B-147210, NOVEMBER 27, 1961, 41 COMP. GEN. 339

B-147210: Nov 27, 1961

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A BIDDER WHO ALLEGES THAT THE LOW BIDDER MISREPRESENTED THE PROPORTION OF MATERIALS TO BE SUPPLIED FROM FOREIGN SOURCES BUT SUBSTANTIATES THE ALLEGATION WITH FIGURES WHICH UPON CORRECTION CONFIRM THE CONTRACTING OFFICER'S FINDING THAT COST OF FOREIGN COMPONENTS DOES NOT EXCEED 50 PERCENT OF BID PRICE HAS NOT ESTABLISHED THAT THE LOW BID DOES NOT QUALIFY AS A DOMESTIC BID AND THE FACT THAT THE SAME COMPONENTS WERE FURNISHED FROM FOREIGN SOURCES UNDER PRIOR CONTRACTS WITH THE SAME BIDDER IS NOT DETERMINATIVE OF THE COMPONENTS TO BE SO PROCURED UNDER THE PRESENT CONTRACT. EXPRESSLY PROVIDES THAT THE RESTRICTIONS AGAINST THE PURCHASE OF FOREIGN PRODUCTS DO NOT APPLY WHERE THE COST OF THE DOMESTIC PRODUCT IS UNREASONABLE.

B-147210, NOVEMBER 27, 1961, 41 COMP. GEN. 339

BIDS - BUY AMERICAN ACT - FOREIGN PRODUCT DETERMINATION--- BIDS - BUY AMERICAN ACT - PRICE DIFFERENTIAL--- BIDS - BUY AMERICAN ACT - REGULATION PROPRIETY--- BIDS - BUY AMERICAN ACT - FOREIGN PRODUCT DETERMINATION ALTHOUGH IN EVALUATION OF BIDS UNDER THE BUY AMERICAN ACT, 41 U.S.C. 10A- D, AND IMPLEMENTING EXECUTIVE ORDER NO. 10582, HONEST DIFFERENCES OF OPINION MAY EXIST WITH RESPECT TO THE TREATMENT TO BE ACCORDED VARIOUS ITEMS IN COMPUTING THE COST RATIO OF FOREIGN COMPONENTS TO THE TOTAL COST OF A PRODUCT, A BIDDER WHO ALLEGES THAT THE LOW BIDDER MISREPRESENTED THE PROPORTION OF MATERIALS TO BE SUPPLIED FROM FOREIGN SOURCES BUT SUBSTANTIATES THE ALLEGATION WITH FIGURES WHICH UPON CORRECTION CONFIRM THE CONTRACTING OFFICER'S FINDING THAT COST OF FOREIGN COMPONENTS DOES NOT EXCEED 50 PERCENT OF BID PRICE HAS NOT ESTABLISHED THAT THE LOW BID DOES NOT QUALIFY AS A DOMESTIC BID AND THE FACT THAT THE SAME COMPONENTS WERE FURNISHED FROM FOREIGN SOURCES UNDER PRIOR CONTRACTS WITH THE SAME BIDDER IS NOT DETERMINATIVE OF THE COMPONENTS TO BE SO PROCURED UNDER THE PRESENT CONTRACT. A LOW BIDDER WHO QUALIFIES AS A LABOR SURPLUS CONCERN AND WHO OFFERS AN AMERICAN-MADE PRODUCT AT A PRICE DIFFERENTIAL WHICH EXCEEDS BY MORE THAN 14 PERCENT THE PRICE OF A BIDDER OFFERING A FOREIGN PRODUCT HAS SUBMITTED AN UNREASONABLE BID UNDER THE BUY AMERICAN ACT, 41 U.S.C. 10A D, WHICH DOES NOT PROHIBIT, WITHOUT ANY EXCEPTION, THE CONSIDERATION OF FOREIGN BIDS BUT, RATHER, EXPRESSLY PROVIDES THAT THE RESTRICTIONS AGAINST THE PURCHASE OF FOREIGN PRODUCTS DO NOT APPLY WHERE THE COST OF THE DOMESTIC PRODUCT IS UNREASONABLE; THEREFORE, THE LOW DOMESTIC BIDDER IS NOT ENTITLED TO AWARD. ALTHOUGH THE BUY AMERICAN ACT, 41 U.S.C. 10A-D, IS SILENT AS TO THE BASIS FOR DETERMINING WHETHER OR NOT AN ARTICLE IS MANUFACTURED "SUBSTANTIALLY ALL," WITHIN THE UNITED STATES, ITS LEGISLATIVE HISTORY INDICATES THAT CONGRESS INTENDED THE ACT TO SPEAK IN GENERAL TERMS LEAVING TO ADMINISTRATIVE DISCRETION THE ACTUAL ESTABLISHMENT OF THE PREFERENCE TO BE GIVEN AMERICAN ATERIALS; THEREFORE, THE FOREIGN PRODUCT DEFINITION IN SECTION 2 (A) OF EXECUTIVE ORDER NO. 10582 AS ANY ITEM IN WHICH THE COST OF THE FOREIGN COMPONENTS CONSTITUTES 50 PERCENT OR MORE OF THE COST OF ALL THE PRODUCTS IN THE ITEM IS NOT IN CONFLICT WITH NOR CONTRARY TO THE REQUIREMENT OF THE ACT THAT THE ARTICLE BE MANUFACTURED "SUBSTANTIALLY ALL," IN THE UNITED STATES. TO INSURE THAT BIDDERS CLAIMING PREFERENCE AS DOMESTIC MANUFACTURERS ESTABLISH THAT COST OF FOREIGN PRODUCTS IN BID IS LESS THAN THE COST OF DOMESTIC PRODUCTS AND TO PREVENT ANY CHANGE IN CLAIMED PERCENTAGE AFTER BID OPENING, THE PROCURING AGENCY SHOULD REQUIRE BIDDERS TO SUBMIT WITH BIDS, SUBJECT TO VERIFICATION BY AGENCY BEFORE AWARD, A STATEMENT LISTING ANY FOREIGN MATERIALS, PRODUCTS OR COMPONENTS ENTERING INTO THE SUPPLIES TO BE FURNISHED AND THE PERCENTAGE OF THE COST OF ALL MATERIALS REPRESENTED BY THESE FOREIGN ITEMS, AND USE OF FOREIGN PRODUCTS, OTHER THAN THOSE DISCLOSED IN BID SHOULD BE PRECLUDED THROUGH PENALTY OF PRICE REDUCTIONS, LIQUIDATED DAMAGES OR OTHER DAMAGES.

