B-154501, AUG. 11, 1964

B-154501: Aug 11, 1964

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

DEFENSE SUPPLY AGENCY: REFERENCE IS MADE TO A LETTER DATED JUNE 16. 700 POUNDS WERE AWARDED UNDER THE NON-SET-ASIDE PORTION OF THE PROCUREMENT AND 253. 700 POUNDS WERE AWARDED UNDER THE LABOR SURPLUS AREA SET-ASIDE PORTION OF THE PROCUREMENT. THE LOWEST BID ON ALL ITEMS OF THE INVITATION HAD OFFERED MATERIAL OF FOREIGN ORIGIN AND WAS REJECTED. EACH BIDDER WAS REQUIRED TO CERTIFY THAT EACH END PRODUCT. WAS A DOMESTIC SOURCE END PRODUCT AS DEFINED IN THE CONTRACT CLAUSE ENTITLED "BUY AMERICAN ACT" AND THAT COMPONENTS OF UNKNOWN ORIGIN "HAVE BEEN CONSIDERED TO HAVE BEEN MINED. PERSONNEL OF THE CONTRACTING OFFICE OBSERVED THAT THE STOCK OF STEEL WIRE USED IN THE PRODUCTION OF NAILS BORE LABELS INDICATING THAT THE WIRE WAS MANUFACTURED IN BELGIUM.

B-154501, AUG. 11, 1964

TO VICE ADMIRAL JOSEPH M. LYLE, DIRECTOR, DEFENSE SUPPLY AGENCY:

REFERENCE IS MADE TO A LETTER DATED JUNE 16, 1964, FROM THE ASSISTANT COUNSEL, FILE DSAH-G, REQUESTING A DECISION IN REGARD TO THE PROTEST OF THE PHILADELPHIA NAIL AND WIRE COMPANY, INC., AGAINST THE REFUSAL OF THE CONTRACTING OFFICER TO ACCEPT NAILS MADE OF FOREIGN WIRE UNDER CONTRACT NO. DSA-5-13502 ENTERED INTO BY THE DEFENSE INDUSTRIAL SUPPLY CENTER, PHILADELPHIA, PENNSYLVANIA.

THE CONTRACT AS AMENDED CALLED FOR DELIVERY OF 285,400 POUNDS OF VARIOUS SIZES OF NAILS, F.O.B. VARIOUS DESTINATIONS, FOR A TOTAL PRICE OF $28,480.65. OF THE TOTAL QUANTITY TO BE DELIVERED, 31,700 POUNDS WERE AWARDED UNDER THE NON-SET-ASIDE PORTION OF THE PROCUREMENT AND 253,700 POUNDS WERE AWARDED UNDER THE LABOR SURPLUS AREA SET-ASIDE PORTION OF THE PROCUREMENT. THE LOWEST BID ON ALL ITEMS OF THE INVITATION HAD OFFERED MATERIAL OF FOREIGN ORIGIN AND WAS REJECTED.

IN SUBMITTING BIDS UNDER THE INVOLVED INVITATION FOR BIDS, EACH BIDDER WAS REQUIRED TO CERTIFY THAT EACH END PRODUCT, EXCEPT THE END PRODUCTS EXCLUDED BY HIM IN HIS BID, WAS A DOMESTIC SOURCE END PRODUCT AS DEFINED IN THE CONTRACT CLAUSE ENTITLED "BUY AMERICAN ACT" AND THAT COMPONENTS OF UNKNOWN ORIGIN "HAVE BEEN CONSIDERED TO HAVE BEEN MINED, PRODUCED, OR MANUFACTURED OUTSIDE THE UNITED STATES.' THE CONTRACTOR DID NOT EXCLUDE ANY ITEMS. THE INVITATION INCORPORATED BY REFERENCE S AND A FORM 111 (REV. 10/62 ( ENTITLED "ADDITIONAL GENERAL PROVISIONS (ADVERTISED AND NEGOTIATED FIXED PRICE SUPPLY CONTRACTS)" WHICH CONTAINED THE STANDARD "BUY AMERICAN ACT" PROVISION AS SET FORTH IN PARAGRAPH 6-104.5 OF THE ARMED SERVICES PROCUREMENT REGULATION. THE MODIFICATION OF THE CONTRACT DATED NOVEMBER 5, 1963, ADDING THERETO THE SET-ASIDE PORTION AWARDED TO THE CONTRACTOR SPECIFICALLY PROVIDED THAT EXCEPT "AS HEREBY MODIFIED, ALL TERMS AND CONDITIONS OF SAID CONTRACT AS HERETOFORE MODIFIED REMAIN UNCHANGED AND IN FULL FORCE AND EFFECT.'

