B-141911, FEBRUARY 19, 1960, 39 COMP. GEN. 599

B-141911: Feb 19, 1960

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CONTRACTS - BUY AMERICAN ACT - VIOLATIONS BY SUBCONTRACTORS - FOREIGN PRODUCT REMOVAL ALTHOUGH THE USE BY TWO SUBCONTRACTORS OF STEEL OF FOREIGN ORIGIN IN GOVERNMENT CONSTRUCTION WORK WAS IN VIOLATION OF THE BUY AMERICAN ACT PROVISIONS OF THE PRIME CONTRACTS. WHICH WERE INCORPORATED BY REFERENCE IN THE SUBCONTRACTS. WITHHOLDING PAYMENT FROM THE PRIME CONTRACTORS FOR SUCH FOREIGN STEEL IS NOT REQUIRED. TO ELIMINATE ANY PROFIT TO THE SUBCONTRACTORS INCIDENT TO THE VIOLATIONS FOR WHICH THEY HAVE BEEN DEBARRED UNDER 41 U.S.C. 10B (B). 1960: REFERENCE IS MADE TO A LETTER DATED FEBRUARY 3. FROM THE DEPUTY ASSISTANT SECRETARY OF THE ARMY ( LOGISTICS) REQUESTING A DECISION AS TO WHETHER PAYMENT MAY BE MADE TO TWO PRIME CONTRACTORS FOR THE FOREIGN STEEL WHICH WAS INCORPORATED IN THE CONSTRUCTION WORK PERFORMED BY THEM AT SHEPPARD AIR FORCE BASE.

B-141911, FEBRUARY 19, 1960, 39 COMP. GEN. 599

CONTRACTS - BUY AMERICAN ACT - VIOLATIONS BY SUBCONTRACTORS - FOREIGN PRODUCT REMOVAL ALTHOUGH THE USE BY TWO SUBCONTRACTORS OF STEEL OF FOREIGN ORIGIN IN GOVERNMENT CONSTRUCTION WORK WAS IN VIOLATION OF THE BUY AMERICAN ACT PROVISIONS OF THE PRIME CONTRACTS, WHICH WERE INCORPORATED BY REFERENCE IN THE SUBCONTRACTS, IN VIEW OF AN INVESTIGATION WHICH FAILED TO ESTABLISH THAT THE PRIME CONTRACTORS HAD KNOWLEDGE OF THE USE OF THE FOREIGN MATERIAL AND THE WITHDRAWAL BY THE PRIME CONTRACTORS OF ALL REMOVABLE FOREIGN STEEL FROM THE WORK, WITHHOLDING PAYMENT FROM THE PRIME CONTRACTORS FOR SUCH FOREIGN STEEL IS NOT REQUIRED, BUT TO ELIMINATE ANY PROFIT TO THE SUBCONTRACTORS INCIDENT TO THE VIOLATIONS FOR WHICH THEY HAVE BEEN DEBARRED UNDER 41 U.S.C. 10B (B), THE PAYMENTS TO THE PRIME CONTRACTORS SHOULD BE REDUCED BY THE DIFFERENCE BETWEEN THE DOMESTIC AND FOREIGN PRICES FOR THE ESTIMATED QUANTITY OF FOREIGN STEEL INCORPORATED IN WORK.

TO THE SECRETARY OF THE ARMY, FEBRUARY 19, 1960:

REFERENCE IS MADE TO A LETTER DATED FEBRUARY 3, 1960, FROM THE DEPUTY ASSISTANT SECRETARY OF THE ARMY ( LOGISTICS) REQUESTING A DECISION AS TO WHETHER PAYMENT MAY BE MADE TO TWO PRIME CONTRACTORS FOR THE FOREIGN STEEL WHICH WAS INCORPORATED IN THE CONSTRUCTION WORK PERFORMED BY THEM AT SHEPPARD AIR FORCE BASE, TEXAS.

TWO CONTRACTS ARE INVOLVED IN THE REQUEST FOR A DECISION. ONE CONTRACT NUMBERED DA-34-066-ENG-5391 WAS ENTERED INTO ON MARCH 7, 1958, WITH STEINBERG AND SON. THE OTHER CONTRACT NUMBERED DA-34-066-ENG-5485 WAS ENTERED INTO ON JUNE 13, 1958, WITH CHANEY AND HOPE. IT IS STATED THAT BOTH CONTRACTS CONTAINED THE BUY AMERICAN ACT PROVISIONS (41 U.S.C. 10A- 10D). UNDER CONTRACT NO. DA-34-066-ENG-5391, HUGHES REINFORCING STEEL COMPANY HAD A SUBCONTRACT FOR FURNISHING REINFORCING STEEL AND HUGHES STRUCTURAL FABRICATORS, INC., WAS GIVEN A SUBCONTRACT FOR FURNISHING AND ERECTING ALL STRUCTURAL STEEL. UNDER CONTRACT NO. DA-34-066-ENG-5485, THE FIRM OF HUGHES STRUCTURAL FABRICATORS, INC., WAS THE SUBCONTRACTOR ENGAGED IN FURNISHING ALL STEEL AND ERECTING ALL STRUCTURAL STEEL. HUGHES STEEL COMPANY HAD A SUB-SUBCONTRACT FOR FURNISHING ALL STEEL TO HUGHES REINFORCING STEEL COMPANY AND HUGHES STRUCTURAL FABRICATORS, INC. MR. LLOYD W. HUGHES WAS PRESIDENT AND GENERAL MANAGER OF EACH OF THE SUBCONTRACTORS AND OF THE SUB SUBCONTRACTOR. IT IS STATED THAT THE BUY AMERICAN ACT PROVISIONS OF THE PRIME CONTRACTS WERE INCORPORATED IN THE SUBCONTRACTS BY REFERENCE.