TO THE ALLIS-CHALMERS MANUFACTURING COMPANY, NOVEMBER 27, 1961:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 14, 1961, WITH ENCLOSURES, AND SUBSEQUENT CORRESPONDENCE, PROTESTING THE PROPOSED AWARD OF A CONTRACT TO BALDWIN-1LIMA-1HAMILTON CORPORATION (HEREINAFTER REFERRED TO AS BALDWIN) UNDER INVITATION FOR BIDS NO. CIVENG-45-164-61 46, ISSUED BY THE DEPARTMENT OF THE ARMY, CORPS OF ENGINEERS, FOR HYDRAULIC TURBINES FOR THE JOHN DAY AND THE LOWER MONUMENTAL LOCKS AND DAMS.

THE RECORD SHOWS THAT IN RESPONSE TO THE CITED INVITATION FOR FURNISHING, IN ADDITION TO PRESCRIBED INCIDENTAL SERVICES AND SPARE PARTS, 13 HYDRAULIC TURBINES (THREE FOR LOWER MONUMENTAL AND TEN FOR JOHN DAY) WITH OPTION TO PROCURE TWO ADDITIONAL TURBINES FOR THE SAME UNIT PRICE, FIVE BIDS WERE RECEIVED. FOR THE FURNISHING OF THE 13 TURBINES, THE LOWEST BID, IN THE TOTAL AMOUNT OF $15,486,900, WAS SUBMITTED BY BALDWIN; THE SECOND LOWEST BID, $16,184,656, LESS PROMPT DISCOUNT, BY ENGLISH ELECTRIC CORPORATION; AND THE THIRD LOWEST BID, $18,035,510 BY YOUR FIRM. EVALUATION OF THES BIDS IN ACCORDANCE WITH THE TERMS OF THE INVITATION BY THE APPLICATION, AMONG OTHER ITEMS, OF (1) DISCOUNT OFFERED, (2) COSTS FOR TWO ADDITIONAL TURBINES FOR THE JOHN DAY PLANT, (3) THE ADDITION OF $30,000 TO THE BIDS OF BALDWIN AND ENGLISH ELECTRIC TO COVER THE ADDITIONAL COST TO THE GOVERNMENT FOR FOREIGN SHOP INSPECTION OF THE FOREIGN COMPONENTS INVOLVED, AND (4) THE ADDITION, IN ACCORDANCE WITH THE PROVISIONS OF THE INVITATION AND PARAGRAPH 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION, TO THE BID OF ENGLISH ELECTRIC THE PRESCRIBED 6 PERCENT BUY AMERICAN DIFFERENTIAL AND THE 6 PERCENT LABOR SURPLUS DIFFERENTIAL, RESULTED IN THE FOLLOWING EVALUATED IDS:

CHART

BALDWIN $17,851,000

ALLIS-CHALMERS 20,782,790

ENGLISH ELECTRIC 20,860,059.94

THE SEVERAL GROUNDS UPON WHICH YOU PREDICATE YOUR PROTEST TO THE AWARD OF THE CONTRACT TO BALDWIN, AS THE LOWEST RESPONSIVE BIDDER, WILL BE CONSIDERED SEPARATELY IN THE ORDER PRESENTED.

IT IS CONTENDED BY YOU THAT BALDWIN'S REPRESENTATIONS IN ITS BID AS TO THE PROPORTIONS OF THE COST OF MATERIALS TO BE SUPPLIED FROM THE UNITED STATES AND FROM FOREIGN SOURCES WERE INACCURATE AND MISLEADING AND THEREFORE ITS BID SHOULD BE REJECTED AS NONCONFORMING TO THE INVITATION.

THE RECORD SHOWS THAT, PURSUANT TO THE BUY AMERICAN ACT OF MARCH 3, 1933, AS AMENDED, 40 U.S.C. 10A-D, AND IMPLEMENTING REGULATIONS, BIDDERS WERE REQUIRED TO EXECUTE A BUY AMERICAN CERTIFICATE ATTESTING TO THE EXTENT, IF ANY, THEY PROPOSED TO FURNISH END PRODUCTS MINED, PRODUCED OR MANUFACTURED OUTSIDE THE UNITED STATES. IN RESPONSE THERETO, UNDER THE HEADING " MATERIALS OF FOREIGN ORIGIN," BALSWIN SUBMITTED THE FOLLOWING DATA:

A. AMOUNT INCLUDED IN BID TO COVER APPLICABLE DUTY $740, 1077 FOR 15

B. AMOUNT INCLUDED IN BID TO COVER ALL COSTS, OTHER THAN DUTY, INCURRED

AFTER ARRIVAL OF EQUIPMENT OR MATERIALS IN THE UNITED STATES,

INCLUDING COST OF TRANSPORTATION $151,250 FOR 15

C. BIDDER REPRESENTS THAT NOT TO EXCEED 42.7 PERCENT IN COST OF ALL

ARTICLES, MATERIALS, AND SUPPLIES WHICH ARE DIRECTLY INCORPORATED

IN THE END PRODUCT OFFERED IS OF FOREIGN ORIGIN, AND THAT THE

FOLLOWING IS A COMPLETE LIST OF FOREIGN ITEMS AND COUNTRIES OF

ORIGIN.

