B-174829, SEP 14, 1972, 52 COMP GEN 136

B-174829, SEP 14, 1972, 52 COMP GEN 136

CONTRACTS - NEGOTIATION - COMPETITION - MEMORANDUM OF UNDERSTANDING IN LIEU - CANADA THE AWARD OF A RESEARCH AND DEVELOPMENT CONTRACT ON A "SOLE-SOURCE" BASIS TO A CANADIAN FIRM PURSUANT TO A "MEMORANDUM OF UNDERSTANDING IN THE FIELD OF COOPERATIVE DEVELOPMENT BETWEEN THE UNITED STATES DEPARTMENT OF DEFENSE AND THE CANADIAN DEPARTMENT OF DEFENCE PRODUCTION" (PARAGRAPH 6-507 OF THE ARMED SERVICES PROCUREMENT REGULATION) WOULD NOT VIOLATE 10 U.S.C. 2304(G) REQUIRING THAT NEGOTIATED PROCUREMENT BE AWARDED ON A COMPETITIVE BASIS AFTER SOLICITATION FROM "THE MAXIMUM NUMBER OF QUALIFIED SOURCES CONSISTENT WITH THE NATURE AND REQUIREMENTS OF THE SUPPLIES OR SERVICES TO BE PROCURED," AS THE SECTION IS NOT INTENDED TO AFFECT OTHERWISE LEGITIMATE COUNTRY-TO-COUNTRY ARRANGEMENTS AND AGREEMENTS ENTERED INTO BY THE EXECUTIVE BRANCH IN THE CONDUCT OF FOREIGN RELATIONS.

TO THE MAGNAVOX COMPANY, SEPTEMBER 14, 1972:

WE REFER TO YOUR LETTER OF JUNE 16, 1972, AND PRIOR CORRESPONDENCE, PROTESTING AGAINST AWARD TO THE CANADIAN COMMERCIAL CORPORATION OF A RESEARCH AND DEVELOPMENT CONTRACT COVERING THE BAND IV VARIABLE HEAD OF THE AN/GRC-103(V) RADIO RELAY SET. THE DEPARTMENT OF THE ARMY PROPOSES TO MAKE THE AWARD ON A "SOLE-SOURCE" BASIS PURSUANT TO THE 1963 "MEMORANDUM OF UNDERSTANDING IN THE FIELD OF COOPERATIVE DEVELOPMENT BETWEEN THE UNITED STATES DEPARTMENT OF DEFENSE AND THE CANADIAN DEPARTMENT OF DEFENCE PRODUCTION."

THE MEMORANDUM OF UNDERSTANDING - COMPLEMENTING THE U.S.-CANADIAN DEFENCE PRODUCTION SHARING PROGRAM, ASPR 6-507 - PROVIDES GENERALLY FOR COOPERATION BETWEEN THE UNITED STATES AND CANADA IN DEFENSE RESEARCH AND DEVELOPMENT TOWARD THE PURPOSES OF MAKING IT POSSIBLE FOR CANADIAN FIRMS TO UNDERTAKE RESEARCH AND DEVELOPMENT WORK REQUIRED BY THE UNITED STATES; TOWARD BETTER UTILIZATION OF THE TWO COUNTRIES' RESOURCES IN THE INTERESTS OF MUTUAL DEFENSE; AND TOWARD MAKING POSSIBLE A GREATER DEGREE OF STANDARDIZATION AND INTERCHANGEABILITY OF EQUIPMENT. IN BROAD TERMS THE AGREEMENT PROVIDES FOR JOINTLY FUNDED RESEARCH AND DEVELOPMENT PROJECTS TO BE PERFORMED BY CANADIAN FIRMS TO MEET SPECIFIC UNITED STATES RESEARCH AND DEVELOPMENT REQUIREMENTS AND FOR EXEMPTION OF CANADIAN FIRMS FROM "BUY AMERICAN" RESTRICTIONS WHEN THEY ARE BIDDING FOR UNITED STATES DEPARTMENT OF DEFENSE RESEARCH AND DEVELOPMENT AND DEFENSE PRODUCTION CONTRACTS.