DURING THE COURSE OF THE WORK UNDER THE TWO CONTRACTS, IT WAS BROUGHT TO THE ATTENTION OF THE CONTRACTING OFFICE THAT STEEL OF FOREIGN ORIGIN WAS BEING USED ON THE WORK. THE INFORMANT STATED THAT IF HE HAD KNOWN THAT IT WAS PROPER TO FURNISH FOREIGN STEEL WHICH WAS CHEAPER, HE MIGHT HAVE BEEN SUCCESSFUL IN SECURING A SUBCONTRACT FOR FURNISHING THE NECESSARY STEEL SINCE HE WOULD HAVE REDUCED HIS BID TO THE PRIME CONTRACTOR UNDER CONTRACT NO. DA-34-066-ENG-5391. AFTER INVESTIGATION, DEBARMENT ACTION WAS TAKEN UNDER THE PROVISIONS OF 41 U.S.C. 10B (B) AGAINST THE THREE SUBCONTRACTORS REFERRED TO ABOVE AND ON NOVEMBER 5, 1959, THESE SUBCONTRACTORS WERE DEBARRED FOR A PERIOD OF THREE YEARS FROM AWARD OF ANY CONTRACTS FOR CONSTRUCTION, ALTERATION OR REPAIR OF ANY PUBLIC BUILDING OR PUBLIC WORK IN THE UNITED STATES OR ELSEWHERE. THIS ACTION WAS PREDICATED ON THE PREMISE THAT THE SUBCONTRACTORS KNOWINGLY FURNISHED CONSTRUCTION MATERIALS OF FOREIGN ORIGIN. THE INVESTIGATION DID NOT ESTABLISH THAT THE PRIME CONTRACTORS KNEW AT THE TIME THAT THE SUBCONTRACTORS WERE VIOLATING THE CONTRACT PROVISIONS WITH REGARD TO THE BUY AMERICAN ACT. FURTHERMORE, THE PRIME CONTRACTORS TOOK IMMEDIATE STEPS TO REMOVE ALL FOREIGN STEEL FROM THEIR JOBS THAT COULD BE REMOVED WITHOUT SERIOUS DAMAGE TO THE STRUCTURES. CERTAIN QUANTITIES OF FOREIGN REINFORCING STEEL WERE IMBEDDED IN CONCRETE AND THIS STEEL WAS LEFT IN PLACE. THE GOVERNMENT HAS ESTIMATED THAT 75 TONS OF FOREIGN REINFORCING STEEL HAD BEEN LEFT IN PLACE UNDER CONTRACT NO. DA-34-066-ENG-5391 AND 1 1/2 TONS UNDER CONTRACT NO. DA -34-066-ENG-5485. THERE IS NO CLEAR SHOWING WHAT, IF ANY, STRUCTURAL STEEL OF FOREIGN ORIGIN HAS BEEN LEFT IN PLACE. IT IS REPORTED THAT BOTH PRIME CONTRACTORS HAVE PROPOSED A CREDIT TO THE GOVERNMENT FOR THE ESTIMATED AMOUNT OF FOREIGN STEEL LEFT IN PLACE.

IN VIEW OF THE FOREGOING, THERE APPEARS NO JUSTIFICATION FOR WITHHOLDING PAYMENT FROM THE PRIME CONTRACTORS FOR THE FOREIGN STEEL WHICH WAS INCORPORATED IN THE CONTRACT WORK WITHOUT AUTHORITY. HOWEVER, THE SUBCONTRACTORS SHOULD NOT BE PERMITTED TO PROFIT BY VIOLATING THE PROVISIONS OF THE BUY AMERICAN ACT AND SINCE THE PRIME CONTRACTORS HAVE INDICATED THAT THEY MAY MAKE APPROPRIATE ADJUSTMENTS WITH THEIR SUBCONTRACTORS, THE AMOUNT TO BE PAID TO THE PRIME CONTRACTORS SHOULD BE REDUCED BY THE DIFFERENCE IN PRICE OF STEEL OF DOMESTIC ORIGIN AND THE PRICE OF STEEL OF FOREIGN ORIGIN FOR THE ESTIMATED QUANTITY OF FOREIGN STEEL INCORPORATED IN THE WORK.