AS A RESULT OF A VISIT TO THE PLANT FACILITIES OF THE CONTRACTOR ON OR ABOUT MARCH 13, 1964, OCCASIONED BY ITS DELINQUENCY, PERSONNEL OF THE CONTRACTING OFFICE OBSERVED THAT THE STOCK OF STEEL WIRE USED IN THE PRODUCTION OF NAILS BORE LABELS INDICATING THAT THE WIRE WAS MANUFACTURED IN BELGIUM. AFTER AN EXPLANATION OF THE BUY AMERICAN PROVISIONS WAS GIVEN TO THE PRESIDENT OF THE CONTRACTING FIRM, HE STATED THAT HE HAD NOT UNDERSTOOD THE BUY AMERICAN ACT. HE WAS THEN ADVISED BY THE CONTRACTING OFFICER THAT NAILS PRODUCED FROM FOREIGN WIRE WERE NOT ACCEPTABLE UNDER THE TERMS OF THE CONTRACT AS THE SAME VIOLATED THE PROVISIONS OF THE BUY AMERICAN ACT.

AS OF THE DATE OF SAID CONFERENCE, THE CONTRACTOR HAD SHIPPED A TOTAL OF 125,300 POUNDS OF NAILS. OF THIS QUANTITY, PAYMENT HAD BEEN MADE FOR 10,600 POUNDS WHICH HAD BEEN PLACED IN STOCK AND ISSUED FOR USE. THE BALANCE OF THE MATERIAL SHIPPED BUT NOT PAID FOR CONSISTS OF (A) 27,100 POUNDS OF NAILS, INSPECTED, ACCEPTED AND SHIPPED F.O.B. ORIGIN TO NORFOLK, VIRGINIA, ON A GOVERNMENT BILL OF LADING; (B) 47,600 POUNDS SHIPPED F.O.B. DESTINATION TO OAKLAND, CALIFORNIA; AND (C) 40,000 POUNDS SHIPPED F.O.B. DESTINATION TO OGDEN, UTAH. ALL DELIVERIES WITH THE EXCEPTION OF THE 10,600 POUNDS HAVE BEEN "FROZEN" AWAITING DISPOSITION INSTRUCTIONS. QUANTITY OF 160,100 POUNDS, THE BALANCE OF THE CONTRACT QUANTITY, HAS NOT BEEN DELIVERED ALTHOUGH THE CONTRACTOR ALLEGES THAT AN ADDITIONAL 60,000 POUNDS HAVE BEEN PRODUCED.

IN THE CONTRACTING OFFICER'S STATEMENT OF FACTS ACCOMPANYING THE REQUEST FOR DECISION, THE CONTRACTING OFFICER REPORTED THAT---