THE FULL TEXT OF THE MEMORANDUM OF UNDERSTANDING APPEARS AT PARAGRAPH 6- 507 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). THE FOLLOWING QUOTED PORTIONS ARE PARTICULARLY PERTINENT TO CONSIDERATION OF YOUR PROTEST:

2. DESCRIPTION OF THE PROGRAM:

A. THE DEFENSE DEVELOPMENT SHARING PROGRAM WILL CONSIST OF RESEARCH AND DEVELOPMENT PROJECTS (SUCH PROGRAM PROJECTS BEING HEREINAFTER REFERRED TO AS "PROJECTS"):

(1) WHICH ARE PERFORMED BY CANADIAN PRIME CONTRACTORS;

(2) WHICH ARE DESIGNED TO MEET SPECIFIC DOD RESEARCH AND DEVELOPMENT REQUIREMENTS;

(3) IN WHICH THE MILITARY DEPARTMENT OF DOD WHICH IS THE UNITED STATES PARTY TO THE PROJECT AGREEMENT ACTS AS THE DESIGN AUTHORITY; AND

(4) WHICH ARE JOINTLY FUNDED BY DOD AND CDDP, (WHERE DOD UNDERTAKES THE RESEARCH AND DEVELOPMENT OF A WEAPONS SYSTEM COMPOSED OF SEVERAL COMPONENTS, WORK FUNDED BY CDDP ON ONE OR MORE OF SUCH COMPONENTS WILL BE CONSIDERED TO BE JOINTLY FUNDED).

B. THE DEFENSE DEVELOPMENT SHARING PROGRAM WILL NOT INCLUDE EFFORTS REFERRED TO IN PARAGRAPH 13.

3. FUNDING:

THE FINANCIAL CONTRIBUTION OF DOD IN EACH PROJECT WILL NOT BE LESS THAN 25 PERCENT OF THE COSTS INCURRED SUBSEQUENT TO THE DATE OF THE PROJECT AGREEMENT PROVIDED THAT IN THE CASE OF WORK REFERRED TO IN THE PARENTHETICAL SENTENCE OF PARAGRAPH 2.A.(4), THE FINANCIAL ARRANGEMENTS SHALL BE AS AGREED TO BY DOD AND CDDP IN THE PROJECT AGREEMENT.

4. SELECTION OF PROJECTS:

A PROPOSAL TO INITIATE A PROJECT MAY BE MADE BY CDDP TO ANY OF THE MILITARY DEPARTMENTS OF DOD OR BY ANY OF THE MILITARY DEPARTMENTS OF DOD TO CDDP. EACH PROPOSAL WILL CONTAIN A COMPLETE AND DETAILED DESCRIPTION OF THE SCOPE OF THE PROJECT AND WORK TO BE PERFORMED AND OF THE SUGGESTED COST SHARING ARRANGEMENT. PROJECTS WILL BE SELECTED BY MUTUAL AGREEMENT OF CDDP AND THE MILITARY DEPARTMENT OF DOD CONCERNED.

6. SELECTION OF PRIME CONTRACTORS:

THE SELECTION OF PRIME CONTRACTORS FOR WORK TO BE PERFORMED UNDER A PROJECT, SHALL BE SUBJECT TO MUTUAL AGREEMENT.

9. DOD PROCUREMENT OF PROJECT DEVELOPED ITEMS:

PROCUREMENT BY DOD FROM CANADIAN FIRMS OF ITEMS DEVELOPED IN A PROJECT WILL BE MADE UNDER THE DEFENSE PRODUCTION SHARING PROGRAM AND IN ACCORDANCE WITH THE DOD ARMED SERVICES PROCUREMENT REGULATION. PURSUANT TO THAT REGULATION, PROCUREMENT OF ITEMS DEVELOPED BY CANADIAN FIRMS UNDER THE DEFENSE DEVELOPMENT SHARING PROGRAM WILL NOT BE "SET ASIDE" FOR SMALL BUSINESS OR FOR LABOR SURPLUS AREAS.

