B-131347, APRIL 17, 1957, 36 COMP. GEN. 718

B-131347, APRIL 17, 1957, 36 COMP. GEN. 718

CONTRACTS - FOREIGN PRODUCTS - BUY AMERICAN ACT VIOLATIONS THE USE IN A GOVERNMENT CONSTRUCTION PROJECT OF FOREIGN-MANUFACTURED RIGID INSULATION WHEN THE DOMESTICALLY MANUFACTURED PRODUCT IS AVAILABLE IN SUFFICIENT COMMERCIAL QUANTITIES AND AT A COST NOT IN EXCESS OF THE CRITERIA ESTABLISHED IN EXECUTIVE ORDER NO. 10582, WHICH IMPLEMENTED THE BUY AMERICAN ACT, 41 U.S.C. 10A-D, CONSTITUTES A VIOLATION OF THE ACT AND THE CONTRACT PROVISIONS REQUIRING COMPLIANCE WITH THE ACT; HOWEVER, IN VIEW OF THE SMALL AMOUNT AND VALUE OF THE FOREIGN PRODUCT USED AS COMPARED WITH COST OF ITS REMOVAL AND REPLACEMENT, TOGETHER WITH THE LACK OF BAD FAITH ON THE PART OF THE CONTRACTOR, IT IS NOT NECESSARY TO REQUIRE REMOVAL AND REPLACEMENT, AND NO OBJECTION WILL BE MADE TO THE DISCONTINUANCE OF DEBARMENT ACTION AGAINST THE CONTRACTOR. THE DEBARMENT OF A CONTRACTOR FOR VIOLATION OF THE BUY AMERICAN ACT AFTER HE REPLACES A FOREIGN-MANUFACTURED PRODUCT USED IN A GOVERNMENT CONSTRUCTION PROJECT WITH A DOMESTICALLY MANUFACTURED PRODUCT IS AN ADMINISTRATIVE MATTER, UNDER 41 U.S.C. 10B (B); HOWEVER, IN VIEW OF THE APPARENT GOOD FAITH OF THE CONTRACTOR, LACK OF KNOWLEDGE THAT THE USE OF THE MATERIALS WAS IN VIOLATION OF THE ACT, AND LACK OF INTENT TO INCREASE PROFITS BY THE USE OF THE FOREIGN PRODUCT, NO OBJECTION WILL BE MADE TO DISCONTINUANCE OF DEBARMENT PROCEEDINGS.

TO THE ADMINISTRATOR, VETERANS ADMINISTRATION, APRIL 17, 1957:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 29, 1957, REQUESTING A DECISION CONCERNING THE PROPER ACTION TO BE TAKEN UNDER THE BUY AMERICAN ACT, 47 STAT. 1520, AS AMENDED, 41 U.S.C. 10A-D, INCIDENT TO THE FAILURE OF THE J. D. HEDIN CONSTRUCTION COMPANY OF WASHINGTON, D.C., TO COMPLY WITH CLAUSE 17 OF ITS CONTRACT V1006C-68, FOR CONSTRUCTION AT THE VETERANS ADMINISTRATION HOSPITAL, HOUSTON, TEXAS.

CLAUSE 17 OF THE CONTRACT AS QUOTED IN YOUR LETTER CONTAINS THE FOLLOWING PROVISION IN ACCORDANCE WITH THE " BUY AMERICAN" ACT OF MARCH 3, 1933, 47 STAT. 1520, AS AMENDED:

