B-150471, APRIL 30, 1963, 42 COMP. GEN. 608

B-150471: Apr 30, 1963

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SECTION 5 OF THE ORDER APPLIES AND THE MATTER IS WITHIN THE PURVIEW OF THE BUY AMERICAN ACT. THE MERE FACT THAT THE PRICE FOR THE DOMESTIC SUPPLIES IS HIGHER THAN FOR FOREIGN SUPPLIES. DOES NOT REQUIRE A DETERMINATION THAT THE DOMESTIC COST WAS UNREASONABLE. THERE IS NO LEGAL BASIS TO DISTURB THE AWARD. TO DETERMINE THAT A GREATER DIFFERENTIAL THAN PRESCRIBED IN THE ORDER IS NOT UNREASONABLE OR THAT THE PURCHASE OF DOMESTIC MATERIALS IS NOT INCONSISTENT WITH THE PUBLIC INTEREST IS DISCRETIONARY. WHEN A DETERMINATION IS MADE NOT TO EXERCISE THE AUTHORITY OF SECTION 5. BIDS ARE FOR EVALUATION UNDER THE EXECUTIVE ORDER FIXING THE DIFFERENTIALS TO BE CONSIDERED IN DETERMINING UNREASONABLE COSTS AND AN AWARD TO A BIDDER OFFERING DOMESTIC SUPPLIES AT UNREASONABLE PRICES IS PRECLUDED.

B-150471, APRIL 30, 1963, 42 COMP. GEN. 608

BIDS - BUY AMERICAN ACT - DOMESTIC MARKET EFFECT. BIDS - BUY AMERICAN ACT - PRICE DIFFERENTIAL AN AGENCY, ALTHOUGH LACKING THE PREEXISTING AUTHORITY TO FAVOR A HIGH BID OFFERING DOMESTIC SUPPLIES OVER A LOW BID OFFERING FOREIGN SUPPLIES IN THE NATIONAL INTEREST, AS REQUIRED BY SECTION 3 (A) OF EXECUTIVE ORDER NO. 10582, ISSUED DECEMBER 17, 1954, ERRONEOUSLY RELIED ON SECTION 3 (A) TO FAVOR THE DOMESTIC SUPPLIES IN ORDER TO RELIEVE THE ADVERSE FLOW OF GOLD, HAVING DETERMINED THE PURCHASE OF THE DOMESTIC SUPPLIES AT A GREATER PRICE DIFFERENTIAL THAN PROVIDED IN THE ORDER WOULD NOT BE UNREASONABLE OR WOULD NOT BE INCONSISTENT WITH THE PUBLIC INTEREST, SECTION 5 OF THE ORDER APPLIES AND THE MATTER IS WITHIN THE PURVIEW OF THE BUY AMERICAN ACT, 41 U.S.C. 10 (A) TO 10 (D), WHICH PROVIDES THAT ONLY DOMESTIC SUPPLIES SHALL BE ACQUIRED FOR PUBLIC USE, UNLESS THE HEAD OF THE DEPARTMENT DETERMINES THE COST TO BE UNREASONABLE, AND THE MERE FACT THAT THE PRICE FOR THE DOMESTIC SUPPLIES IS HIGHER THAN FOR FOREIGN SUPPLIES, PLUS THE DIFFERENTIALS STATED IN THE EXECUTIVE ORDER, DOES NOT REQUIRE A DETERMINATION THAT THE DOMESTIC COST WAS UNREASONABLE, AND NO SUCH DETERMINATION HAVING BEEN MADE, THERE IS NO LEGAL BASIS TO DISTURB THE AWARD. THE AUTHORITY GRANTED AN AGENCY HEAD UNDER SECTION 5 OF EXECUTIVE ORDER NO. 10582, ISSUED TO IMPLEMENT THE BUY AMERICAN ACT, 41 U.S.C. 10 (A) TO 10 (D), TO DETERMINE THAT A GREATER DIFFERENTIAL THAN PRESCRIBED IN THE ORDER IS NOT UNREASONABLE OR THAT THE PURCHASE OF DOMESTIC MATERIALS IS NOT INCONSISTENT WITH THE PUBLIC INTEREST IS DISCRETIONARY, AND WHEN A DETERMINATION IS MADE NOT TO EXERCISE THE AUTHORITY OF SECTION 5, BIDS ARE FOR EVALUATION UNDER THE EXECUTIVE ORDER FIXING THE DIFFERENTIALS TO BE CONSIDERED IN DETERMINING UNREASONABLE COSTS AND AN AWARD TO A BIDDER OFFERING DOMESTIC SUPPLIES AT UNREASONABLE PRICES IS PRECLUDED.

