B-140904, DECEMBER 11, 1959, 39 COMP. GEN. 435

B-140904: Dec 11, 1959

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BIDS - BUY AMERICAN ACT - SMALL BUSINESS SET-ASIDE - PRICE DIFFERENTIAL BIDDER'S QUALIFICATION AS MANUFACTURER AN AMERICAN PRODUCT WHICH IS OFFERED BY A SMALL BUSINESS BIDDER AT A PRICE APPROXIMATELY 36 PERCENT HIGHER THAN THAT OF A FOREIGN PRODUCT OFFERED BY ANOTHER BIDDER IN RESPONSE TO A TOTAL SMALL BUSINESS SET ASIDE MILITARY PROCUREMENT MUST BE REGARDED AS BEING OFFERED AT AN UNREASONABLE PRICE WITHIN THE PURVIEW OF THE BUY AMERICAN ACT. A DETERMINATION THAT A SMALL BUSINESS CONCERN WHO OFFERS TO SUPPLY TO THE GOVERNMENT WIRE ROPE TOWING ASSEMBLIES MADE FROM MATERIAL OF A FOREIGN SOURCE IS A MANUFACTURER WITHIN THE MEANING OF PAR. 1-201.9 OF THE ARMED SERVICES PROCUREMENT REGULATION BASED ON PRODUCING AN END PRODUCT BY ASSEMBLING OR MODIFYING PURCHASED COMPONENTS THROUGH A SERIES OF TWISTING OPERATIONS WILL NOT BE QUESTIONED.

B-140904, DECEMBER 11, 1959, 39 COMP. GEN. 435

BIDS - BUY AMERICAN ACT - SMALL BUSINESS SET-ASIDE - PRICE DIFFERENTIAL BIDDER'S QUALIFICATION AS MANUFACTURER AN AMERICAN PRODUCT WHICH IS OFFERED BY A SMALL BUSINESS BIDDER AT A PRICE APPROXIMATELY 36 PERCENT HIGHER THAN THAT OF A FOREIGN PRODUCT OFFERED BY ANOTHER BIDDER IN RESPONSE TO A TOTAL SMALL BUSINESS SET ASIDE MILITARY PROCUREMENT MUST BE REGARDED AS BEING OFFERED AT AN UNREASONABLE PRICE WITHIN THE PURVIEW OF THE BUY AMERICAN ACT, 41 U.S.C. 10A-D, AND AN IMPLEMENTING ARMED SERVICES PROCUREMENT REGULATION WHICH AUTHORIZES THE ADDITION OF A 12 PERCENT DIFFERENTIAL FOR AMERICAN PRODUCTS OFFERED BY SMALL INTERESTS; THEREFORE, THE RESTRICTIONS IN THE BUY AMERICAN ACT AGAINST THE PURCHASE OF FOREIGN PRODUCTS DO NOT PRECLUDE CONSIDERATION OF THE FOREIGN PRODUCT BID. A DETERMINATION THAT A SMALL BUSINESS CONCERN WHO OFFERS TO SUPPLY TO THE GOVERNMENT WIRE ROPE TOWING ASSEMBLIES MADE FROM MATERIAL OF A FOREIGN SOURCE IS A MANUFACTURER WITHIN THE MEANING OF PAR. 1-201.9 OF THE ARMED SERVICES PROCUREMENT REGULATION BASED ON PRODUCING AN END PRODUCT BY ASSEMBLING OR MODIFYING PURCHASED COMPONENTS THROUGH A SERIES OF TWISTING OPERATIONS WILL NOT BE QUESTIONED, EVEN THOUGH THE LABOR AND MATERIAL COSTS MAY BE SMALL IN COMPARISON WITH THE FINISHED PRODUCT; AND THE FACT THAT THE BUREAU OF CUSTOMS CLASSIFIES THE FOREIGN MATERIAL AS WIRE ROPE FOR THE PURPOSE OF LEVYING THE DUTY IS NOT CONTROLLING IN THE DETERMINATION OF WHETHER THE BIDDER IS A MANUFACTURER UNDER THE REGULATION.