STATIONARY NON-EMBEDDED PARTS AND RUNNERS MANUFACTURED IN

JAPAN.

FOR THE PURPOSE OF DETERMINING WHETHER BIDDERS QUALIFIED AS LABOR SURPLUS AREA CONCERNS, THE INVITATION REQUESTED AND BALDWIN FURNISHED A LISTING OF THE MATERIALS AND MANUFACTURING OPERATIONS WHICH WOULD BE PRODUCED IN AREAS OF SUBSTANTIAL LABOR SURPLUS, THE NAMES AND LOCATIONS OF THE FIRMS INVOLVED, THE ESTIMATED PERCENTAGES OF THE BID PRICE ALLOCABLE THERETO, AND, ON THE BASIS THEREOF, ESTIMATED THAT THE TOTAL COSTS IT WOULD INCUR ON ACCOUNT OF MANUFACTURING OR PRODUCTION BY ITSELF OR ITS SUBCONTRACTORS IN SUCH AREAS WOULD AMOUNT TO 53.4 PERCENT OF THE CONTRACT PRICE. IN THIS CONNECTION, IN ORDER TO QUALIFY AS A LABOR SURPLUS AREA CONCERN, THE COSTS INCURRED BY A CONTRACTOR IN SUCH AREAS MUST AMOUNT TO MORE THAN 50 PERCENT OF THE CONTRACT PRICE. SEE PARAGRAPH 1-801 OF THE ARMED SERVICES PROCUREMENT REGULATION.

IN SUPPORT OF YOUR CONTENTION THAT THE REPRESENTATIONS MADE BY BALDWIN WERE INACCURATE AND MISLEADING, YOU SUBMITTED WITH YOUR LETTER OF NOVEMBER 2, 1961, TO THIS OFFICE, YOUR REVISED ANALYSIS OF THE COST RATIO OF FOREIGN PROCURED AND DOMESTICALLY PRODUCED MATERIALS INCLUDED IN BALDWIN'S BID PRICE. YOU ALLEGE THEREIN THAT, BASED ON YOUR INTERPRETATION OF THE INFORMATION CONTAINED IN BALDWIN'S BID AS TO THE WORK TO BE DONE IN JAPAN AND YOUR ESTIMATE OF THE COST OF COMPONENTS FOR THE BALANCE OF THE WORK INVOLVED, THE TOTAL ESTIMATED COST OF THE MATERIALS USED IN THE CONSTRUCTION OF THE HYDRAULIC TURBINES IS $10,366,912, OF WHICH THE COST OF FOREIGN COMPONENTS IF $5,825,327, OR 56.2 PERCENT OF THE TOTAL COST, AND THE COST OF DOMESTIC COMPONENTS IS $4,541,585, OR 43.8 PERCENT OF THE TOTAL COSTS. BALDWIN'S REPRESENTATION OF THE COST RATIO OF DOMESTIC AND FOREIGN MATERIALS IS INACCURATE. ALSO, UNDER THE CRITERIA ESTABLISHED BY EXECUTIVE ORDER NO. 10582, DATED DECEMBER 17, 1954, SINCE THE COST OF THE FOREIGN COMPONENTS WOULD EXCEED 50 PERCENT OF THE TOTAL COST OF ALL COMPONENTS, BALDWIN'S BID WOULD NOT QUALIFY AS A DOMESTIC BID AND THUS WOULD NOT BE ENTITLED TO THE PREFERENCE GIVEN BY THE BUY AMERICAN ACT, SUPRA, TO SUCH BIDS. HOWEVER, FOR THE REASONS HEREINAFTER SET FORTH, WE MUST CONCLUDE THAT THE EVIDENCE OF RECORD FAILS TO ESTABLISH THAT BALDWIN'S REPRESENTATIONS IN ITS BID WERE INACCURATE AND MISLEADING.

WE HAVE RECEIVED FROM THE DEPARTMENT OF THE ARMY A COMPLETE REPORT ON THE FACTS SURROUNDING THIS PROPOSED AWARD WHICH INCLUDES THE CONTRACTING OFFICER'S REPORT, IN PERTINENT PART, AS FOLLOWS:

BALDWIN-1LIMA-1HAMILTON HAS FURNISHED ME A BILL OF MATERIALS WITH ACCOMPANYING DRAWING LISTING AND DEPICTING THE ITEMS TO BE PROCURED FROM FOREIGN MANUFACTURE AND HAS ALSO FURNISHED A STATEMENT OF THE ACTUAL COST OF ALL SUCH FOREIGN MATERIALS TO BE SO FURNISHED BASED ON FIRM COMMITMENTS FROM THE JAPANESE FIRM WITH WHOM SUBCONTRACTS WILL BE PLACED AT THE TIME OF AWARD. THIS COST IS APPROXIMATELY 38 PERCENT OF THE TOTAL COST OF ALL ARTICLES, MATERIALS AND SUPPLIES TO BE INCORPORATED INTO THE END PRODUCT.