THE CONTRACTOR AGREES THAT IN THE PERFORMANCE OF THE WORK UNDER THIS CONTRACT THE CONTRACTOR, SUBCONTRACTOR, MATERIAL MEN AND SUPPLIES SHALL USE ONLY SUCH UNMANUFACTURED ARTICLES, MATERIALS AND SUPPLIES (WHICH TERM "ARTICLES, MATERIALS AND SUPPLIES" IS HEREINAFTER REFERRED TO IN THIS CLAUSE AS " SUPPLIES") AS HAVE BEEN MINED OR PRODUCED IN THE SUPPLIES MANUFACTURED OUTSIDE THE UNITED STATES IF SUCH SUPPLIES UNITED STATES, AND ONLY SUCH MANUFACTURED SUPPLIES AS HAVE BEEN MANUFACTURED IN THE UNITED STATES SUBSTANTIALLY ALL FROM SUPPLIES MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES. PURSUANT TO THE BUY AMERICAN ACT (41 U.S.C. 10A-D), THE FOREGOING PROVISIONS SHALL NOT APPLY (I) WITH RESPECT TO SUPPLIES EXCEPTED BY THE HEAD OF THE DEPARTMENT FROM THE APPLICATION OF THAT ACT; (II) WITH RESPECT TO SUPPLIES FOR USE OUTSIDE THE UNITED STATES; OR (III) WITH RESPECT TO THE SUPPLIES TO BE USED IN THE PERFORMANCE OF WORK UNDER THIS CONTRACT WHICH ARE OF A CLASS OR KIND DETERMINED BY THE HEAD OF THE DEPARTMENT OR HIS DULY AUTHORIZED REPRESENTATIVE NOT TO BE MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF A SATISFACTORY QUALITY; OR (IV) WITH RESPECT TO SUCH SUPPLIES, FROM WHICH THE SUPPLIES TO BE USED IN THE PERFORMANCE OF WORK UNDER THIS CONTRACT ARE MANUFACTURED, AS ARE OF A CLASS OR KIND DETERMINED BY THE HEAD OF THE DEPARTMENT OR HIS DULY AUTHORIZED REPRESENTATIVE NOT TO BE MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF A SATISFACTORY QUALITY, PROVIDED THAT THIS EXCEPTION (IV) SHALL NOT PERMIT THE USE IN THE PERFORMANCE OF WORK UNDER THIS CONTRACT OF SUPPLIES MANUFACTURED OUTSIDE THE UNITED STATES IF SUCH SUPPLIES ARE MANUFACTURED IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF A SATISFACTORY QUALITY.

IT IS STATED IN YOUR LETTER THAT TWO ITEMS OF MATERIAL ARE INVOLVED, NAMELY, RIGID INSULATION MANUFACTURED IN ISRAEL AND CORKBOARD MANUFACTURED IN PORTUGAL. THE RIGID INSULATION IS STATED TO HAVE BEEN SPECIFIED TO BE USED THROUGHOUT BUILDING 26D. IT IS ASSERTED THAT PRIOR TO THE TIME THE GOVERNMENT'S RESIDENT ENGINEER BECAME AWARE THAT A NONDOMESTIC MATERIAL WAS BEING INSTALLED AND BEFORE THE CONTRACTOR COULD BE ORDERED TO DISCONTINUE INSTALLATION THEREOF AN AREA OF 693 SQUARE FEET OF SUCH MATERIAL HAD BEEN INSTALLED AND IS STILL IN PLACE, SURROUNDED BY RADIANT HEATING PIPES LOCATED ON THE FOURTH AND FIFTH FLOORS OF THE BUILDING, WITH CONCRETE FLOORS AND FINISHED TERRA 330 FLOORS LAID THEREON. THE NATURE OF THE INSTALLATION IS STATED TO BE SUCH THAT IT WOULD BE WHOLLY IMPRACTICAL TO REMOVE THE INSULATION. AS TO THE VALUE OF THE INSTALLED MATERIALS IT IS STATED THAT IN ALL PROBABILITY THE VALUE WOULD BE LESS THAN $50, AND THAT THE COST OF THE INITIAL INSTALLATION OF SUCH MATERIAL PROBABLY WOULD NOT EXCEED $50. IT IS ASSERTED THAT SIMILAR MATERIAL IS MANUFACTURED IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF SATISFACTORY QUALITY. AS TO THE RELATIVE COSTS OF THE FOREIGN AND DOMESTIC MATERIALS IT APPEARS THAT THE MATERIAL MANUFACTURED IN ISRAEL SELLS FOR $48.50 PER 1,000 SQUARE FEET WHEREAS THE DOMESTIC MATERIAL SELLS FOR $50 FOR THE SAME QUANTITY. ON SUCH BASIS YOU STATE THAT THE COST OF THE DOMESTIC MATERIAL CANNOT BE SAID TO BE UNREASONABLE UNDER THE CRITERIA ESTABLISHED IN EXECUTIVE ORDER NO. 10582 OF DECEMBER 17, 1954 (19 F.R. 8723), AND VA EMERGENCY INTERIM ISSUE EM-AAA-20 OF JANUARY 12, 1953, WHICH SET FORTH UNIFORM PROCEDURES TO BE FOLLOWED BY THE HEADS OF THE EXECUTIVE DEPARTMENTS IN MAKING THESE DETERMINATIONS. FURTHER, YOU STATE THAT NO BASIS IS PERCEIVED FOR A FINDING THAT USE OF THE DOMESTIC ITEM WOULD BE INCONSISTENT WITH THE PUBLIC INTEREST AND THAT NO EXCEPTION HAS BEEN NOTED IN THE SPECIFICATIONS RELATING TO THE INVOLVED MATERIAL OR ANY OTHER MATERIAL INSOFAR AS CONCERNS THE DOMESTIC ORIGIN OF SAME.