TO THE KEUFFEL AND ESSER COMPANY, APRIL 30, 1963:

REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 4, 1962, PROTESTING AGAINST THE ACTION TAKEN BY THE DEPARTMENT OF THE ARMY AND THE GENERAL SERVICES ADMINISTRATION UNDER INVITATIONS FOR BID NOS. ENG-11-184-62-BE 733 AND FNGC-R-26697-A-8-28-62, RESPECTIVELY. SPECIFICALLY, YOU REQUEST A CLARIFICATION OF RULING ISSUED BY THE TWO AGENCIES WHICH YOU CHARACTERIZE AS BEING "DIAMETRICALLY OPPOSED," WHICH RULINGS WERE MADE UNDER EXECUTIVE ORDER NO. 10582, ISSUED ON DECEMBER 17, 1954.

WITH RESPECT TO THE FIRST INVITATION REFERRED TO ABOVE, WHICH WAS ISSUED BY THE DEPARTMENT OF THE ARMY, IT APPEARS TO BE YOUR CONTENTION THAT THE AMOUNT OF $72,691, REPRESENTING THE DIFFERENCE BETWEEN YOUR LOW BID OFFERING FOREIGN SUPPLIES AND THAT OF THE NEXT LOW BID SUBMITTED BY THE BRUNSON INSTRUMENT COMPANY WHICH OFFERED DOMESTIC SUPPLIES,"MIGHT BE CONSIDERED EXCESSIVE WHEN FAVORING A PRODUCT MANUFACTURED IN THE UNITED STATES OVER A FOREIGN PRODUCT.'

AN EXAMINATION OF THE RECORD NOW BEFORE THIS OFFICE INDICATES THAT THE SUBJECT INVITATION FOR 455 SURVEYING THEODOLITES WAS ISSUED ON JUNE 22, 1962, TO 48 POTENTIAL SUPPLIERS, AND 4 BIDS WERE RECEIVED. UPON RECEIVING THE FOUR BIDS, TWO OF WHICH OFFERED DOMESTIC ITEMS AND TWO FOREIGN ITEMS, THE MATTER WAS REFERRED TO THE ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS AND LOGISTICS) FOR ADVICE. THIS ACTION IS REPORTED TO HAVE BEEN TAKEN IN COMPLIANCE WITH DEPARTMENT OF DEFENSE POLICY DIRECTED TOWARD RELIEVING THE CHRONIC DEFICIT IN THE UNITED STATES BALANCE OF PAYMENTS WHICH WOULD RESULT IN AN ADVERSE FLOW OF GOLD. ON OCTOBER 8, 1962, THE DEPUTY SECRETARY OF DEFENSE, PURPORTEDLY ACTING PURSUANT TO SECTION 3 (A) OF THE AFOREMENTIONED EXECUTIVE ORDER, DIRECTED THAT THE AWARD IN THIS CASE BE MADE TO THE LOWEST BIDDER OFFERING DOMESTIC MATERIAL FOR REASONS OF NATIONAL INTEREST.