WE RECOGNIZE THAT IN THE COMPUTATION OF FOREIGN COST IN RELATION TO TOTAL COST OF COMPONENTS HONEST DIFFERENCE OF OPINION MAY EXIST AS TO THE PROPER TREATMENT OF VARIOUS ITEMS OF COST. HOWEVER, THAT MAY BE, AND IN ADDITION TO THE CONTRACTING OFFICER'S DETERMINATION THAT THE ACTUAL COST OF THE FOREIGN COMPONENTS PERCENTAGE WISE IS WELL BELOW THAT INDICATED BY BALDWIN'S STATEMENT THAT THE COST THEREOF WILL NOT EXCEED 42.7 PERCENT OF THE TOTAL COST OF ALL COMPONENTS, WE FIND THAT AN ANALYSIS OF YOUR OWN COST FIGURES, AS CORRECTED, APPEARS TO CONFIRM THE SEVERAL REPRESENTATIONS MADE BY BALDWIN IN ITS BID.

YOUR ESTIMATE OF THE COST OF FOREIGN COMPONENTS, $5,825,327, BASED ON THE AMOUNT INDICATED BY BALDWIN AS THE APPLICABLE DUTY THEREON, IS ACCEPTED AS A PROPER BASIS FOR COMPUTATION IN THE ABSENCE OF ACTUAL COST FIGURES. FOR THE REASONS HEREINAFTER STATED, HOWEVER, WE BELIEVE THAT YOU HAVE ERRED IN YOUR COMPUTATION OF THE TOTAL COST OF THE DOMESTIC COMPONENTS.

YOU HAVE EXCLUDED FROM YOUR ESTIMATE OF THE COST OF THE COMPONENTS TO BE SUPPLIED FROM DOMESTIC SOURCES THE SHAFTS, GATE SERVOMOTORS AND KAPLAN PARTS REQUIRED IN SUPPLYING THE HYDRAULIC TURBINES. IT IS ADMINISTRATIVELY REPORTED THAT AN EXAMINATION OF BALDWIN'S RECORDS CONFIRMS THAT ITS BID WAS BASED ON THESE COMPONENTS BEING OF DOMESTIC SOURCE AND THAT THESE COMPONENTS, BEING ROTATING PARTS, WOULD NOT PROPERLY COME UNDER THE CATEGORY OF "STATIONARY NON-EMBEDDED PARTS AND RUNNERS" DESIGNATED BY BALDWIN IN ITS BID AS OF FOREIGN ORIGIN.

IN SUBSTANCE, YOUR REASONS FOR THE EXCLUSION OF THESE THREE COMPONENTS, WHICH, ON THE BASIS OF FIGURES SUPPLIED BY YOU, ARE VALUED AT A TOTAL COST OF $3,221,029, ARE THAT (1) THE MAIN SHAFTS WERE PROCURED BY BALDWIN FROM FOREIGN SOURCES IN ITS PERFORMANCE OF TWO PRIOR TURBINE CONTRACTS AND (2) THE SHAFTS COULD NOT BE PROCURED WITHIN THE PERCENTAGE OF THE CONTRACT PRICE SHOWN THEREFOR IN BALDWIN'S LISTING OF MANUFACTURING OPERATIONS TO BE PRODUCED IN LABOR SURPLUS AREAS.

WHILE YOU DO NOT SPECIFICALLY STATE THAT IN BALDWIN'S PERFORMANCE OF THE TWO PRIOR TURBINE CONTRACTS THE GATE SERVOMOTORS AND KAPLAN PARTS WERE ALSO PROCURED FROM FOREIGN SOURCES, EVEN ASSUMING THAT THIS WAS THE CASE, IT MUST BE EVIDENT THAT THE COMPONENTS FURNISHED FROM FOREIGN SOURCES UNDER PRIOR CONTRACTS WOULD NOT BE DETERMINATIVE OF THE COMPONENTS TO BE SO PROCURED UNDER THE INSTANT CONTRACT. IN ADDITION TO THE ADMINISTRATIVE REPORT STATING THAT THESE COMPONENTS WERE INTENDED TO BE DOMESTICALLY PROCURED, IT IS NOTED THAT IN AT LEAST ONE OF THE PRIOR CONTRACTS TO WHICH YOU REFER THE COMPONENTS TO BE PROCURED FROM FOREIGN SOURCES WERE DESCRIBED IN BALDWIN'S BID AS " STATIONARY, NON-EMBEDDED SUBASSEMBLIES AND ROTATING PARTS OF HYDRAULIC TURBINES.' ( ITALICS SUPPLIED.) AS NOTED IN THE ADMINISTRATIVE REPORT, BALDWIN'S BID UNDER THE PRESENT INVITATION DOES NOT STATE THAT " ROTATING PARTS" WILL BE PROCURED FROM FOREIGN SOURCES.

SO FAR AS CONCERNS BALDWIN'S ESTIMATE IN ITS BID THAT FORGED STEEL, REQUIRED IN THE FABRICATION OF THE MAIN SHAFTS AND INDICATED AS BEING PROCURED FROM THE LABOR SURPLUS AREA OF BETHLEHEM, PENNSYLVANIA, AMOUNTED TO 1 PERCENT OF ITS CONTRACT PRICE, WE ARE INFORMED THAT AN ERROR WAS IN FACT MADE AND THAT THE CORRECT ESTIMATE SHOULD HAVE BEEN 10 PERCENT OF THE CONTRACT PRICE. SINCE, AS ADMINISTRATIVELY REPORTED, BALDWIN'S BID WAS BASED ON PROCURING THE SHAFTS FROM DOMESTIC SOURCES, AND SINCE THE ERROR, WHICH HAS BEEN ESTABLISHED TO OUR SATISFACTION, DID NOT OPERATE TO BALDWIN'S ADVANTAGE AND THE EFFECT THEREOF, IF ANY, HAS BEEN TO DECREASE ITS ESTIMATE OF THE PERCENTAGE OF THE BID PRICE TO BE PERFORMED IN LABOR SURPLUS AREAS, WE DO NOT BELIEVE THAT THE ERROR HAS PREJUDICED ANY OTHER BIDDERS.

