B-152470, FEB. 14, 1964

B-152470, FEB. 14, 1964

TO GENERAL ELECTRIC COMPANY:

FURTHER REFERENCE IS MADE TO YOUR LETTERS OF NOVEMBER 8, 1963 AND JANUARY 28, 1964, WITH REGARD TO INVITATION FOR BIDS NO. DS-5981 ISSUED BY THE BUREAU OF RECLAMATION, DEPARTMENT OF INTERIOR, FOR FURNISHING, INSTALLING AND TESTING ONE 11,111 KVA GENERATOR FOR THE FONTENELLE POWER-PLANT, SEEDSKADEE PROJECT, WYOMING.

BY LETTER DATED SEPTEMBER 11, 1963, THE DEPARTMENT OF INTERIOR SUBMITTED FOR OUR CONSIDERATION THE QUESTION WHETHER A SPECIFICATION PROVISION REQUIRING THE ALINEMENT OF COMBINED TURBINE (PURCHASED UNDER ANOTHER CONTRACT) AND GENERATOR SHAFT TO BE PERFORMED IN A SHOP LOCATED WITHIN THE CONTINENTAL LIMITS OF THE UNITED STATES OR CANADA, COULD BE WAIVED AS BEING IN THE INTEREST OF THE GOVERNMENT AND AWARD MADE TO THE LOW BIDDER, A JAPANESE FIRM, WHICH PROPOSED TO PERFORM THE ALINEMENT IN JAPAN, THE PLACE WHERE THE TURBINE WAS BEING MANUFACTURED. IT WAS HELD IN DECISION OF OCTOBER 11, 1963, THAT THE PLACE OF ALINEMENT WAS A MATERIAL PROVISION WHICH COULD NOT BE WAIVED AND CONCLUDED AS FOLLOWS:

"ACCORDINGLY, THE LOW BID SHOULD BE REJECTED AS NOT RESPONSIVE TO THE TERMS OF THE INVITATION. WE NOTE, HOWEVER, THAT THE LOW BID OF MITSUI AND COMPANY, LTD. IS $263,300, AND THE BIDS OF HITACHI ARE $337,640 WITH ALINEMENT IN ACCORDANCE WITH THE TERMS OF THE INVITATION AND $332,870 WITH ALINEMENT PERFORMED IN JAPAN--- ALL THREE OF THESE PRICES WITHOUT CONSIDERATION OF THE BUY AMERICAN DIFFERENTIAL--- AND THE LOW DOMESTIC BID, RECEIVED FROM THE GENERAL ELECTRIC COMPANY IS $355,613. IN VIEW OF THE SIGNIFICANT DOLLAR DIFFERENCE BETWEEN THE LOW BID AND THE NEXT LOW BIDS AND THE APPARENT UNDESIRABILITY OF THE ALINEMENT REQUIREMENT AS APPLIED TO A GENERATOR TO BE MANUFACTURED IN JAPAN, WE WOULD NOT OBJECT TO THE REJECTION OF THE LOW BID AND THE READVERTISEMENT OF THE PROCUREMENT WITH AN ALINEMENT PROVISION MODIFIED TO REFLECT THE GOVERNMENT'S ACTUAL NEEDS.'

BY SUPPLEMENTAL NOTICE NO. 2 DATED OCTOBER 21, 1963, THE BUREAU OF RECLAMATION REJECTED ALL BIDS RECEIVED UNDER THE INVITATION OPENED ON JULY 30, 1963; MODIFIED THE SPECIFICATIONS IN SOME RESPECTS, INCLUDING THE REQUIREMENT FOR SHAFT ALINEMENT, AND ELIMINATED THE DAVIS-BACON ACT PROVISIONS WITH RESPECT TO WORK TO BE PERFORMED AT THE SITE IN THE INSTALLATION OF THE EQUIPMENT. BIDS UNDER THE NEW INVITATION WERE OPENED ON NOVEMBER 12, 1963. THE THREE LOWEST BIDS RECEIVED ARE AS FOLLOWS:

CHART

COLUMN 1 COLUMN 2

MITSUI AND CO., LTD. $250,724.00 $267,767.44

HITACHI, NEW YORK, LTD. 314,150.00 334,999.00

GENERAL ELECTRIC CO. 352,575.00 352,575.00

COLUMN 1 IS THE BID PRICE AND COLUMN 2 IS THE AMOUNT FOR COMPARISON AFTER ADDING $2,000 FOR FOREIGN INSPECTION SERVICE AND THE 6 PERCENT BUY AMERICAN DIFFERENTIAL TO THE TWO BIDS OFFERING FOREIGN EQUIPMENT.