"BY LETTER DATED 9 APRIL 1964, THE CONTRACTOR WAS ADVISED THAT THE "BUY AMERICAN PRODUCTS" PROVISIONS MADE PART OF THE CONTRACT, REQUIRES THAT MORE THAN 50 PERCENT OF THE VALUE OF THE COMPONENTS USED IN THE END ITEM MUST BE AMERICAN MADE TO BE CONSIDERED A DOMESTIC SOURCE END PRODUCT; THAT SINCE THE ONLY COMPONENT IN THE MANUFACTURE OF NAILS IS THE WIRE, THAT IF FOREIGN WIRE IS USED IN THE MANUFACTURE OF THE NAILS, THE BUY AMERICAN ACT WOULD BE VIOLATED AND THE MATERIAL MADE WITH SUCH WIRE IS UNACCEPTABLE. THIS LETTER FURTHER DETAILED THE PRESENT LOCATION OF THE NAILS PREVIOUSLY SHIPPED AND HELD IN A "FROZEN" STATUS, REQUESTING DISPOSITION INSTRUCTIONS FOR THE SAME; REFERRED TO THE QUANTITY UNSHIPPED AND REQUESTED THE CONTRACTOR TO SHOW CAUSE WHY THE CONTRACT SHOULD NOT BE TERMINATED FOR DEFAULT. THE CONTRACTOR REPLIED BY LETTER OF 11 APRIL 1964. IN SAID LETTER THE CONTRACTOR REQUESTED THAT THE CONTRACT BE MODIFIED AND ITS DELIVERIES BE ACCEPTED, PARTICULARLY THE NAILS ALREADY INSPECTED AND DELIVERED. THE CONTRACTOR IN SUBSTANTIATION OF ITS REQUEST, MADE THE FOLLOWING CONTENTIONS:

"A. IN A MEETING OF 6 MARCH 1964, CONCERNING DELINQUENCIES, THE CONTRACTOR ADVISED THAT THE REASON FOR DELAY WAS THAT A SHIPMENT OF WIRE FROM BELGIUM WAS DELAYED BECAUSE OF BAD WEATHER, THEREFORE, IT WAS MADE KNOWN THAT FOREIGN WIRE WAS BEING USED AND NOTHING WAS SAID ABOUT ANY VIOLATION OF THE CONTRACTUAL TERMS.

"B. DURING THE VISIT OF 13 MARCH 1964, AT CONTRACTOR'S PLANT, THE CONTRACTING OFFICER REQUESTED THAT PARTIAL SHIPMENTS BE MADE OF COMPLETED AND PACKED NAILS DUE TO THE URGENT REQUIREMENT FOR THE NAILS. THAT THE QUESTION AT THAT TIME CAME UP OF THE INTERPRETATION OF THE BUY AMERICAN ACT CLAUSE AND THAT THE CONTRACTOR WAS ADVISED BY THE CONTRACTING OFFICER THAT "IT MEANT THAT THE COST OF WIRE WAS NOT TO EXCEED 50 PERCENT OF THE SELLING PRICE.' THAT IN THE CONTRACTOR'S INTERPRETATION THIS MEANT THAT IT WAS WITHIN THE LIMITS OF THE CONTRACT AS THE BASE COST OF THE WIRE WAS WITHIN THAT LIMIT. THAT AT THIS TIME THE CONTRACTOR WAS NOT ADVISED THAT IT WAS IN VIOLATION OF THE BUY AMERICAN ACT AND IN ACCORDANCE WITH THE INSTRUCTIONS, IMMEDIATELY HAD THE NAILS INSPECTED AND SUBSEQUENTLY SHIPPED THE SAME TO OAKLAND, CALIFORNIA AND OGDEN, UTAH.

"C. ON 25 MARCH 1964, MR. WALLACE (THE CONTRACT ADMINISTRATOR) CALLED FOR A MEETING SINCE THERE WAS SOME DOUBT ABOUT THE USE OF THE IMPORTED WIRE AND CONSEQUENTLY IT SENT A LETTER ADVISING IT WOULD STOP PRODUCTION PENDING A DEFINITE DECISION.

"D. THAT THE MEETING OF 27 MARCH 1964 OCCURRED WHERE THE PROVISIONS OF THE BUY AMERICAN ACT WERE EXPLAINED.

"E. THAT THERE WAS NO WILLFUL INTENTION TO VIOLATE THE CONTRACT, AND THAT ALL WAS DUE TO A MISUNDERSTANDING OF THE CLAUSE WHICH WAS COMPLICATED TO ALL OF WHOM CLARIFICATION WAS REQUESTED.

"F. THAT THE DIRECTION TO SHIP WAS INTERPRETED TO MEAN THAT THE BUY AMERICAN CLAUSE WAS WAIVED.