CONCERNING THE ITEM OF " BOTTOM RING" WHICH, THOUGH PRESENTLY INCLUDED BY YOU IN ITEMS TO BE PROCURED FROM DOMESTIC SOURCES, YOU STATE YOU NOW HAVE REASON TO BELIEVE WILL BE PROCURED FROM FOREIGN SOURCES, WE HAVE BEEN INFORMED THAT IT WAS AND IS BALDWIN'S INTENTION TO COMBINE THE FABRICATION OF THIS PART WITH THE " DISCHARGE RING"--- AN ITEM WHICH YOU CONCEDE WILL BE DOMESTICALLY PROCURED--- AS SPECIFICALLY AUTHORIZED BY PARAGRAPHS 2-14 AND 2-15 OF THE TECHNICAL PROVISIONS INCORPORATED IN THE INVITATION FOR BIDS.

FURTHER, WITH RESPECT TO YOUR COMPUTATION OF THE COST OF DOMESTIC COMPONENTS, IT IS NOTED THAT THE AMOUNT OF $111,917 SHOWN BY YOU AS THE ESTIMATED COST OF " INCOMING FREIGHT" IS BASED ON THE FURNISHING OF 13 TURBINES WHEREAS YOU HAVE COMPUTED THE COST OF THE FOREIGN COMPONENTS ON THE BASIS OF BALDWIN'S FURNISHING 15 TURBINES. OBVIOUSLY, THE PERCENTAGE OF COST OF FOREIGN AND DOMESTIC COMPONENTS MUST BE COMPUTED ON THE SAME QUANTITY. THE ADDED COST TO BE INCURRED FOR FREIGHT ON THESE TWO TURBINES, ON THE BASIS OF YOUR FIGURES WOULD BE $17,218.

IN THE LIGHT OF THE FOREGOING, THE INCLUSION IN THE TOTAL COST OF DOMESTIC COMPONENTS OF THE THREE COMPONENTS OMITTED BY YOU AND THE CORRECTION OF YOUR COMPUTATION OF FREIGHT CHARGES WOULD RESULT IN A TOTAL COST OF $7,779,832 FOR DOMESTIC COMPONENTS AND A TOTAL COST FOR ALL COMPONENTS, BOTH FOREIGN AND DOMESTIC, OF $13,605,159. THUS, ON THE BASIS OF YOUR OWN COST FIGURES, THE COST OF FOREIGN COMPONENTS, VALUED BY YOU AT $5,825,327, WOULD BE 42.8 PERCENT OF THE COST OF ALL COMPONENTS, OR ONLY 10.1 PERCENT MORE THAN THE FIGURE OF 42.7 PERCENT ESTIMATED BY BALDWIN IN ITS BID.

YOU FURTHER PROTEST CONSIDERATION OF AWARD TO BALDWIN ON THE GROUND THAT, EVEN CONCEDING THE ACCURACY OF ITS ESTIMATE IN ITS BID AS TO THE PERCENTAGE OF COST OF FOREIGN COMPONENTS, ITS BID CANNOT QUALIFY AS A DOMESTIC BID UNDER THE PROVISIONS OF THE BUY AMERICAN ACT, SUPRA. IN THAT CONNECTION, IT IS YOUR POSITION THAT THE DEFINITION OF FOREIGN PRODUCTS, AS SET FORTH IN SECTION 2 (A) OF EXECUTIVE ORDER NO. 10582, SUPRA, IS IN CONFLICT WITH, AND CONTRARY TO THE REQUIREMENTS AND INTENT OF, THE BUY AMERICAN ACT.

SO FAR AS CONCERNS THE CONSIDERATION OF THIS CONTENTION, THE CITED ACT PROVIDES THAT---

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 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. IN ORDER THAT THE PROVISIONS OF THAT ACT BE UNIFORMLY ADMINISTERED, AND FOR OTHER PURPOSES, THE PRESIDENT OF THE UNITED STATES ISSUED EXECUTIVE ORDER NO. 10582, SUPRA, WHICH PROVIDES IN PERTINENT 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 CONSTITUTES FIFTY PERCENTUM OR MORE OF THE COST OF ALL THE 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.