AS TO THE CORKBOARD IT IS STATED THAT MATERIAL OF THIS TYPE IS SPECIFIED TO BE INSTALLED AT VARIOUS LOCATIONS IN THE PROJECT AND THAT THE NONDOMESTIC MATERIAL MANUFACTURED IN PORTUGAL HAD BEEN INSTALLED IN THE CEILINGS OF ROOMS B1 AND B3 OF BUILDING NO. 206 WHEN USE OF SUCH MATERIAL WAS ORDERED DISCONTINUED, AT WHICH TIME THE CONTRACTOR WAS ORDERED TO REMOVE THE NONDOMESTIC MATERIAL ALREADY INSTALLED. AS TO THE COST OF SUCH MATERIAL REFERENCE IS MADE TO THE CONTRACTOR'S LETTER OF FEBRUARY 21, 1957, WHEREIN IT IS INDICATED THAT THIS MATERIAL WAS OBTAINED FROM THE RECTOR MINERAL TRADING CORPORATION OF NEW YORK AT A COST OF $0.585 PER SQUARE FOOT. IT IS STATED THAT ONLY A LIMITED QUANTITY OF THE MATERIAL WAS INSTALLED AND THAT UPON DISCOVERY OF SAME BY THE CONTRACTING OFFICER AND IN THE ABSENCE OF ANY SHOWING ON THE PART OF THE CONTRACTOR THAT THE INSTALLED MATERIAL CAME WITHIN ANY OF THE EXCEPTIONS OF THE BUY AMERICAN ACT CLAUSE OF THE CONTRACT THE CONTRACTING OFFICER ORDERED THE USE OF SUCH MATERIAL DISCONTINUED AND THE REMOVAL OF THE QUANTITY ALREADY INSTALLED. IT IS REPORTED THAT THEREAFTER THE CONTRACTOR WAS ABLE TO OBTAIN DOMESTICALLY-MANUFACTURED MATERIAL (MANUFACTURED FROM RAW MATERIAL OF FOREIGN ORIGIN) FROM THE ARMSTRONG CORK COMPANY AT $0.573 PER SQUARE FOOT, OR SLIGHTLY LESS THAN THE PRICE PAID FOR THE FOREIGN MATERIAL. THUS IT CANNOT BE SAID THAT THE PRICE OF THE DOMESTICALLY-MANUFACTURED MATERIAL WOULD HAVE BEEN UNREASONABLE UNDER EXECUTIVE ORDER NO. 10582, AND SINCE THE DOMESTICALLY MANUFACTURED MATERIAL OF FOREIGN ORIGIN WAS SECURED BY THE CONTRACTOR ON REJECTION OF THE FOREIGN MANUFACTURED MATERIAL IT IS OBVIOUS THAT THE DOMESTICALLY MANUFACTURED PRODUCT WAS REASONABLY AVAILABLE IN COMMERCIAL QUANTITIES AND OF SATISFACTORY QUALITY.

IT APPEARS FROM THE RECORD THAT ON FEBRUARY 6, 1956, SAMPLES OF THE FOREIGN-MANUFACTURED CORKBOARD WERE APPROVED BY THE SENIOR RESIDENT ENGINEER "SUBJECT TO ALL CONTRACT REQUIREMENTS" AND THAT SUCH APPROVAL WAS NOT REVOKED UNTIL OCTOBER 3, 1956, UPON DISCOVERY THAT THE MATERIAL WAS MANUFACTURED IN PORTUGAL. THE CONTRACTOR PROTESTED THE DISAPPROVAL ON THE GROUND THAT THE SAME CORKBOARD WAS ON THE LIST OF MATERIALS EXCEPTED FROM THE PROVISIONS OF THE BUY AMERICAN ACT BY THE DEPARTMENT OF DEFENSE AND THE GENERAL SERVICES ADMINISTRATION.

IN CONCLUSION YOU REFER TO STATEMENTS BY THE CONTRACTOR TO THE EFFECT THAT IT HAD NO KNOWLEDGE THAT EITHER OF THE TWO MATERIALS INVOLVED WERE OF FOREIGN ORIGIN AT THE TIME ORDERS WERE ISSUED THEREFOR, AND YOU SPECIFICALLY REQUEST OUR DECISION ON THE FOLLOWING QUESTIONS:

A. DOES THE INSTALLATION BY THIS CONTRACTOR OF RIGID INSULATION MANUFACTURED IN ISRAEL CONSTITUTE A VIOLATION OF THE BUY AMERICAN ACT AND THE CONTRACT PROVISION PERTAINING THERETO?