THE ACT OF MARCH 3, 1933, 47 STAT. 1520, AS AMENDED, 41 U.S.C. 10A TO 10D, COMMONLY REFERRED TO AS THE BUY AMERICAN ACT, AS IMPLEMENTED BY EXECUTIVE ORDER NO. 10582, DECEMBER 17, 1954, WAS DESIGNED TO ACCORD PREFERENTIAL TREATMENT TO DOMESTIC PRODUCERS AND MANUFACTURERS IN THE CASE OF PURCHASES OF MATERIALS AND SUPPLIES BY FEDERAL AGENCIES AND ESTABLISHMENTS, AS WELL AS BY CONSTRUCTION CONTRACTORS WITH SUCH AGENCIES AND ESTABLISHMENTS. EXCEPTIONS TO THE REQUIREMENT THAT PURCHASES BE MADE FROM DOMESTIC PRODUCERS AND MANUFACTURERS WERE MADE WHERE (1) THE MATERIALS OR SUPPLIES WERE TO BE USED OUTSIDE THE UNITED STATES; OR (2) THE HEAD OF THE DEPARTMENT OR AGENCY CONCERNED DETERMINED THAT IT WOULD BE INCONSISTENT WITH THE PUBLIC INTEREST OR THE COST OF DOMESTIC SUPPLIES OR MATERIALS WOULD BE UNREASONABLE. EXECUTIVE ORDER NO. 10582 ISSUED ON DECEMBER 17, 1954, SETS FORTH CERTAIN GUIDANCE FOR MAKING DETERMINATIONS OF UNREASONABLE COST ON A UNIFORM BASIS.

HOWEVER, SECTION 3 (A) OF THE EXECUTIVE ORDER, WHICH APPEARS TO HAVE BEEN RELIED UPON IN THE INSTANCE OF YOUR BID, READS AS FOLLOWS:

NOTHING IN THIS ORDER SHALL AFFECT THE AUTHORITY OR RESPONSIBILITY OF AN EXECUTIVE AGENCY:

(A) TO REJECT ANY BID OR OFFER FOR REASONS OF THE NATIONAL INTEREST NOT DESCRIBED OR REFERRED TO IN THIS ORDER;

AND SECTION 5 OF THE SAME ORDER PROVIDES, IN PERTINENT PART, AS FOLLOWS:

* * * IN ANY CASE IN WHICH THE HEAD OF AN EXECUTIVE AGENCY PROPOSING TO PURCHASE DOMESTIC MATERIALS DETERMINES THAT A GREATER DIFFERENTIAL THAN THAT PROVIDED IN THIS ORDER BETWEEN THE COST OF SUCH MATERIALS OF DOMESTIC ORIGIN AND MATERIALS OF FOREIGN ORIGIN IS NOT UNREASONABLE OR THAT THE PURCHASE OF MATERIALS OF DOMESTIC ORIGIN IS NOT INCONSISTENT WITH THE PUBLIC INTEREST, THIS ORDER SHALL NOT APPLY. * * *

WITH RESPECT TO THE ABOVE-QUOTED SECTION 3 (A) OF THE EXECUTIVE ORDER, WE RECENTLY EXPRESSED THE VIEW, IN AN OPINION DATED MARCH 7, 1963, B-150655, 42 COMP. GEN. 467, THAT SUCH SECTION, WHILE EXPRESSING THE INTENT NOT TO INTERFERE WITH ANY EXISTING AUTHORITY OR RESPONSIBILITY OF EXECUTIVE AGENCIES TO REJECT ANY BID FOR REASONS OF NATIONAL INTEREST, DID NOT AND LEGALLY COULD NOT CONFER ON EXECUTIVE AGENCIES ANY NEW OR ADDITIONAL AUTHORITY. IN OTHER WORDS, IN ORDER FOR THAT SECTION TO BECOME EFFECTIVE, THERE MUST HAVE ALREADY EXISTED AUTHORITY IN THE AGENCY HEAD TO REJECT ANY BID OR OFFER FOR REASONS OF NATIONAL INTEREST; AND SINCE WE ARE AWARE OF NO SUCH PREEXISTING AUTHORITY, WE BELIEVE THAT SECTION 3 (A) OF THE ORDER WAS ERRONEOUSLY RELIED UPON. THESE VIEWS ARE BEING COMMUNICATED TO THE DEPARTMENT INVOLVED.

