CONTRARY, CONTEMPLATES, IN THE MATTER AT HAND,"SALES MADE PURSUANT TO SPECIAL INTERNATIONAL AGREEMENTS.' THIS, THEN, REQUIRES THE CONCLUSION THAT THE STATUTORY PROHIBITION IS NOT APPLICABLE TO THE SALE TO THE FEDERAL REPUBLIC OF GERMANY, PROVIDED AN INTERNATIONAL AGREEMENT EXISTED WITH THE FEDERAL REPUBLIC, AND PROVIDED THAT NO OTHER RESTRICTIONS EXISTED. WE FIND NOTHING IN THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), PARAGRAPH 6-705, REQUIRING A DIFFERENT CONCLUSION, OR FURTHER RESTRICTING THE PROCUREMENT HERE CONCERNED. IT MAY BE NOTED HERE THAT ASPR 6-705.2/B) SETS FORTH CERTAIN PROCEDURES TO BE FOLLOWED WHERE THE PROCUREMENT IS IN EXCESS OF $10,000 AND PRICE COMPETITION CANNOT BE OBTAINED. THIS PROCEDURAL MATTER DOES NOT AFFECT AN EXISTING WAIVER, BUT SETS FORTH A METHOD OF ASSURING TO THE FOREIGN COUNTRY PURCHASER THAT THE BEST PRICE AVAILABLE IS BEING OBTAINED. WE NOTE THAT WHERE THE FOREIGN COUNTRY HAS DESIGNATED ONLY ONE SOURCE, THE PROCEDURE IS NOT APPLICABLE. AS A MATTER OF SOME INTEREST, ASPR 6-705 BECAME EFFECTIVE JANUARY 22, 1964, ON PUBLICATION IN DEFENSE PROCUREMENT CIRCULAR NO. 1.

IT HAS BEEN INDICATED ABOVE THAT THE SECRETARY OF DEFENSE DETERMINED AS "IN THE NATIONAL INTEREST" THAT THE STATUTORY PROHIBITION BE WAIVED IN TWO SETS OF CIRCUMSTANCES. IN OUR OPINION, THIS CONSTITUTES A "WAIVER" OF THE PROHIBITION, AND WE ARE NOT IN A POSITION TO QUESTION THE SECRETARY'S VIEWS AS TO WHAT CONSTITUTES "NATIONAL INTEREST.' SUFFICE IT TO SAY THAT HIS ACTION APPEARS TO HAVE BEEN TAKEN, NOT ON AN ECONOMIC BASIS, BUT ON THE BASIS OF INTERNATIONAL COMITY AND GOOD WILL, AND STANDARDIZATION OF MILITARY EQUIPMENT AND SUPPORT ITEMS FURNISHED OR TO BE FURNISHED THE FEDERAL REPUBLIC OF GERMANY.

AS TO YOUR CONTENTION THAT THE WAIVER PROCEDURE WAS USED FOR THE SOLE PURPOSE OF AVOIDING PATENT INFRINGEMENT CLAIMS BY THE E. W. BLISS COMPANY, WE ARE INFORMED THAT THERE IS A QUESTION WHETHER BLISS PATENT RIGHTS WILL BE INFRINGED IN THE PRODUCTION OF THE ARRESTING GEAR ASSEMBLIES. WE ARE ADVISED THAT THE CONTRACTOR HAS GIVEN THE UNITED STATES GOVERNMENT AN INDEMNITY, SO THAT IF THERE IS ANY LIABILITY TO YOUR COMPANY, IT WILL, IN EFFECT, BE PAID BY THE CONTRACTOR. ALSO, WE MAY OBSERVE THAT THE UNITED STATES GOVERNMENT, UNDER ITS AGREEMENT WITH THE FEDERAL GOVERNMENT OF GERMANY TO MAKE PURCHASES, AND BY VIRTUE OF THE SOLE-SOURCE DESIGNATION, WAS REQUIRED TO MAKE THE PURCHASE WITH THE DESIGNATED COMPANY.

VERY CAREFUL CONSIDERATION HAS BEEN GIVEN TO YOUR SEVERAL ARGUMENTS IN YOUR REQUEST FOR RECONSIDERATION, HOWEVER, WE MUST ADVISE YOU THAT WE FIND NO BASIS FOR RESCINDING OUR DECISION OF APRIL 27, 1967, B 160870.