"G. THAT THE FIRM IS A SMALL BUSINESS AND A LOAN WAS REQUIRED TO FINANCE THE CONTRACT AND THAT THE PRESIDENT HAD TO PLEDGE ALL HE OWNS AS SECURITY FOR THE LOAN.

"THE CONTRACTOR THEN ADVISED THAT IF FAVORABLE CONSIDERATION WAS NOT GIVEN TO ITS REQUEST AND IF THE GOVERNMENT INSISTED UPON RETURNING THE NAILS, IT WOULD HAVE NO ALTERNATIVE BUT TO ACCEPT THEM, RETURN CHARGES PREPAID AND REQUEST REIMBURSEMENT FOR THE COST OF TRANSPORTATION TO DESTINATION SINCE IT WAS DIRECTED TO SHIP THE MATERIAL.'

BY LETTER DATED MAY 19, 1964, THE CONTRACTOR WAS ADVISED THAT IT WAS THE DETERMINATION OF THE CONTRACTING OFFICER THAT ALL OF THE NAILS MANUFACTURED WITH FOREIGN WIRE AND/OR SHIPPED ARE UNACCEPTABLE AS NOT BEING PRODUCED IN ACCORDANCE WITH THE TERMS OF THE CONTRACT. FURTHER, THE CONTRACTOR WAS ADVISED THAT THE CONTRACT DELIVERY DATE WOULD BE EXTENDED FOR A REASONABLE TIME TO ENABLE DELIVERY OF ACCEPTABLE MATERIAL EXCEPT FOR THE 10,600 POUNDS PREVIOUSLY ACCEPTED AND PAID FOR, AND AS TO THIS QUANTITY A PRICE REDUCTION EQUAL TO THE DIFFERENCE BETWEEN THE FOREIGN SUPPLIES AND AMERICAN SUPPLIES WOULD BE EFFECTED. AS TO THE 27,100 POUNDS SHIPPED TO NORFOLK AND ACCEPTED THERE, IT WAS CONSIDERED THAT THIS ACTION WAS "INVALID" AND DISPOSITION INSTRUCTIONS WERE REQUESTED. AS TO THE 47,600 POUNDS SHIPPED TO OAKLAND AND THE 40,000 POUNDS SHIPPED TO OGDEN, THE CONTRACTOR WAS ADVISED THAT THESE SHIPMENTS WERE REJECTED AND DISPOSITION INSTRUCTIONS WERE REQUESTED. ALL COSTS INVOLVED IN THE RETURN OF THE MATERIAL OR OTHER DISPOSITION WERE TO BE BORNE BY THE CONTRACTOR.

THE RECORD IS NOT CLEAR AS TO WHAT, IF ANY, ADVICE OR INSTRUCTIONS WERE GIVEN TO THE CONTRACTOR ON MARCH 13, 1964, WITH RESPECT TO SHIPMENT ALTHOUGH IT CONTENDS THAT IT WAS URGED TO MAKE SHIPMENT OF THE NAILS THEN MANUFACTURED. IT IS NOTED THAT THE SHIPMENTS OF 47,600 POUNDS TO OAKLAND AND 40,000 POUNDS TO OGDEN WERE MADE ON MARCH 18, 1964. THE CONTRACTING OFFICER HAS NOT REFUTED THE CONTRACTOR'S STATEMENT THAT HE WAS URGED TO MAKE SHIPMENT.

IT WAS, OF COURSE, THE CONTRACTOR'S DUTY TO ACQUAINT ITSELF WITH THE TERMS OF THE CONTRACT AND IF THERE WAS ANY QUESTION ON ANY CLAUSE OF THE CONTRACT, CLARIFICATION SHOULD HAVE BEEN OBTAINED BEFORE PURCHASE OF THE RAW MATERIAL WAS MADE. PARAGRAPH 45 OF THE ADDITIONAL GENERAL PROVISIONS PROVIDED THAT--- WITH SEVERAL EXCEPTIONS NOT APPLICABLE HERE--- ONLY DOMESTIC SOURCE END PRODUCTS WERE TO BE DELIVERED AND A DOMESTIC SOURCE END PRODUCT WAS DEFINED AS "AN END PRODUCT MANUFACTURED IN THE UNITED STATES IF THE COST OF THE COMPONENTS THEREOF WHICH ARE MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES OR CANADA EXCEEDS 50 PERCENT OF THE COST OF ALL ITS COMPONENTS.'

