B-123891, JULY 12, 1955, 35 COMP. GEN. 7

B-123891: Jul 12, 1955

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1955: REFERENCE IS MADE TO YOUR LETTERS OF MAY 5 AND JUNE 7. IT IS REPORTED THAT THE INVITATION CALLED FOR THE FURNISHING OF NINE 230/180 KV POWER CIRCUIT BREAKERS FOR USE AT THE DALLES. THE BIDS WERE OPENED ON MARCH 11. WAS SUBMITTED BY BROWN BOVERI CORPORATION AND THE NEXT LOWEST BID. WAS SUBMITTED BY GENERAL ELECTRIC COMPANY. FACTORY WAS $38. FACTORY" WAS INTERPRETED BY THE BONNEVILLE POWER ADMINISTRATION AS MEANING F.O.B. FOREIGN FACTORY AND A DEPARTMENTAL DETERMINATION WAS REQUESTED CONCERNING THE QUESTION OF WHETHER. THE ADMINISTRATION RECEIVED A TELEGRAM WHICH WAS LATER CONFIRMED BY A LETTER FROM BROWN BOVERI. DUTY PAID AMOUNTS TO $38000 PER BREAKER. * * * ONE OF THE PURPOSES OF THE BUY AMERICAN ACT IS TO GIVE PREFERENCE TO ITEMS WHICH ARE MANUFACTURED ALL OR SUBSTANTIALLY ALL IN THE UNITED STATES.

B-123891, JULY 12, 1955, 35 COMP. GEN. 7

BIDS - ACCEPTANCE OR REJECTION - BUY AMERICAN ACT - COST COMPARISON OF FOREIGN AND DOMESTIC PARTS WHERE A BID INVITATION FOR POWER EQUIPMENT DID NOT REQUIRE SPECIFIC INFORMATION TO ESTABLISH A COMPARATIVE COST BASIS FOR EVALUATION UNDER THE BUY AMERICAN ACT AND EXECUTIVE ORDER NO. 10582, AND ONE OF THE BIDS SUBMITTED INDICATED THAT CERTAIN COMPONENTS WOULD BE SHIPPED FROM ABROAD, ALL BIDS SHOULD BE REJECTED AND THE PROCUREMENT READVERTISED.

TO THE SECRETARY OF THE INTERIOR, JULY 12, 1955:

REFERENCE IS MADE TO YOUR LETTERS OF MAY 5 AND JUNE 7, 1955, REQUESTING OUR OPINION CONCERNING THE EVALUATION OF BIDS RECENTLY RECEIVED IN RESPONSE TO INVITATION NO. 7561 ISSUED BY THE BONNEVILLE POWER ADMINISTRATION.

IT IS REPORTED THAT THE INVITATION CALLED FOR THE FURNISHING OF NINE 230/180 KV POWER CIRCUIT BREAKERS FOR USE AT THE DALLES, OREGON. THE BIDS WERE OPENED ON MARCH 11, 1955. THE LOWEST BID, $87,500 PER BREAKER, WAS SUBMITTED BY BROWN BOVERI CORPORATION AND THE NEXT LOWEST BID, $88,000 PER BREAKER, WAS SUBMITTED BY GENERAL ELECTRIC COMPANY. PURSUANT TO A REQUIREMENT IN THE INVITATION, BROWN BOVERI CORPORATION INDICATED IN ITS BID THAT CERTAIN PARTS OF THE EQUIPMENT--- THE BREAKER AND BUSHINGS--- WOULD BE SHIPPED FROM BADEN, SWITZERLAND, AND WOULD BE AVAILABLE THERE FOR INSPECTION, AND, IN A LETTER ACCOMPANYING ITS BID, STATED, IN A POSTSCRIPT THERETO, THAT THE VALUE OF THE IMPORTED EQUIPMENT F.O.B. FACTORY WAS $38,000 PER BREAKER.

THE TERM "F.O.B. FACTORY" WAS INTERPRETED BY THE BONNEVILLE POWER ADMINISTRATION AS MEANING F.O.B. FOREIGN FACTORY AND A DEPARTMENTAL DETERMINATION WAS REQUESTED CONCERNING THE QUESTION OF WHETHER, UNDER THE PROVISIONS OF THE BUY AMERICAN ACT, 41 U.S.C. 10A, AND MORE PARTICULARLY EXECUTIVE ORDER NO. 10582, DECEMBER 17, 1954, THE MATERIALS OFFERED BY BROWN BOVERI SHOULD BE CONSIDERED TO BE OF FOREIGN ORIGIN OR OF DOMESTIC ORIGIN.