YOU CONTEND THAT THE LOW RESPONSIVE BID OF GENERAL ELECTRIC UNDER THE FIRST INVITATION WHICH OFFERED A DOMESTIC PRODUCT, SHOULD NOT HAVE BEEN REJECTED WITHOUT A DETERMINATION THAT THE PRICE QUOTED WAS UNREASONABLE AND THAT SUCH ACTION WAS OTHERWISE IN THE NATIONAL INTEREST. IN THIS CONNECTION IT IS STATED IN YOUR LETTER OF JANUARY 28, 1964 AS FOLLOWS:

"AS EXECUTIVE ORDER 10582 SPECIFICALLY STATES, HEADS OF EXECUTIVE AGENCIES (INCLUDING EXECUTIVE DEPARTMENTS) ARE REQUIRED UNDER THE BUY AMERICAN ACT "TO DETERMINE, AS A CONDITION PRECEDENT TO THE PURCHASE BY THEIR AGENCIES OF MATERIALS OF FOREIGN ORIGIN FOR PUBLIC USE WITHIN THE UNITED STATES, (A) THAT THE PRICE OF LIKE MATERIALS OF DOMESTIC ORIGIN IS UNREASONABLE, OR (B) THAT THE PURCHASE OF LIKE MATERIALS OF DOMESTIC ORIGIN IS INCONSISTENT WITH THE PUBLIC INTEREST; ...'"

AT THE OUTSET IT SHOULD BE STATED THAT THE STATEMENT MADE IN THE DECISION OF OCTOBER 11, 1963: "IN VIEW OF THE SIGNIFICANT DOLLAR DIFFERENCES BETWEEN THE LOW BID AND THE NEXT LOW BIDS AND THE APPARENT UNDESIRABILITY OF THE ALINEMENT REQUIREMENT AS APPLIED TO A GENERATOR TO BE MANUFACTURED IN JAPAN, WE WOULD NOT OBJECT TO THE REJECTION OF THE LOW BID AND THE READVERTISEMENT OF THE PROCUREMENT WITH AN ALINEMENT PROVISION MODIFIED TO REFLECT THE GOVERNMENT'S ACTUAL NEEDS," WAS NOT INTENDED TO PREVENT THE SECRETARY OF THE INTERIOR FROM MAKING ANY DETERMINATION WHICH HE MAY HAVE BEEN AUTHORIZED TO MAKE CONCERNING PREFERENCE FOR DOMESTIC MATERIALS. THE MATTER WAS CONSIDERED SIMPLY AS A PROCUREMENT UNDER THE NORMAL RULES. HAD THE SECRETARY OF THE INTERIOR INTENDED TO GRANT ANY PREFERENCE FOR DOMESTIC MATERIALS UNDER THE BUY AMERICAN ACT OR OTHERWISE, OTHER THAN THE NORMAL DIFFERENTIAL, THERE WOULD HAVE BEEN NO NEED TO SUBMIT THE QUESTION OF THE RESPONSIVENESS OF THE LOW BID FOR A DECISION.

THE ABOVE QUOTED PROVISION FROM YOUR LETTER OF JANUARY 28, 1964, STATED TO BE TAKEN FROM EXECUTIVE ORDER NO. 10582, REQUIRING A DETERMINATION AS A CONDITION PRECEDENT TO THE PURCHASE OF FOREIGN MATERIALS, IS NOT FROM THE EXECUTIVE ORDER BUT RATHER IS TAKEN FROM THE BUY AMERICAN ACT ITSELF. THE BUY AMERICAN ACT OF MARCH 3, 1933, AS AMENDED 41 U.S.C. 10A-10D PROVIDES IN PERTINENT PART, AS FOLLOWS:

"10A. AMERICAN MATERIALS REQUIRED FOR PUBLIC USE.