ON THE OTHER HAND, HOWEVER, WE ARE OF THE OPINION THAT ONCE A DETERMINATION IS MADE THAT THE PURCHASE OF MATERIALS OF DOMESTIC ORIGIN AT A GREATER DIFFERENTIAL THAN THAT PROVIDED IN THE ORDER WOULD NOT BE UNREASONABLE OR WOULD NOT BE INCONSISTENT WITH THE PUBLIC INTEREST, THERE THEN WOULD BE FOR APPLICATION THE PROVISION IN SECTION 5 OF THE EXECUTIVE ORDER WHICH STATES THAT UNDER THOSE CIRCUMSTANCES THE "ORDER SHALL NOT APPLY," THUS PLACING THE MATTER SQUARELY WITHIN THE PURVIEW OF THE BUY AMERICAN ACT ITSELF WHICH PROVIDES THAT ONLY DOMESTIC SUPPLIES SHALL BE ACQUIRED FOR PUBLIC USE, UNLESS THE HEAD OF THE DEPARTMENT DETERMINES THEIR COST TO BE UNREASONABLE. IN MAKING SUCH DETERMINATION OF UNREASONABLE COST, THE AGENCY HEAD WOULD NOT BE BOUND BY THE PRICE DIFFERENTIALS SPECIFIED IN THE EXECUTIVE ORDER, AND WOULD HAVE THE RIGHT TO CONSIDER A GREATER PRICE DIFFERENTIAL REASONABLE. CONSEQUENTLY, THE MERE FACT THAT THE PRICE FOR DOMESTIC SUPPLIES WAS HIGHER THAN THAT FOR FOREIGN SUPPLIES PLUS THE DIFFERENTIALS STATED IN THE EXECUTIVE ORDER WOULD NOT REQUIRE A DETERMINATION THAT THE DOMESTIC COST WAS UNREASONABLE. NO DETERMINATION OF UNREASONABLE COST WAS IN FACT MADE BY THE DEPARTMENT OF THE ARMY, AND WE THEREFORE FIND NO LEGAL BASIS FOR DISTURBING THE AWARD MADE BY THAT DEPARTMENT.

CONCERNING THE SECOND INVITATION NO. FNGC-R-26697-A-8-28-62, WHICH WAS ISSUED BY THE GENERAL SERVICES ADMINISTRATION, YOU STATE THAT REVIEWING THE BID RESULTS IT WAS FOUND THAT YOU WERE "8 PERCENT HIGH IN GROUP 1, 15.5 PERCENT HIGH IN GROUP 2, 14 PERCENT HIGH IN GROUP 3, AND 7 PERCENT HIGH IN GROUP 25.' YOU FURTHER ADVISE THAT ON ITEM NO. 19 YOU WERE 5.7 PERCENT LOW AND YOU WERE THE ONLY BIDDER ON GROUP 26; THEREFORE, YOU WERE AWARDED THE ITEMS SPECIFIED IN GROUPS 19 AND 26. HOWEVER, NOTWITHSTANDING THIS SITUATION, YOU CONTEND THAT AVERAGING THE FIRST FIVE LISTED GROUPS COVERING PRODUCTS WHICH YOU HAD FURNISHED TO VARIOUS GOVERNMENT AGENCIES FOR A NUMBER OF YEARS, THE DIFFERENCE BETWEEN YOUR BID, WHICH IN THIS CASE OFFERED DOMESTIC SUPPLIES, AND THAT OF THE FOREIGN PRODUCTS AMOUNTED TO 8.4 PERCENT AFTER YOU HAD RECEIVED THE ALLOWANCE FOR A DISTRESSED AREA PLUS THE ALLOWANCE FOR DOMESTIC PRODUCTS.

THE RECORD FURNISHED US BY THE GENERAL SERVICES ADMINISTRATION REVEALS THAT THE SUBJECT INVITATION WHICH WAS ISSUED ON AUGUST 8, 1962, AND SCHEDULED FOR OPENING ON AUGUST 28, COVERED THEIR INDEFINITE QUANTITY REQUIREMENTS FOR INSTRUMENTS AND LABORATORY EQUIPMENT FOR THE CONTRACT PERIOD NOVEMBER 1, 1962, THROUGH OCTOBER 31, 1963. IT ALSO INDICATES THAT SPECIAL NOTICE NO. 1, DATED AUGUST 21, 1962, NOTIFIED PROSPECTIVE BIDDERS OF CHANGES IN THE INVITATION AND EXTENDED THE BID OPENING TO SEPTEMBER 4, 1962. AND, IN THIS CONNECTION, IT IS SIGNIFICANT TO NOTE THAT THE CHANGES MADE BY THE SPECIAL NOTICE SPECIFICALLY POINTED OUT THAT ITEMS 3, 4, 19, 25, 26, 32, AND 33 WOULD BE AWARDED ON AN INDIVIDUAL BASIS. THUS, ITEMS OR GROUPS TO BE AWARDED SEPARATELY COULD NOT BE AVERAGED AS YOU SEEM TO CONTEND. SINCE UPON THIS BASIS YOU WERE LOW ONLY ON ITEM 19--- AND THIS AFTER TAKING INTO CONSIDERATION THE ADDITIONAL DIFFERENTIAL BECAUSE OF YOUR LOCATION IN AN AREA OF SUBSTANTIAL LABOR SURPLUS--- AND BEING THE ONLY BIDDER ON ITEM 26, YOU WERE AWARDED THOSE TWO ITEMS.