SUBSEQUENTLY, ON MARCH 21, THE ADMINISTRATION RECEIVED A TELEGRAM WHICH WAS LATER CONFIRMED BY A LETTER FROM BROWN BOVERI. THE TELEGRAM READS IN PERTINENT PART AS FOLLOWS:

* * * ALL 9 230 KV BREAKERS ITEMS 7 AND 8 WE PROPOSE TO FURNISH TO BE MANUFACTURED ASSEMBLED TESTED IN OUR NEW PLANT NEW BRUNSWICK NEW JERSEY ONLY INTERRUPTER ELEMENTS CONTROL ASSEMBLIES AND INSTRUMENT TRANSFORMERS TO BE IMPORTED FROM OUR MAIN PLANT IN SWITZERLAND. CONSIDERING ABOVE KINDLY SUPPLEMENT INCOMPLETE POSTSCRIPTUM OUR COVERING LETTER DATED MARCH FOURTH TO READ, PLEASE NOTE THAT THE VALUE OF THE IMPORTED EQUIPMENT F.O.B. FACTORY AT NEW BRUNSWICK U.S. DUTY PAID AMOUNTS TO $38000 PER BREAKER. * * *

ONE OF THE PURPOSES OF THE BUY AMERICAN ACT IS TO GIVE PREFERENCE TO ITEMS WHICH ARE MANUFACTURED ALL OR SUBSTANTIALLY ALL IN THE UNITED STATES. THE EXECUTIVE ORDER SETS FORTH THE MANNER IN WHICH SUCH PREFERENCE SHALL BE APPLIED. HOWEVER, IN ORDER TO DETERMINE WHETHER OR NOT A GIVEN ITEM IS MANUFACTURED SUBSTANTIALLY ALL IN THE UNITED STATES AND THUS IS ENTITLED TO PREFERENCE, THE EXECUTIVE ORDER PROVIDES IN SECTION 2 (A) AS FOLLOWS:

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 CONSTITUTES 50 PER CENTUM OR MORE OF THE COST OF ALL THE PRODUCTS USED IN SUCH MATERIALS.

IT IS STATED THAT, SINCE THE AMOUNT OF $38,000 APPARENTLY COULD NOT BE COMPARED WITH THE BID PRICE INASMUCH AS THE BID PRICE CONSISTS, IN ADDITION TO THE COST OF MATERIALS, OF OTHER COST ELEMENTS SUCH AS PROFIT, OVERHEAD, ETC., THE DEPARTMENT ON APRIL 7, 1955, REQUESTED THE BIDDER "TO FURNISH US WITHIN FIVE DAYS A SWORN STATEMENT STATING THE PERCENTAGE OF THE COST WHICH THE MATERIALS OF FOREIGN ORIGIN REPRESENT WITH RESPECT TO THE TOTAL COSTS OF THE MATERIALS USED DIRECTLY IN THE MANUFACTURE OF THE POWER CIRCUIT BREAKERS.'

IN REPLY, AN AFFIDAVIT WAS EXECUTED ON APRIL 11 BY THE PRESIDENT OF THE BROWN BOVERI CORPORATION, WHICH CONTAINS THE FOLLOWING STATEMENT:

* * * I HAVE CAREFULLY READ AND AM FAMILIAR WITH THE CONTENTS OF SAID BID, AND WITH THE COST OF THE FOREIGN MATERIALS REFERRED TO THEREIN AND WITH THE SOURCE FROM WHICH THEY ARE TO BE PURCHASED; THAT THE COST OF FOREIGN MATERIALS USED IN THE SAID BREAKERS IS $38,000.00 PER BREAKER OR 43.4 PER CENT (INCLUDING TRANSPORTATION FROM FOREIGN SOURCE AND $6,120.00 U.S. DUTY PER BREAKER) OF THE TOTAL COST OF ALL MATERIALS USED IN THE SAID BREAKERS; AND THAT THE COST OF THE REMAINING MATERIALS TO BE FURNISHED UNDER THE SAID BID FROM DOMESTIC SOURCES WITHIN THE U.S. IS $49,500.00 PER BREAKER OR 56.6 PER CENT (WHICH INCLUDES $8,750.00 PER BREAKER FOR PROFITS, COMMISSION AND OVERHEAD) OF THE TOTAL COST OF ALL THE MATERIALS USED IN THE SAID BREAKERS.

THE EXECUTIVE ORDER CONTAINS NO DEFINITION OF THE WORD "COST," NOR DOES IT INDICATE THE POINT AT WHICH SUCH COST IS TO BE COMPUTED. IT IS CLEAR, HOWEVER, THAT, SINCE THE COST OF THE FOREIGN MADE COMPONENTS MUST BE COMPARED WITH THE COST OF THE DOMESTIC MADE COMPONENTS, THE COST OF EACH MUST BE COMPUTED IN A SIMILAR MANNER INSOFAR AS POSSIBLE.

ALTHOUGH TRANSPORTATION COSTS INCURRED BY THE BIDDER IN THE PROCUREMENT OF ANY COMPONENT PARTS CONSTITUTE A PART OF THE COST OF SUCH COMPONENTS, IT IS CLEAR THAT ANY TRANSPORTATION COSTS THEREAFTER INCURRED WOULD NOT BE RELATED TO THE COST OF THE COMPONENTS. CONSEQUENTLY, THERE CAN BE NO QUESTION BUT THAT IN COMPUTING THE COST OF THE VARIOUS COMPONENTS THERE MUST BE DEDUCTED FROM THE BID PRICE ANY AMOUNT INCLUDED FOR TRANSPORTATION FROM DOMESTIC FACTORY TO SITE OF INSTALLATION. ALSO, SINCE THE COMBINING OF THE FOREIGN COMPONENTS WITH THE DOMESTIC COMPONENTS OR THE TESTING OF ANY COMBINATION THEREOF CAN TAKE PLACE ONLY AFTER THE COMPONENTS HAVE BEEN MANUFACTURED, IT APPEARS THAT ANY COSTS RELATING THERETO MUST BE EXCLUDED FROM THE BID PRICE.