13. OTHER RESEARCH AND DEVELOPMENT EFFORTS NOT IN DEFENSE DEVELOPMENT SHARING PROGRAM:

A. CONSISTENT WITH NORMAL DOD SOURCE SELECTION PROCEDURES, CANADIAN FIRMS MAY BID FOR DOD RESEARCH AND DEVELOPMENT CONTRACTS WHICH ARE TO BE FUNDED SOLELY BY THE UNITED STATES. DOD WILL EVALUATE PROPOSALS FROM QUALIFIED CANADIAN FIRMS ON A PARITY WITH PROPOSALS RECEIVED FROM UNITED STATES FIRMS. CDDP UNDERTAKES TO ENSURE THAT CANADIAN FIRMS COMPLY WITH DOD PROCUREMENT PROCEDURES.

THE CONTRACT IN QUESTION BEING ONE FOR RESEARCH AND DEVELOPMENT DESIGNED TO MEET A SPECIFIC DEPARTMENT OF DEFENSE REQUIREMENT, THERE IS NO QUESTION CONCERNING APPLICABILITY OF THE CITED COOPERATIVE AGREEMENT. AND UNDER THE TERMS OF THE AGREEMENT IT IS CLEAR THAT PROVISION IS MADE FOR DIRECTING THE PROCUREMENT INVOLVED FOR PERFORMANCE BY A CANADIAN FIRM. APPROPRIATE DETERMINATIONS HAVE BEEN MADE TO BRING THE PROCUREMENT UNDER THE AGREEMENT. THUS, THE VALIDITY OF YOUR PROTEST MUST BE JUDGED SOLELY UPON WHETHER THE SECRETARY OF DEFENSE, AS UNITED STATES SIGNATORY TO THE AGREEMENT, WAS, IN FACT, AUTHORIZED TO COMMIT THE UNITED STATES TO THE PROVISIONS AGREED UPON.

IN IMPLEMENTATION OF THE NORTH ATLANTIC TREATY, 63 STAT. 2241, THE PRESIDENT ON OCTOBER 26, 1950, ISSUED A STATEMENT OF PRINCIPLES FOR ECONOMIC COOPERATION BETWEEN THE UNITED STATES AND CANADA, 1 UST 716, T1AS2136, AND 132 UNTS 247, WHICH PROVIDED, IN PERTINENT PART, THAT:

*** IN THE INTERESTS OF MUTUAL SECURITY AND TO ASSIST BOTH GOVERNMENTS TO DISCHARGE THEIR OBLIGATIONS UNDER *** THE NORTH ATLANTIC TREATY *** IT IS AGREED, THEREFORE, THAT OUR TWO GOVERNMENTS SHALL COOPERATE IN ALL RESPECTS PRACTICABLE, AND TO THE EXTENT OF THEIR RESPECTIVE EXECUTIVE POWERS, TO THE END THAT THE ECONOMIC EFFORTS OF THE TWO COUNTRIES BE COORDINATED FOR THE COMMON DEFENSE AND THAT THE PRODUCTION AND RESOURCES OF BOTH COUNTRIES BE USED FOR THE BEST COMBINED RESULTS.

THE FOLLOWING PRINCIPLES ARE ESTABLISHED FOR THE PURPOSE OF FACILITATING THESE OBJECTIVES:

1. IN ORDER TO ACHIEVE OPTIMUM PRODUCTION OF GOODS ESSENTIAL FOR THE COMMON DEFENSE, THE TWO COUNTRIES SHALL DEVELOP A COORDINATED PROGRAM OF REQUIREMENTS, PRODUCTION, AND PROCUREMENT.

5. BARRIERS WHICH IMPEDE THE FLOW BETWEEN CANADA AND THE UNITED STATES OF GOODS ESSENTIAL FOR THE COMMON DEFENSE EFFORT SHOULD BE REMOVED AS FAR AS POSSIBLE.

6. THE TWO GOVERNMENTS, THROUGH THEIR APPROPRIATE AGENCIES, WILL CONSULT CONCERNING ANY FINANCIAL OR FOREIGN EXCHANGE PROBLEMS WHICH MAY ARISE AS A RESULT OF THE IMPLEMENTATION OF THIS AGREEMENT.