NOTWITHSTANDING ANY OTHER PROVISION OF LAW, AND UNLESS THE HEAD OF THE DEPARTMENT OR INDEPENDENT ESTABLISHMENT CONCERNED SHALL DETERMINE IT TO BE INCONSISTENT WITH THE PUBLIC INTEREST, OR THE COST TO BE UNREASONABLE, ONLY SUCH UNMANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MINED OR PRODUCED IN THE UNITED STATES, AND ONLY SUCH MANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MANUFACTURED IN THE UNITED STATES SUBSTANTIALLY ALL FROM ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES, SHALL BE ACQUIRED FOR PUBLIC USE. THIS SECTION SHALL NOT APPLY WITH RESPECT TO ARTICLES, MATERIALS, OR SUPPLIES FOR USE OUTSIDE THE UNITED STATES OR IF ARTICLES, MATERIALS, OR SUPPLIES OF THE CLASS OR KIND TO BE USED OR THE ARTICLES, MATERIALS, OR SUPPLIES FROM WHICH THEY ARE MANUFACTURED ARE NOT MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF A SATISFACTORY ALITY.'

IN ORDER THAT THE PROVISIONS OF THE BUY AMERICAN ACT MIGHT BE UNIFORMLY ADMINISTERED, AND FOR OTHER PURPOSES, THE PRESIDENT OF THE UNITED STATES ISSUED EXECUTIVE ORDER NO. 10582, DATED DECEMBER 17, 1954, 19 F.R. 8723, WHICH, AS AMENDED BY EXECUTIVE ORDER NO. 11051, DATED SEPTEMBER 28, 1962, 27 F.R. 9683, PROVIDES, IN PART, AS FOLLOWS:

"SEC. 2 (A) FOR THE PURPOSES OF THIS ORDER MATERIALS SHALL BE CONSIDERED TO BE OF FOREIGN ORIGIN IF THE COST OF THE FOREIGN PRODUCTS USED IN SUCH MATERIALS CONSTITUTE FIFTY PERCENTUM OR MORE OF THE COST OF ALL PRODUCTS USED IN SUCH MATERIALS.

"/B) FOR THE PURPOSES OF THE SAID ACT OF MARCH 3, 1933, * * * THE BID OR OFFERED PRICE OF MATERIALS OF DOMESTIC ORIGIN SHALL BE DEEMED TO BE UNREASONABLE, OR THE PURCHASE OF SUCH MATERIALS SHALL BE DEEMED TO BE INCONSISTENT WITH THE PUBLIC INTEREST, IF THE BID OR OFFERED PRICE THEREOF EXCEEDS THE SUM OF THE BID OR OFFERED PRICE OF LIKE MATERIALS OF FOREIGN ORIGIN AND A DIFFERENTIAL COMPUTED AS PROVIDED IN SUBSECTION (C) OF THIS SECTION.

"/C) THE EXECUTIVE AGENCY CONCERNED SHALL IN EACH INSTANCE DETERMINE THE AMOUNT OF THE DIFFERENTIAL REFERRED TO IN SUBSECTION (B) OF THIS SECTION ON THE BASIS OF FOLLOWING-DESCRIBED FORMULAS, SUBJECT TO THE TERMS THEREOF:

"/1) THE SUM DETERMINED BY COMPUTING SIX PERCENTUM OF THE BID OR OFFERED PRICE OF MATERIALS OF FOREIGN ORIGIN.'

"SEC. 3. NOTHING IN THIS ORDER SHALL EFFECT THE AUTHORITY OR RESPONSIBILITY OF AN EXECUTIVE AGENCY:

"/A) TO REJECT ANY BID OR OFFER FOR REASONS OF THE NATIONAL INTEREST NOT DESCRIBED OR REFERRED TO IN THIS ORDER; OR

"/D) TO REJECT ANY BID OR OFFER FOR MATERIALS OF FOREIGN ORIGIN IF SUCH REJECTION IS NECESSARY TO PROTECT ESSENTIAL NATIONAL-SECURITY INTERESTS AFTER RECEIVING ADVICE WITH RESPECT THERETO FROM THE PRESIDENT OR FROM THE DIRECTOR OF THE OFFICE OF EMERGENCY PLANNING. IN PROVIDING THIS ADVICE THE DIRECTOR SHALL BE GOVERNED BY THE PRINCIPLE THAT EXCEPTIONS UNDER THIS SECTION SHALL BE MADE ONLY UPON A CLEAR SHOWING THAT THE PAYMENT OF A GREATER DIFFERENTIAL THAN THE PROCEDURES OF THIS SECTION GENERALLY PRESCRIBE IS JUSTIFIED BY CONSIDERATION OF NATIONAL SECURITY.