YOUR CONTENTION THAT BALDWIN'S BID SHOULD BE REJECTED ON THE GROUND THAT IT CANNOT QUALIFY AS A DOMESTIC BID UNDER THE PROVISIONS OF THE BUY AMERICAN ACT OVERLOOKS OR IGNORES THE FACT THAT, WHILE THE ACT GIVES PREFERENCE TO DOMESTIC BIDS, IT DOES NOT PROHIBIT, WITHOUT ANY EXCEPTION, THE CONSIDERATION OF FOREIGN BIDS. TO THE CONTRARY, THE ACT EXPRESSLY PROVIDES THAT THE RESTRICTIONS CONTAINED THEREIN AGAINST THE PURCHASE OF FOREIGN PRODUCTS DO NOT APPLY WHERE THE COSTS OF DOMESTIC PRODUCTS IS UNREASONABLE. IN THE AWARD OF CONTRACTS, GUIDED BY THE PROVISIONS OF EXECUTIVE ORDER NO. 10582, PARAGRAPH 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION 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 IS 6 PERCENT IN FAVOR OF THE DOMESTIC BIDDER, EXCEPT THAT A MAXIMUM DIFFERENTIAL OF 12 PERCENT IS AUTHORIZED WHERE THE LOW DOMESTIC BIDDER ALSO QUALIFIES AS A SMALL BUSINESS OR LABOR SURPLUS AREA CONCERN. IN OTHER WORDS WHERE THE LOW DOMESTIC OFFER, ASSUMING THAT IT QUALIFIES FOR THE MAXIMUM DIFFERENTIAL, EXCEEDS THE LOW FOREIGN OFFER BY MORE THAN 12 PERCENT, THE COST OF THE DOMESTIC PRODUCT MUST BE CONSIDERED UNREASONABLE. SINCE YOUR BID EXCEEDS BALDWIN'S BY $2,931,790 OR BY A DIFFERENTIAL OF MORE THAN 14 PERCENT, EVEN IF, AS CONTENDED BY YOU, ITS BID SHOULD PROPERLY BE CONSIDERED AS A FOREIGN BID, ITS BID WOULD STILL BE LOW. EXCEPT FOR REASONS NEXT DISCUSSED IN CONNECTION WITH ANOTHER GROUND ADVANCED BY YOU FOR REJECTION OF BALDWIN'S BID, IN VIEW OF THE EXCESS OF YOUR BID PRICE OVER THAT OF BALDWIN'S THE CLASSIFICATION OF ITS BID AS A FOREIGN BID WOULD PROVIDE NO LEGAL BASIS FOR DISREGARDING ITS BID AND MAKING AWARD TO YOU.

WHILE, IN VIEW OF THE FOREGOING, IT IS UNNECESSARY FOR THE PURPOSE OF THIS DECISION TO CONSIDER THE QUESTION RAISED BY YOU AS TO THE PROPRIETY OF THE DEFINITION OF FOREIGN PRODUCTS AS CONTAINED IN EXECUTIVE ORDER NO. 10582, IT IS OUR OPINION THAT, SINCE THE BUY AMERICAN ACT IS SILENT AS TO THE BASIS UPON WHICH IT IS TO BE DETERMINED WHETHER OR NOT AN ITEM IS MANUFACTURED "SUBSTANTIALLY ALL" IN THE UNITED STATES, THE CRITERION STIPULATED IN THE EXECUTIVE ORDER FOR DETERMINING WHETHER A BID IS DOMESTIC OR FOREIGN IS PROPERLY WITHIN THE EXECUTIVE DISCRETION. A REVIEW OF THE LEGISLATIVE HISTORY OF THE BUY AMERICAN ACT SUPPORTS THE CONCLUSION OF CONGRESSIONAL INTENT DELIBERATELY TO SPEAK IN GENERAL TERMS AND TO LEAVE TO ADMINISTRATIVE DISCRETION, AMONG OTHER THINGS, THE ACTUAL FIXING OF THE PREFERENCES TO BE ACCORDED TO AMERICAN MATERIALS. IN THIS CONNECTION, FORMER REPRESENTATIVE JOHN B. HOLLISTER, MEMBER OF THE COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS AND MEMBER OF THE SUBCOMMITTEE OF THAT COMMITTEE WHICH DRAFTED THE BILL WHICH BECAME THE BUY AMERICAN ACT, IN EXPLANATION OF THE BILL, AS AMENDED, MADE THE FOLLOWING PERTINENT STATEMENT, 76 CONG. REC. 1894 (1933):

WE MADE AN ATTEMPT EARLIER IN OUR WORK ON THIS BILL TO DRAFT A VERY COMPLICATED SERIES OF PREFERENCES BY WHICH GOODS ENTIRELY MANUFACTURED IN THIS COUNTRY FROM ENTIRELY AMERICAN MATERIALS, WOULD BE GIVEN FIRST CHOICE; GOODS MANUFACTURED IN AMERICA PARTLY FROM FOREIGN MATERIALS AND PARTLY FROM AMERICAN MATERIALS WOULD COME NEXT, AND SO ON DOWN THE LINE. WE FOUND BEFORE WE GOT VERY FAR THAT IT MEANT A COMPLICATED LIST OF 9 OR 10 DIFFERENT PREFERENCES AND IT WAS ALMOST IMPOSSIBLE TO WORK THEM OUT FAIRLY BECAUSE IT WOULD BE SO DIFFICULT TO ASSIGN IN THE ULTIMATE VALUE HOW MUCH WEIGHT SHOULD ATTACH TO THE DIFFERENT SOURCES OF MANUFACTURE OR RAW MATERIAL. WE REALIZED THAT THE IMPORTANT THING TO DO WAS TO LAY DOWN IN GENERAL TERMS THE INTENTION OF CONGRESS, THAT THE FEDERAL GOVERNMENT AND ALSO CONTRACTORS HAVING TO DO WITH THE FEDERAL GOVERNMENT SHOULD USE AMERICAN GOODS WHERE POSSIBLE AND WHERE IT WAS A REASONABLE AND PROPER THING TO DO.