THE ITEMS PROCURED UNDER THE CONTRACT HERE INVOLVED WERE NAILS. IN THE MANUFACTURE OF THE END PRODUCT THERE IS ONLY ONE COMPONENT, NAMELY, STEEL WIRE. SINCE THE STEEL WIRE WAS NOT MINED, PRODUCED OR MANUFACTURED WITHIN THE UNITED STATES, THE NAILS FABRICATED FROM STEEL WIRE PRODUCED IN BELGIUM CANNOT QUALIFY AS DOMESTIC SOURCE END ITEMS UNDER THE BUY AMERICAN ACT AS IMPLEMENTED BY ASPR AND AS STATED IN THE CONTRACT CLAUSE.

SINCE THE CONTRACTOR, IN FURNISHING NAILS MADE OF FOREIGN WIRE, HAS VIOLATED THE BUY AMERICAN ACT AND THE PROVISIONS OF THE CONTRACT, THERE EXISTS NO AUTHORITY TO ACCEPT SUCH NAILS. THE PURCHASE DOES NOT FALL WITHIN ANY OF THE EXCEPTIONS TO THE BUY AMERICAN ACT, 41 U.S.C. 10.

OUR OFFICE HAS HELD THAT WHERE SUPPLIES ARE FURNISHED THE GOVERNMENT WHICH ARE OF FOREIGN MANUFACTURE AND THE PURCHASE OF WHICH IS IN VIOLATION OF THE BUY AMERICAN ACT, THE CONTRACT PRICE SHOULD BE ADJUSTED BY THE DIFFERENCE IN COST OF DOMESTIC MATERIALS OF THE QUALITY AND QUANTITY INVOLVED AND THE COST OF "FOREIGN MADE" MATERIALS. SEE 42 COMP. GEN. 401. APPLYING THIS HOLDING TO THE FACTS REPORTED IN THIS CASE, WE AGREE WITH THE ACTION PROPOSED BY THE CONTRACTING OFFICER IN HIS LETTER OF MAY 19, 1964, TO THE CONTRACTOR EXCEPT AS TO THE QUANTITY OF 27,100 POUNDS SHIPPED TO NORFOLK ON MARCH 10, 1964, WHICH IT IS PROPOSED TO HOLD FOR ADVICE FROM THE CONTRACTOR AS TO DISPOSITION THEREOF. THE CONTRACTOR SHOULD BE ALLOWED THE OPTION OF RECEIVING PAYMENT FOR THIS QUANTITY AT AN APPROPRIATE ADJUSTMENT IN PRICE. AN ADDITIONAL EXCEPTION TO THE PROPOSED ACTION IS TAKEN WITH RESPECT TO THE 47,600 POUNDS SHIPPED TO OAKLAND AND 40,000 POUNDS SHIPPED TO OGDEN AND PAYMENT OF THE FULL CONTRACT PRICE SHOULD BE MADE THEREFOR, SINCE THE RECORD IS NOT CLEAR AS TO WHETHER OR NOT THE CONTRACTING OFFICER MAY HAVE IMPORTUNED THE CONTRACTOR TO MAKE THESE SHIPMENTS WITH FULL KNOWLEDGE OF THE SOURCE OF MATERIAL USED IN THE MANUFACTURE OF THE NAILS AND SINCE THE CONTRACTOR HAS INCURRED TRANSPORTATION COSTS ON THESE F.O.B. DESTINATION SHIPMENTS AND WOULD INCUR FURTHER TRANSPORTATION COSTS IF IT DESIRED A RETURN OF THE INVOLVED SHIPMENTS.