"SEC. 5. * * * IN ANY CASE IN WHICH THE HEAD OF AN EXECUTIVE AGENCY PROPOSING TO PURCHASE DOMESTIC MATERIALS DETERMINES THAT A GREATER DIFFERENTIAL THAN THAT PROVIDED IN THIS ORDER BETWEEN THE COST OF SUCH MATERIALS OF DOMESTIC ORIGIN AND MATERIALS OF FOREIGN ORIGIN IS NOT UNREASONABLE OR THAT THE PURCHASE OF MATERIALS OF DOMESTIC ORIGIN IS NOT INCONSISTENT WITH THE PUBLIC INTEREST, THIS ORDER SHALL NOT APPLY. * *

THE RECORD SHOWS THAT AS PRESCRIBED BY SECTION 1-7.101-14 OF THE FEDERAL PROCUREMENT REGULATIONS IMPLEMENTING THE BUY AMERICAN ACT AND THE CITED EXECUTIVE ORDER COVERING THE PROCUREMENT OF SUPPLIES, BIDDERS WERE ADVISED OF THE REQUIREMENT THAT THEY CERTIFY AS TO ,COMPONENTS OF FOREIGN ORIGIN" AS DEFINED IN CLAUSE 14 OF THE GENERAL PROVISIONS STANDARD FORM 32, WHICH THEY PROPOSED TO FURNISH AND BIDDERS WERE REQUIRED TO FURNISH SUCH ADDITIONAL INFORMATION AS THE CONTRACTING OFFICER MIGHT REQUEST IN ORDER TO VERIFY THE VALUE OF THE FOREIGN COMPONENTS IN EVALUATING THE BIDS.

THUS IT WILL BE SEEN THAT THE INVITATION GAVE NOTICE OF THE BASIS UPON WHICH BIDS OFFERING FOREIGN COMPONENTS WOULD BE EVALUATED IN ACCORDANCE WITH THE BUY AMERICAN ACT AND EXECUTIVE ORDER NO. 10582, AND THE SECRETARY OF THE INTERIOR WAS FREE TO DETERMINE UNDER SECTION 5 OF EXECUTIVE ORDER 10582 THAT A PRICE DIFFERENTIAL GREATER THAN SIX PERCENT WAS NOT UNREASONABLE.

YOU PROTEST THE MODIFICATION OF THE SPECIFICATIONS PERMITTING THE A LINING OPERATION TO BE PERFORMED IN JAPAN ON THE BASIS THAT DOMESTIC BIDDERS ARE BEING DISCRIMINATED AGAINST. THIS CONTENTION IS UNTENABLE. THE CLEAR PURPOSE OF THE MODIFICATION PERMITTING THE ALINEMENT IN JAPAN WAS TO REMOVE THE DISCRIMINATORY PROVISIONS WITH REFERENCE TO JAPANESE BIDDERS, WHICH REQUIRED THE ALINEMENT TO BE PERFORMED ONLY IN THE UNITED STATES OR CANADA. DOMESTIC BIDDERS CAN STILL BID ON PERFORMING THE ALINEMENT IN THE UNITED STATES.

IT IS ALSO CONTENDED THAT THE SECOND INVITATION FOR BIDS IN INVALID IN THAT THE DAVIS-BACON ACT PROVISIONS WERE ELIMINATED AS TO THE WORK AT THE SITE INVOLVED IN THE INSTALLATION. IT IS STATED THAT MORE THAN $80,000 OF GENERAL ELECTRIC'S BID OF $334,412 (EXCLUDING SPARES AMOUNTING TO $26,613) REPRESENTS ON-SITE INSTALLATION COSTS AND THAT SUCH A PERCENTAGE OF THE SITE WORK TO THE TOTAL COST CANNOT BE CONSIDERED "INCIDENTAL" SO AS TO RENDER THE PROVISIONS OF THE DAVIS BACON ACT INAPPLICABLE.