B. IN VIEW OF THE CHARACTER OF THE MATERIAL IN QUESTION AND THE MANNER OF ITS INSTALLATION WOULD IT BE NECESSARY TO REQUIRE ITS REMOVAL AND REPLACEMENT BY THE CONTRACTOR? IN THIS REGARD, WE WOULD STATE THAT THE MATERIAL AS INSTALLED OTHERWISE COMPLIES WITH THE CONTRACT AND IS ACCEPTABLE TO THE CONTRACTING OFFICER.

C. IS THIS VIOLATION OF SUCH CHARACTER AS WOULD REQUIRE THE TAKING OF THE DEBARMENT ACTION DESCRIBED IN 41 U.S.C. 10B (B), AND, IF SO, IN WHAT MANNER SHOULD SUCH BE INSTITUTED AND THE FINDINGS BE MADE PUBLIC AS THEREBY REQUIRED?

D. IN VIEW OF THE CONTRACTOR'S HAVING DISCONTINUED THE USE OF THE PORTUGUESE CORKBOARD, HIS INSTALLATION OF CORKBOARD OF DOMESTIC MANUFACTURE, AND HIS REPLACEMENT OF THE CORKBOARD MATERIAL OF FOREIGN ORIGIN WHICH WAS INSTALLED, DO YOU CONSIDER THAT ANY FURTHER ACTION WITH RESPECT THERETO IS REQUIRED OF VETERANS ADMINISTRATION UNDER THE BUY AMERICAN ACT?

THE ORIGINAL INTENT OF THE CONGRESS IN ENACTING THE BUY AMERICAN ACT WAS CLARIFIED BY SECTION 633 OF THE " NATIONAL MILITARY ESTABLISHMENT APPROPRIATION ACT, 1950" APPROVED OCTOBER 29, 1949, 63 STAT. 987, 1024, TO REQUIRE THE PURCHASE OF ARTICLES MANUFACTURED IN THE UNITED STATES IN PREFERENCE TO ARTICLES OF FOREIGN MANUFACTURE, EVEN THOUGH THE MATERIALS USED IN THE MANUFACTURE WERE OF FOREIGN ORIGIN. IN VIEW OF THE SHOWING IN YOUR SUBMISSION THAT SUPPLIES OF DOMESTICALLY MANUFACTURED RIGID INSULATION WERE AVAILABLE IN SUFFICIENT COMMERCIAL QUANTITIES AND AT A COST NOT IN EXCESS OF THE CRITERIA ESTABLISHED BY THE ABOVE EXECUTIVE ORDER NO. 10582, THERE APPEARS NO DOUBT THAT INSTALLATION OF THE RIGID INSULATION MANUFACTURED IN ISRAEL AND INSTALLED ON THE FOURTH AND FIFTH FLOORS OF BUILDING 26D CONSTITUTED A VIOLATION OF THE ABOVE STATUTORY AND CONTRACT PROVISIONS. HOWEVER, IN VIEW OF THE SMALL AMOUNT AND VALUE OF THE MATERIAL INVOLVED AS COMPARED TO THE COST OF THE REMOVAL AND REPLACEMENT OF SAME, TOGETHER WITH THE LACK OF ANY SHOWING AS TO BAD FAITH ON THE PART OF THE CONTRACTOR, QUESTION (B) IS ANSWERED IN THE NEGATIVE.

WITH RESPECT TO (C) THE STATUTE (41 U.S.C. 10B (B) ( VESTS IN THE HEAD OF THE DEPARTMENT, BUREAU, AGENCY, OR INDEPENDENT ESTABLISHMENT WHICH MADE THE CONTRACT THE AUTHORITY TO MAKE AND PUBLISH THE FINDING THAT THERE HAS BEEN A VIOLATION OF THE STATUTE. HOWEVER, CONSIDERING THE APPARENT GOOD FAITH OF THE CONTRACTOR, ITS LACK OF KNOWLEDGE OF THE FACT THAT THE MATERIALS INVOLVED WERE IN VIOLATION OF THE CONTRACT PROVISION, ITS RELIANCE UPON THE ORIGINAL ACCEPTANCE OF THE SAMPLES SUBMITTED, AND THE OBVIOUS LACK OF ANY INTENT TO INCREASE ITS PROFITS BY USING FOREIGN MATERIALS, WE DO NOT FEEL THAT WE WOULD BE REQUIRED TO OBJECT TO THE DISCONTINUANCE OF FURTHER PROCEEDINGS IN THE MATTER. QUESTIONS (C) AND (D) ARE ACCORDINGLY ANSWERED IN THE NEGATIVE.