ACCORDING TO THE FORMULA PRESCRIBED BY EXECUTIVE ORDER NO. 10582 AND IMPLEMENTING REGULATIONS, BIDS ARE CLASSIFIED AS FOREIGN "IF THE COST OF THE FOREIGN PRODUCTS USED IN SUCH MATERIALS CONSTITUTES FIFTY PERCENTUM OR MORE OF THE COST OF ALL THE PRODUCTS USED IN SUCH MATERIALS.' ON THE BASIS THEREOF, SINCE THE COST OF THE FOREIGN PRODUCTS IN BALDWIN'S BID HAS BEEN DETERMINED TO BE LESS THAN 50 PERCENT OF THE TOTAL COST OF ALL PRODUCTS, ITS BID QUALIFIES AS A DOMESTIC BID. IF, AS YOU CONTEND, BIDS SHOULD BE CLASSIFIED AS FOREIGN ON THE BASIS OF SOME SMALLER PERCENTAGE OF THE COST OF FOREIGN PRODUCTS, OR THAT THE CRITERION FOR DETERMINING WHETHER A BID IS FOREIGN OR DOMESTIC SHOULD BE ON SOME BASIS OTHER THAN AN ANALYSIS OF COST, SUCH AS MAN-HOURS OF EMPLOYMENT INVOLVED, THESE ARE NOT MATTERS WITHIN THE JURISDICTION OF THIS OFFICE, BUT RATHER, SINCE THEY INVOLVE EITHER AN AMENDMENT TO THE ACT OR TO THE EXECUTIVE ORDER, ARE FOR CONSIDERATION BY THE CONGRESS OR THE PRESIDENT.

YOU ALSO CONTEND THAT, BECAUSE OF THE NATIONAL SECURITY INTERESTS INVOLVED, THE AWARD OF THE CONTRACT UNDER THIS INVITATION FOR BIDS SHOULD BE REVIEWED UNDER SECTION 3 (D) OF EXECUTIVE ORDER NO. 10582. CONNECTION WITH YOUR CONTENTION, YOUR LETTER OF SEPTEMBER 20, 1961, TO THIS OFFICE, ENCLOSED COPIES OF YOUR LETTERS OF THE SAME DATE TO THE SECRETARY OF THE ARMY AND TO THE DIRECTOR OF THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION. BASED ON YOUR VIEW THAT, BECAUSE OF THE MAGNITUDE OF THE PRESENT PROCUREMENT OF HYDRAULIC TURBINES IN RELATION TO THE TOTAL ANNUAL SALES OF THE DOMESTIC HYDRAULIC TURBINE INDUSTRY AND THE EXTENT OF FOREIGN PROCUREMENT INVOLVED IN BALDWIN'S BID, AN AWARD TO THAT FIRM WOULD ADVERSELY AFFECT THE INDUSTRY AND THEREBY WEAKEN THE NATIONAL SECURITY, YOU URGED THE SECRETARY OF THE ARMY TO REFER THE PROPOSED AWARD TO THE DIRECTOR OF THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION FOR ADVICE THEREON UNDER SECTION 3 (D) OF THE EXECUTIVE ORDER. FOR THE SAME REASONS, YOU URGED THE DIRECTOR OF THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION TO REQUEST THE SECRETARY OF THE ARMY TO REFER THE MATTER FOR REVIEW UNDER THE CITED SECTION OF THE EXECUTIVE ORDER.

SECTION 3 (D) OF EXECUTIVE ORDER NO. 10582 AUTHORIZES THE REJECTION OF 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 ANY OFFICER OF THE GOVERNMENT DESIGNATED BY THE PRESIDENT TO FURNISH SUCH ADVICE.' AS STATED BY YOU, THE DIRECTOR OF THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION (NOW THE OFFICE OF EMERGENCY PLANNING) WAS DESIGNATED BY THE PRESIDENT TO FURNISH SUCH ADVICE.

YOU APPARENTLY RECOGNIZE IN YOUR CORRESPONDENCE THAT THIS OFFICE HAS NO AUTHORITY, UNDER PRESENT STATUTORY ENACTMENTS OR REGULATIONS, TO CONSIDER WHETHER BY REASON OF NATIONAL SECURITY INTERESTS, BALDWIN'S LOWER BID FOR FURNISHING THE REQUIRED HYDRAULIC TURBINES SHOULD BE REJECTED IN FAVOR OF YOUR BID. THIS AUTHORITY IS VESTED EXCLUSIVELY IN THE DEPARTMENT OF THE ARMY ACTING UPON ADVICE FURNISHED BY THE DIRECTOR OF THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION. IN THAT CONNECTION, THE REPORT FURNISHED TO THIS OFFICE BY THE DEPARTMENT OF THE ARMY INCLUDES THE FOLLOWING PERTINENT STATEMENT:

14. IN REGARD TO THE REQUEST OF ALLIS-CHALMERS * * * THAT THIS CASE BE REFERRED TO THE DIRECTOR OF THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION, IT IS NOT CONSIDERED THAT AWARD OF THIS CONTRACT TO BALDWIN-1LIMA- 1HAMILTON CORPORATION WOULD IMPOSE A THREAT TO IMPAIR THE NATIONAL SECURITY. BALDWIN-1LIMA-1HAMILTON CORPORATION HAS CERTIFIED THAT NOT MORE THAN 42.7 PERCENT OF THE COST OF MATERIALS TO BE INCORPORATED IN THE TURBINES WILL BE OF FOREIGN ORIGIN, HENCE AT LEAST 57.3 PERCENT WOULD BE OF DOMESTIC ORIGIN. * * * ALSO THE DIRECTOR OF THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION HAS BEEN KEPT INFORMED REGARDING AWARD OF ALL CONTRACTS FOR HYDRAULIC TURBINES SINCE THE ISSUANCE OF HIS MEMORANDUM OF DECISION IN * * * 1959, AND HE HAS MADE NO CHANGE IN HIS DECISION.