THAT COOPERATIVE AGREEMENT IS AN EXTENSION OF ARRANGEMENTS BETWEEN THE UNITED STATES AND CANADA OF VARIOUS STEPS WHICH HAVE BEEN TAKEN DURING AND SINCE WORLD WAR II TO COORDINATE THEIR ECONOMIC EFFORTS IN THE COMMON DEFENSE. WHEN THE AGREEMENT WAS EXECUTED IN 1963 BY THE SECRETARY OF DEFENSE IN FURTHERANCE OF RECOGNIZED CONGRESSIONAL AND EXECUTIVE POLICY. CONGRESS IS AWARE OF THE AGREEMENT AND IT HAS BEEN OPERATIVE CONTINUOUSLY SINCE 1963. TO OUR KNOWLEDGE, QUESTION HAS NEVER BEEN RAISED REGARDING ITS IMPLEMENTATION. SEE SENATE HEARINGS BEFORE THE COMMITTEE ON APPROPRIATIONS, DEPARTMENT OF DEFENSE APPROPRIATIONS, FISCAL YEAR 1972, PART 2, DEPARTMENT OF THE ARMY (PAGES 1477-1479, 92D CONG., 1ST SESS.).

THE BASIS FOR QUESTIONING THE PROPOSED AWARD LIES IN THE PROVISIONS OF SECTION 2304(G) OF TITLE 10, U.S. CODE, REQUIRING THAT NEGOTIATED PROCUREMENTS BE AWARDED ON A COMPETITIVE BASIS AFTER SOLICITATION FROM "THE MAXIMUM NUMBER OF QUALIFIED SOURCES CONSISTENT WITH THE NATURE AND REQUIREMENTS OF THE SUPPLIES OR SERVICES TO BE PROCURED." THE BASIC CONTENTION IS THAT THE DEPARTMENT OF THE ARMY IS VIOLATING SECTION 2304(G) IN REFUSING TO SOLICIT A PROPOSAL FROM YOUR FIRM.

WHILE WE APPRECIATE THE THRUST OF YOUR ARGUMENT, WE CANNOT CONCLUDE THAT THE DEPARTMENT OF THE ARMY, IN AWARDING THE INSTANT CONTRACT TO THE CANADIAN COMMERCIAL CORPORATION, WOULD BE IN VIOLATION OF LAW. SECTION 2304(G), IN PROVIDING FOR COMPETITION IN NEGOTIATED PROCUREMENTS, WAS ENACTED FOR THE PURPOSE OF CORRECTING A PREVIOUS GENERALIZED RESORT TO SOLE SOURCE AWARDS UPON DETERMINATIONS UNDER SECTION 2304(A) OF TITLE 10 THAT PARTICULAR PROCUREMENTS WERE NOT AMENABLE TO REQUIRED FORMAL ADVERTISING PROCEDURES. SEE PRINT NO. 66, COMMITTEE ON ARMED SERVICES, HOUSE OF REPRESENTATIVES, JUNE 9, 1960, H.R. 12572. WE HAVE EXAMINED THE LEGISLATIVE HISTORY OF SECTION 2304 AND FIND NO BASIS FOR CONCLUDING THAT IT WAS INTENDED TO AFFECT OTHERWISE LEGITIMATE COUNTRY-TO-COUNTRY ARRANGEMENTS AND AGREEMENTS ENTERED INTO BY THE EXECUTIVE BRANCH IN THE CONDUCT OF FOREIGN RELATIONS.

IN LIGHT OF THE HISTORICAL BACKGROUND UNDERLYING THE COOPERATIVE AGREEMENT; IN LIGHT OF THE FACT THAT THE UNDERLYING PURPOSE OF 10 U.S.C. 2304(G) WAS NOT DIRECTED TOWARD AFFECTING COUNTRY-TO-COUNTRY ARRANGEMENTS; AND RECOGNIZING THAT THE AGREEMENT COVERS SIGNIFICANT MATTERS AFFECTING RELATIONS BETWEEN THE UNITED STATES AND CANADA, WE DO NOT BELIEVE IT APPROPRIATE FOR THIS OFFICE TO DECLARE THE AGREEMENT INVALID IN ITS EFFECT ON THE INSTANT PROCUREMENT.

ACCORDINGLY, YOUR PROTEST IS DENIED.