YOUR LETTER EXPRESSES THE OPINION THAT THE PROVISIONS OF EXECUTIVE ORDER NO. 10582 COULD WELL HAVE APPLIED IN THIS INSTANCE. IN RESPONSE TO THIS CONTENTION, THE GENERAL SERVICES ADMINISTRATION ADVISED THAT IT CONSIDERS THE APPLICATION OF BOTH NATIONAL SECURITY AND NATIONAL INTEREST PROBLEMS TO ITS PROCUREMENTS AS THEY ARISE, BUT GENERALLY SUCH FINDINGS BY A NONDEFENSE AGENCY REQUIRE PREPARATION OF BROAD AND STRONG DETERMINATIONS WHICH IT DID NOT BELIEVE WOULD HAVE BEEN JUSTIFIED IN THIS CASE.

THE GIST OF YOUR COMPLAINT IS THAT THE DEPARTMENT OF THE ARMY (FOR THE STATED NATIONAL INTEREST REASON OF PREVENTING AN ADVERSE FLOW OF GOLD) PREFERRED A DOMESTIC BID WHICH WAS SOME 9 PERCENT HIGHER THAN YOUR FOREIGN BID AS EVALUATED UNDER EXECUTIVE ORDER NO. 10582, WHEREAS THE GENERAL SERVICES ADMINISTRATION REFUSED TO PREFER DOMESTIC BIDS BY YOU WHICH RANGED FROM 7 TO 15.5 PERCENT HIGHER THAN COMPETING FOREIGN BIDS AS EVALUATED UNDER THE EXECUTIVE ORDER. AS STATED ABOVE, THE BUY AMERICAN ACT SPECIFICALLY PERMITS PURCHASES OF FOREIGN SUPPLIES WHERE THE COST OF SIMILAR DOMESTIC SUPPLIES IS UNREASONABLE. THE EXECUTIVE ORDER FIXES THE DIFFERENTIALS WHICH SHALL BE CONSIDERED IN DETERMINING UNREASONABLE COST, UNLESS THE AGENCY HEAD DETERMINES UNDER SECTION 5 OF THE ORDER THAT A GREATER DIFFERENTIAL IS NOT UNREASONABLE OR THAT THE PURCHASE OF DOMESTIC MATERIALS IS NOT INCONSISTENT WITH THE PUBLIC INTEREST. WE VIEW SECTION 5 OF THE ORDER AS VESTING DISCRETIONARY AUTHORITY IN THE AGENCY HEAD TO MAKE THESE DETERMINATIONS. NO SUCH DETERMINATION WAS IN FACT MADE BY THE ADMINISTRATOR OF THE GENERAL SERVICES ADMINISTRATION, AND THE PROVISIONS OF THE EXECUTIVE ORDER THEREFORE PRECLUDED ACCEPTANCE OF YOUR BID BECAUSE OF UNREASONABLE PRICE.

WE DO NOT DISAGREE WITH YOUR CONTENTION THAT THE ACTION TAKEN BY THE TWO AGENCIES WAS INCONSISTENT. HOWEVER, AS WE HAVE STATED, IT IS OUR VIEW THAT SECTION 5 OF THE EXECUTIVE ORDER GIVES DISCRETIONARY AUTHORITY TO EACH AGENCY HEAD, AND WE FIND NO BASIS FOR CONCLUDING THAT THERE WAS AN ABUSE OF SUCH DISCRETION IN THE INSTANCES YOU CITE. YOUR PROTEST IS THEREFORE DENIED.