THE BUREAU OF RECLAMATION REPORTS THAT THEY FEEL THERE IS NO QUESTION BUT THAT ITS GENERATOR CONTRACTS ARE ESSENTIALLY AND SUBSTANTIALLY SUPPLY CONTRACTS FOR THE MANUFACTURE AND DELIVERY OF HEAVY EQUIPMENT AND THAT THE INSTALLATION WORK AT THE SITE IS PURELY INCIDENTAL THERETO; THAT THE CORPS OF ENGINEERS DOES NOT INCLUDE THE DAVIS-BACON ACT PROVISIONS IN THEIR GENERATOR CONTRACTS; AND THAT THE DECISIONS OF THIS OFFICE TAKE THE VIEW THAT THE APPLICABILITY OF THE DAVIS-BACON ACT IS FOR DETERMINATION ON THE BASIS OF THE CONTRACT CONTENT AS A WHOLE AND THAT: "IF A CONTRACT IS ESSENTIALLY OR SUBSTANTIALLY FOR CONSTRUCTION, ALTERATION OR REPAIR, THEN ALL WORK UNDER IT IS COVERED. IF NOT, NONE IS COVERED," CITING DECISION OF MAY 24, 1963, B-150905 AND 40 COMP. GEN. 565.

WHILE IT MAY BE THAT THERE WILL BE A CONSIDERABLE AMOUNT OF WORK AT THE SITE IN THE INSTALLATION OF THE GENERATOR, IT WOULD APPEAR THAT A LARGE PORTION OF SUCH WORK WOULD BE THE ASSEMBLY OF THE EQUIPMENT ITSELF, RATHER THAN BEING THE TYPE OF CONSTRUCTION WORK COVERED BY THE DAVIS-BACON ACT. THIS WOULD APPEAR TO BE SUPPORTED BY THE STATEMENT MADE IN GENERAL ELECTRIC'S LETTER OF JANUARY 28, 1963, THAT THE WEIGHT OF THE MATERIAL HERE INVOLVED WOULD APPROXIMATE 336,000 POUNDS AND THAT DUE TO THE WEIGHT AND SIZE OF THE MATERIAL, TEN TO TWELVE RAILROAD CARS WOULD BE REQUIRED TO SHIP THE MATERIAL TO THE SITE. WE FIND NO BASIS TO QUESTION THE BUREAU OF RECLAMATION'S DETERMINATION THAT THE CONTRACT HERE INVOLVED IS ESSENTIALLY AND SUBSTANTIALLY A SUPPLY CONTRACT FOR THE MANUFACTURE AND FURNISHING OF A GENERATOR AND THAT THE CONSTRUCTION WORK AT THE SITE OF THE TYPE COVERED BY THE DAVIS-BACON ACT IS INCIDENTAL TO THE PRIMARY PURPOSE OF THE CONTRACT AND THAT, THEREFORE, THE PROVISIONS OF THE DAVIS-BACON ACT ARE NOT APPLICABLE TO ANY PART OF THE CONTRACT. AS STATED IN 40 COMP. GEN. 565, QUOTING FROM THE SYLLABUS: "THE TEST FOR DETERMINATION OF THE APPLICABILITY OF THE DAVIS-BACON ACT, 40 U.S.C. 276A, IS NOT THE NATURE OF THE SPECIFIC WORK BUT THE NATURE OF THE CONTRACT, THAT IS, WHETHER THE CONTRACT ESSENTIALLY OR SUBSTANTIALLY CONTEMPLATES THE PERFORMANCE OF WORK DESCRIBED BY THE ENUMERATED ITEMS "CONSTRUCTION, ALTERATION, AND/OR REPAIR, INCLUDING PAINTING AND DECORATING.'"

FOR THE FOREGOING REASONS WE FIND NO BASIS TO QUESTION THE LEGALITY OF THE SECOND INVITATION FOR BIDS OR THE PROPOSED AWARD TO MITSUI AND COMPANY, LTD., THE LOW AND THE ADMINISTRATIVELY DETERMINED RESPONSIVE AND RESPONSIBLE BIDDER. ACCORDINGLY YOUR PROTEST MUST BE DENIED.