TO THE PAULSEN-WEBBER CORDAGE CORPORATION, DECEMBER 11, 1959:

REFERENCE IS MADE TO YOUR TELEFAX OF OCTOBER 1, 1959, AND SUBSEQUENT CORRESPONDENCE WITH OUR OFFICE, PROTESTING THE AWARD OF A CONTRACT TO DON D. FLEMING CO., INC., UNDER REQUEST FOR PROPOSALS NO. 9-56783 ISSUED BY THE SHIPS PARTS CONTROL CENTER, MECHANICSBURG, PENNSYLVANIA, FOR FURNISHING WIRE ROPE TOWING ASSEMBLIES.

THE INVOLVED PROCUREMENT WAS TO BE MADE ON A TOTAL SMALL BUSINESS SET- ASIDE BASIS AND WAS NEGOTIATED WITHOUT THE USE OF SMALL BUSINESS RESTRICTED ADVERTISING, PURSUANT TO AUTHORITY CONTAINED IN 10 U.S.C. 2304 (A) (17), DUE TO CRITICAL STOCK STATUS CAUSED BY INSUFFICIENT STOCK BEING AVAILABLE WITHIN THE SHIPS PARTS SEGMENT OF THE NAVY SUPPLY SYSTEM TO SUPPORT OBLIGATIONS ON HAND AT THE SHIPS PARTS CONTROL CENTER. THE MATERIALS TO BE FURNISHED WERE 15 WIRE ROPE ASSEMBLIES, ON A NONRETURNABLE REEL, WITH A MINIMUM OF 350 FATHOMS AND WITH A THIMBLE ON ONE END.

THE NEGOTIATIONS WERE CONDUCTED WITH 17 SMALL BUSINESS CONCERNS AND PROPOSALS WERE RECEIVED FROM THREE CONCERNS. THE LOW BID WAS SUBMITTED BY DON D. FLEMING CO., INC., AND WAS IN THE AMOUNT OF $37,232.95, LESS IMPORT DUTY OF $2,384.05, OR $34,848.90. THE CONTRACTING OFFICE CONSIDERED THAT FLEMING WAS A SMALL BUSINESS MANUFACTURER FOR THIS PROCUREMENT, IN ACCORDANCE WITH PARAGRAPHS 1-201.9 AND 1-701.1 OF THE ARMED SERVICES PROCUREMENT REGULATION, SINCE THE WIRE ROPE TOWING ASSEMBLIES WILL BE PRODUCED ON THE PREMISES OF ITS ESTABLISHMENT, NOTWITHSTANDING THE FACT THAT THE MAJOR PORTION OF THE MATERIAL USED IN THE PRODUCTION OF SUCH ASSEMBLIES IS OF A FOREIGN SOURCE. IT IS REPORTED THAT THE WORK TO BE ACCOMPLISHED BY FLEMING CONSISTS OF UNWINDING THE WIRE ROPE FROM REELS ON WHICH IT IS RECEIVED, THE ATTACHING OF A THIMBLE (OF DOMESTIC MANUFACTURE) BY LOOPING ONE END OF THE WIRE ROPE AROUND THE SAME, SPLICING THE ROPE END BACK INTO THE MAIN ROPE, AND FINALLY WINDING THE ASSEMBLY, THIMBLE END FIRST, ON A NONRETURNABLE REEL FOR DELIVERY TO SPECIFIED DESTINATIONS. THE REASON FOR CONSIDERING FLEMING A MANUFACTURER--- RATHER THAN A DEALER- -- WAS THE FACT THAT IT WOULD PRODUCE AN END PRODUCT BY ASSEMBLING OR MODIFYING PURCHASED COMPONENTS THEREOF, OR BY MANUFACTURING ONE OR MORE COMPONENT PARTS AND ASSEMBLING THE SAME WITH PURCHASED COMPONENT PARTS.