IN THE REFERRED-TO MEMORANDUM OF DECISION, DATED JUNE 12, 1959, THE DIRECTOR OF THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION CONCLUDED, AFTER MORE THAN A YEAR LONG INVESTIGATION, THAT HYDRAULIC TURBINES WERE "NOT BEING IMPORTED IN SUCH QUANTITIES OR UNDER SUCH CIRCUMSTANCES AS TO THREATEN TO IMPAIR THE NATIONAL SECURITY.' WE ARE INFORMALLY ADVISED THAT THE DIRECTOR HAS DENIED YOUR REQUEST OF SEPTEMBER 20, 1961, FOR THE REVIEW OF THE PRESENT PROPOSED AWARD.

SINCE, UNDER THE REPORTED FACTS AND CIRCUMSTANCES, WE FIND NO LEGAL BASIS FOR OBJECTION TO THE AWARD OF THE CONTRACT TO BALDWIN, YOUR PROTEST MUST BE DENIED.

SEPARATE AND APART FROM THE CONSIDERATION OF YOUR PROTEST, THERE IS ONE FURTHER MATTER MENTIONED IN YOUR LETTER OF NOVEMBER 2, 1961, WHICH SHOULD BE CONSIDERED. YOU STATE THEREIN THAT---

WE STRONGLY BELIEVE THAT THE PRESENT REQUIREMENTS FOR BIDDING WORK OF THIS TYPE SHOULD BE REVISED AND THAT ANY MANUFACTURER CONTEMPLATING USING FOREIGN MATERIALS BE REQUIRED TO SUBMIT WITH HIS BID A COMPLETE LIST OF ALL PARTS TO BE SUPPLIED FROM FOREIGN SOURCES. WE ALSO BELIEVE THAT PROCURING AGENCIES SHOULD SET UP POLICING PROCEDURES TO INSURE THAT CONTRACTORS UTILIZING FOREIGN SUPPLIES DO NOT FURNISH MORE MATERIAL OF FOREIGN ORIGIN THAN ORIGINALLY LISTED WITH THEIR BIDS.

WE ARE IN COMPLETE ACCORD WITH YOUR SUGGESTION. IN THAT CONTENTION, WE STATED IN OUR DECISION OF APRIL 7, 1960, 38 COMP. GEN. 695, TO THE SECRETARY OF THE INTERIOR, IN PERTINENT PART, AS FOLLOWS:

IT IS, OF COURSE, ESSENTIAL THAT A BIDDER CLAIMING THE PREFERENCE ACCORDED A DOMESTIC BIDDER ESTABLISHED THAT THE COST OF FOREIGN PRODUCTS IN HIS BID IS LESS THAN THE COST OF DOMESTIC PRODUCTS. SUFFICIENT INFORMATION ON THIS POINT SHOULD BE SUBMITTED WITH THE BID TO PRECLUDE ANY CHANGE, AFTER BID OPENING, IN THE CLAIMED PERCENTAGES OF FOREIGN AND DOMESTIC PRODUCTS WHICH WOULD AFFECT EITHER THE RELATIVE STANDING OF HIS BID OR ITS STATUS AS A DOMESTIC BID. HOWEVER, WE DO NOT BELIEVE THAT THE DETAILED COST INFORMATION REQUIRED TO ESTABLISH THE FOREIGN OR DOMESTIC STATUS OF A BID NEED BE MADE PUBLIC AS A PART OF THE BID. IT IS SUFFICIENT, IN OUR OPINION, FOR THE PROCURING AGENCY TO REQUIRE THE BIDDER TO SUBMIT WITH HIS BID A STATEMENT LISTING ANY FOREIGN MATERIALS, PRODUCTS, OR COMPONENTS ENTERING INTO THE SUPPLIES TO BE FURNISHED, WITH A STATEMENT OF THE PERCENTAGE OF THE COST OF ALL MATERIALS, PRODUCTS, OR COMPONENTS REPRESENTED BY SUCH FOREIGN ITEMS, SUBJECT TO VERIFICATION BY THE AGENCY BEFORE AWARD. IN THE CASE OF AWARD TO A DOMESTIC BIDDER PROPOSING TO USE A SUBSTANTIAL PERCENTAGE OF FOREIGN PRODUCTS, THE USE OF FOREIGN PRODUCTS OTHER THAN THOSE DISCLOSED IN ITS BID MIGHT PROPERLY BE PROHIBITED UNDER PENALTY OF PRICE REDUCTION, LIQUIDATED DAMAGES, OR OTHER SANCTIONS.

WE ARE SURE YOU WILL AGREE THAT THE GUIDELINES LAID DOWN IN THAT DECISION, IF FOLLOWED BY THE PROCURING AGENCIES, WOULD SERVE TO DEFINITIZE, AT THE TIME OF BID OPENING, THE FOREIGN MATERIALS, PRODUCTS, OR COMPONENTS, IF ANY, PROPOSED TO BE FURNISHED BY BIDDERS AND TO PRECLUDE ANY INCREASE IN THE QUANTUM OF FOREIGN PRODUCTS AFTER AWARD. FOR YOUR INFORMATION, BY LETTER OF TODAY, TO THE SECRETARY OF THE ARMY, WE ARE INVITING HIS ATTENTION TO THAT DECISION AND REQUESTING HIS VIEWS AS TO THE DESIRABILITY OF INCLUDING PROVISIONS OF THE NATURE MENTIONED THEREIN IN FUTURE INVITATIONS TO BID.