ON THE SAME THEORY, ANY AMOUNT INCLUDED IN THE BID PRICE REPRESENTING PROFITS AND COMMISSIONS OBVIOUSLY MUST BE EXCLUDED IN COMPARING THE COST OF FOREIGN COMPONENTS WITH THAT OF THE DOMESTIC COMPONENTS, BUT THE MANNER IN WHICH AN AMOUNT INCLUDED IN THE BID PRICE TO COVER OVERHEAD SHOULD BE TREATED ADMITTEDLY IS A CLOSE QUESTION.

PRIOR TO THE ISSUANCE OF THE EXECUTIVE ORDER, THE ARMED SERVICES PROCUREMENT REGULATION, PARAGRAPH 6-103-2, 32 CFR 405.103-2, HAD PROVIDED A METHOD FOR DETERMINING WHETHER SUPPLIES WERE MANUFACTURED "SUBSTANTIALLY ALL" IN THE UNITED STATES. EXCEPT FOR THE PERCENTAGE PRESCRIBED, THAT METHOD IS SIMILAR TO THE METHOD PRESCRIBED IN THE EXECUTIVE ORDER. THERE IS NO INDICATION THAT THE EXECUTIVE ORDER WAS INTENDED TO EFFECT ANY CHANGE IN THE METHOD OF COMPUTATION USED BY THE DEFENSE DEPARTMENT. THE OTHER HAND, IT IS SPECIFICALLY STATED IN THE EXECUTIVE ORDER THAT ONE OF ITS PURPOSES IS TO MAKE UNIFORM THE APPLICATION OF THE BUY AMERICAN ACT. THE DEPARTMENT OF DEFENSE HAS INFORMALLY ADVISED US THAT THEY HAVE APPLIED THE PARAGRAPH OF THE ARMED SERVICES PROCUREMENT REGULATIONS REFERRED TO, IN THE MANNER HEREIN INDICATED, INCLUDING IN SUCH APPLICATION THE EXCLUSION OF OVERHEAD.

IT IS THEREFORE OUR OPINION THAT, FOR BUY-1AMERICAN-1ACT PURPOSES, THE COST OF THE PRODUCTS TO BE USED PROPERLY MAY BE COMPUTED ACCORDINGLY.

THE GENERAL ELECTRIC COMPANY, HOWEVER, HAS PROTESTED ANY AWARD WHICH MIGHT BE MADE TO BROWN BOVERI ON THE BASIS OF THE INFORMATION FURNISHED BY BROWN BOVERI AFTER THE BIDS WERE OPENED, IT BEING CONTENDED THAT THE INFORMATION CONTAINED IN THE BID INDICATED THAT THE COST OF THE FOREIGN MATERIAL WAS $38,000 F.O.B. BADEN, SWITZERLAND, AND THAT SUCH AMOUNT, THEREFORE, DID NOT INCLUDE FREIGHT TO NEW BRUNSWICK, OR IMPORT DUTIES. OTHER WORDS, IT IS CONTENDED THAT THE MODIFIED STATEMENT OF FACTS RELATIVE TO THE BREAKER COMPONENTS TO BE MANUFACTURED ABROAD PROVIDED A BASIS FOR BROWN BOVERI TO REDUCE THE NUMBER OF ITEMS OF FOREIGN MANUFACTURE AND THUS TO OBTAIN A DIFFERENT BASE FOR EVALUATION OF ITS BID AFTER IT WAS DISCLOSED THAT THE BID AS SUBMITTED PERHAPS WOULD NOT SUPPORT AN AWARD.

IT SEEMS APPARENT THAT THE CONCLUSION REGARDING THIS PHASE OF THE MATTER HAS RESULTED FROM THE FACT THAT, AS STATED IN YOUR SEVERAL LETTERS, THE INVITATION DID NOT CALL FOR THE SPECIFIC INFORMATION NECESSARY TO ESTABLISH A COMPARATIVE BASIS FOR EVALUATING BIDS UNDER THE BUY AMERICAN ACT AND EXECUTIVE ORDER NO. 10582. IT FOLLOWS THAT THE INVITATION WAS NOT SUFFICIENTLY DEFINITE AND COMPLETE TO ENABLE THE SUBMISSION OF BIDS WHICH COULD BE PROPERLY EVALUATED AND THAT, THEREFORE, THE APPROPRIATE ACTION TO BE TAKEN WOULD BE TO REJECT ALL BIDS AND TO READVERTISE ON THE BASIS OF PROPER SPECIFICATIONS AS INDICATED.