YOU PROTEST THE AWARD TO FLEMING ON THE GROUND THAT THE ENTIRE ITEM SHOULD BE CONSIDERED AS A FOREIGN PRODUCT SINCE THE BUREAU OF CUSTOMS CLASSIFIED THE INVOLVED ITEM MERELY AS WIRE ROPE FOR THE PURPOSE OF LEVYING DUTY AND, THEREFORE, FLEMING SHOULD NOT BE CONSIDERED AS DOING ANY MANUFACTURING WORK. ALSO, YOU CONTEND THAT FLEMING DOES NOT QUALIFY AS A SMALL BUSINESS MANUFACTURER BECAUSE ITS WORK IN CONNECTION WITH THE ITEM IS MINOR IN NATURE.

WITH REGARD TO THE QUESTION AS TO WHETHER THE FINISHED PRODUCT IN THIS CASE SHOULD BE CONSIDERED AS ONE MANUFACTURED FROM SUPPLIES OF FOREIGN ORIGIN SO AS TO FALL WITHIN THE RESTRICTIONS AGAINST ITS PURCHASE, CONTAINED IN THE BUY AMERICAN ACT OF MARCH 3, 1933, AS AMENDED, 41 U.S.C. 10A-D, CERTAIN CRITERIA HAVE BEEN SET OUT IN PARAGRAPH 6-101, ARMED SERVICES PROCUREMENT REGULATION, TO GUIDE PROCUREMENT OFFICERS IN MAKING SUCH A DETERMINATION. IN SUBPARAGRAPHS (A), (D) AND (F) OF PARAGRAPH 6- 101, END PRODUCTS ARE DEFINED AS THE SUPPLIES OR ARTICLES TO BE ACQUIRED FOR PUBLIC USE. A DOMESTIC SOURCE END PRODUCT IS DEFINED AS AN END PRODUCT MANUFACTURED IN THE UNITED STATES IF THE COST OF ITS COMPONENTS WHICH ARE MINED, PRODUCED OR MANUFACTURED IN THE UNITED STATES EXCEEDS 50 PERCENT OF THE COST OF ALL ITS COMPONENTS. ALSO, A FOREIGN END PRODUCT IS DEFINED AS AN END PRODUCT OTHER THAN A DOMESTIC SOURCE END PRODUCT. HAS BEEN DETERMINED THAT THE END PRODUCT HERE IS A FOREIGN END PRODUCT. THE RESTRICTIONS OF THE BUY AMERICAN ACT, HOWEVER, DO NOT APPLY WHERE THE COST OF A DOMESTIC END PRODUCT WOULD BE UNREASONABLE. IN LINE WITH EXECUTIVE ORDER NO. 10582, DECEMBER 17, 1954, PARAGRAPH 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATIONS SETS OUT THE DIFFERENTIALS TO BE USED IN DETERMINING WHETHER THE AMOUNT OF A BID PROPOSING TO FURNISH DOMESTIC PRODUCTS IS UNREASONABLE AS COMPARED WITH A BID OFFERING TO FURNISH FOREIGN PRODUCTS. THAT DIFFERENTIAL WHERE SMALL BUSINESS INTERESTS ARE INVOLVED IS 12 PERCENT OR, IN OTHER WORDS, WHERE THE LOW DOMESTIC OFFER EXCEEDS THE LOW FOREIGN OFFER BY MORE THAN 12 PERCENT, THE COST OF THE DOMESTIC PRODUCT IS CONSIDERED UNREASONABLE. THE DIFFERENTIAL IN THIS CASE IS APPROXIMATELY 36 PERCENT AND, THEREFORE, THE RESTRICTIONS CONTAINED IN THE BUY AMERICAN ACT AGAINST THE PURCHASE OF FOREIGN

PRODUCTS ARE NOT APPLICABLE HERE.

AS TO WHETHER THE CONTRACTOR SHOULD BE REGARDED AS A SMALL BUSINESS DEALER RATHER THAN A SMALL BUSINESS MANUFACTURER, IT HAS BEEN CONCEDED THAT THE CONTRACTOR IS IN FACT A SMALL BUSINESS CONCERN. AS STATED HEREINABOVE, THE CONTRACTING OFFICER HAS MADE A DETERMINATION THAT FLEMING --- INSOFAR AS THIS PROCUREMENT IS CONCERNED--- IS A MANUFACTURER UNDER THE PROVISIONS OF PARAGRAPH 1-201.9 OF THE ARMED SERVICES PROCUREMENT REGULATION. IF FLEMING HAD BEEN REGARDED AS A DEALER, IT WOULD HAVE BEEN SUBJECT TO THE PROVISIONS OF PARAGRAPH 1 701.4 OF THE ARMED SERVICES PROCUREMENT REGULATION, WHICH PROVIDES THAT, IN THE CASE OF SMALL BUSINESS PREFERENTIAL TREATMENT, A DEALER WILL BE REQUIRED TO FURNISH PRODUCTS MANUFACTURED BY DOMESTIC SMALL BUSINESS CONCERNS. THE QUESTION AS TO WHAT CONSTITUTES THE "MANUFACTURE" OF AN ITEM IS BY NO MEANS EASY TO DETERMINE. IN EARLY TIMES THE WORD "MANUFACTURE" WAS GENERALLY RELATED TO THE PRODUCTION OF AN ARTICLE DIRECTLY FROM RAW MATERIALS, BUT IT HAS NOW BEEN HELD THAT EVEN THE MERE ASSEMBLY OF PARTS PREVIOUSLY MANUFACTURED MAY BE REGARDED AS A MANUFACTURE OF THE COMPLETED ARTICLE. SEE 55 CORPUS JURIS SECUNDUM, PAGES 680 TO 685. NO REGULATIONS HAVE BEEN ISSUED, NOR HAVE ANY CRITERIA BEEN ESTABLISHED, AS IN THE CASE OF THE PURCHASE OF FOREIGN PRODUCTS, TO FACILITATE THE DETERMINATION AS TO WHAT CONSTITUTES MANUFACTURE. PROBABLY MOST OF THE WORK HERE INVOLVED IN PRODUCING A WIRE ROPE ASSEMBLY FROM THE RAW PRODUCT IS THE WORK INVOLVED IN, AND LEADING UP TO, THE PRODUCTION OF METAL THREAD FROM WHICH A STRAND OF ROPE, AND THEN THE FINISHED ROPE, IS PRODUCED THEREAFTER BY A SERIES OF TWISTING OPERATIONS. WE HAVE BEEN ADVISED INFORMALLY BY REPRESENTATIVE OF YOUR FIRM OPERATIONS. WE HAVE BEEN ADVISED INFORMALLY BY A REPRESENTATIVE OF YOUR FIRM THAT YOU DO NOT MANUFACTURE THE WIRE THREAD BUT PERFORM ONLY THE TWISTING OPERATIONS IN THE PRODUCTION OF WIRE ROPE. THE FACT THAT THE BUREAU OF CUSTOMS MAY CLASSIFY THE FINISHED PRODUCT HERE AS WIRE ROPE FOR THE PURPOSE OF COLLECTING DUTY IS NOT CONTROLLING IN DETERMINING WHETHER FLEMING IS A MANUFACTURER.

UNDER THE CIRCUMSTANCES, WE WOULD NOT BE WARRANTED IN DISAGREEING WITH THE FINDING OF THE CONTRACTING OFFICE THAT THE WORK TO BE ACCOMPLISHED BY FLEMING WAS REGARDED AS QUALIFYING IT AS A MANUFACTURER, EVEN THOUGH THE LABOR AND MATERIAL COSTS OF THIS WORK MAY BE SMALL IN COMPARISON WITH THE VALUE OF THE FINISHED PRODUCT. ACCORDINGLY, WE WILL INTERPOSE NO OBJECTION TO THE AWARD OF THE CONTRACT TO FLEMING.