B-160627, MAY 9, 1967, 46 COMP. GEN. 784

B-160627: May 9, 1967

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BIDS - BUY AMERICAN ACT - FOREIGN PRODUCT DETERMINATION - PACKAGING NOT MANUFACTURING IN THE EVALUATION OF THE 50 PERCENT FACTOR FAVORING DOMESTIC ARTICLES WHICH IS IMPOSED BY PARAGRAPHS 6-102.2 AND 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION TO ALLEVIATE THE IMPACT ON THE NATION'S BALANCE OF INTERNATIONAL PAYMENTS. - THE BOTTLING AND PACKAGING IN THE UNITED STATES OF TABLETS MANUFACTURED FROM SULFADIAZINE SECURED FROM A FOREIGN SOURCE IS NOT A MANUFACTURING PROCESS WITHIN THE MEANING OF THE BUY AMERICAN ACT. 1967: REFERENCE IS MADE TO YOUR TELEGRAM OF JANUARY 3. DOMESTIC PACKING) WHICH IS THE ITEM PERTAINING TO YOUR PROTEST. THE CONTRACTING OFFICER ADVISED YOU THAT THE SUCCESSFUL OFFEROR WAS LEDERLE LABORATORIES DIVISION.

B-160627, MAY 9, 1967, 46 COMP. GEN. 784

BIDS - BUY AMERICAN ACT - FOREIGN PRODUCT DETERMINATION - PACKAGING NOT MANUFACTURING IN THE EVALUATION OF THE 50 PERCENT FACTOR FAVORING DOMESTIC ARTICLES WHICH IS IMPOSED BY PARAGRAPHS 6-102.2 AND 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION TO ALLEVIATE THE IMPACT ON THE NATION'S BALANCE OF INTERNATIONAL PAYMENTS--- FLOW OF GOLD--- THE BOTTLING AND PACKAGING IN THE UNITED STATES OF TABLETS MANUFACTURED FROM SULFADIAZINE SECURED FROM A FOREIGN SOURCE IS NOT A MANUFACTURING PROCESS WITHIN THE MEANING OF THE BUY AMERICAN ACT, 41 U.S.C. 10A-D, WHETHER FURNISHED BY A CONTRACTOR, SUBCONTRACTOR, OR MATERIALMAN, SO AS TO REMOVE THE FOREIGN-END PRODUCT FROM THE RESTRICTIONS OF THE ACT, THE PROCESS OF PACKAGING OR PACKING MANUFACTURED-END ARTICLES FOR GOVERNMENT USE, OR THE PLACING OF ARTICLES INTO STORAGE CONTAINERS WHICH SERVE NO SPECIAL FUNCTION IN THE USE OF AN ARTICLE NOT BEING CONSIDERED AN ADDITIONAL "MANUFACTURING" PROCESS. THEREFORE, THE SULFADIAZINE TABLETS, A FOREIGN ARTICLE UNDER THE ACT, CANNOT BE TRANSFORMED INTO AN AMERICAN ITEM BY BEING PUT INTO AMERICAN BOTTLES. OVERRULES 43 COMP. GEN. 306.

TO S.F. DURST AND COMPANY, INC., MAY 9, 1967:

REFERENCE IS MADE TO YOUR TELEGRAM OF JANUARY 3, 1967, AND TO YOUR SUPPLEMENTING LETTER OF JANUARY 4, WITH ENCLOSURES, PROTESTING THE AWARD OF A CONTRACT FOR SULFADIAZINE TABLETS, USP, 0.5 GM., (7-1/2 GR.), TO ANY OTHER FIRM UNDER REQUEST FOR PROPOSALS (RFP) NO. DSA-120 67-R-1662, ISSUED OCTOBER 27, 1966, BY THE DEFENSE PERSONNEL SUPPORT CENTER, DEFENSE SUPPLY AGENCY, PHILADELPHIA, PENNSYLVANIA.

THE RFP, AS AMENDED, SOLICITED PROPOSALS UNDER ITEM NO. 1 QUOTE B, FOR 46,008 UNITS (BOTTLES) OF 1,000 TABLETS EACH (FOB ORIGIN, DOMESTIC PACKING) WHICH IS THE ITEM PERTAINING TO YOUR PROTEST. IN SUBMITTING YOUR PROPOSAL ON THAT ITEM AT A UNIT PRICE OF $5.79, YOU REPRESENTED THAT THE SULFADIAZINE USED IN THE MANUFACTURE OF YOUR TABLETS WOULD BE OF FOREIGN MANUFACTURE. BY LETTER OF DECEMBER 30, 1966, THE CONTRACTING OFFICER ADVISED YOU THAT THE SUCCESSFUL OFFEROR WAS LEDERLE LABORATORIES DIVISION, AMERICAN CYANAMID COMPANY, AT A UNIT PRICE OF $5.97, AND THAT YOU WERE NOT ELIGIBLE FOR THE AWARD FOR THE REASON THAT YOU WERE NOT THE LOW OFFEROR "AFTER FLOW OF GOLD FACTOR EVALUATION.' WHILE THAT NOTICE MIGHT SEEM TO INDICATE YOUR PROPOSAL WAS LOW PRIOR TO THE EVALUATION, SUCH WAS NOT THE CASE AS TWO OTHER OFFERORS PROPOSED TO FURNISH FOREIGN-MADE SULFADIAZINE AT PRICES SUBSTANTIALLY LESS THAN YOURS, THE LOWER AT $4.06. THE CONTRACT WAS AWARDED TO LEDERLE ON DECEMBER 23, 1966.

YOU STATE THAT YOU ARE A REGULAR DEALER IN THE TABLETS AND THAT YOU WOULD HAVE SUBCONTRACTED WITH CHASE CHEMICAL COMPANY, NEWARD, NEW JERSEY, TO PRODUCE THE END ITEM REQUIRED BY THE GOVERNMENT. THE RECORD INDICATES THAT THE PRINCIPAL FUNCTION OF CHASE IN THE PRODUCTION OF THE ITEM WOULD BE THE BOTTLING AND PACKAGING OF THE TABLETS IN ACCORDANCE WITH THE SPECIFICATIONS, AND THAT IT WOULD OBTAIN THE SULFADIAZINE TABLETS, WITH THE NECESSARY BOTTLES, COTTON AND OTHER PACKING MATERIALS, FROM DOMESTIC MANUFACTURERS. YOU ALSO STATE THAT THE FOREIGN SULFADIAZINE, THE PRINCIPAL INGREDIENT, WOULD COST ABOUT $2.60 FOR 1,000 TABLETS, AND IT APPEARS THAT SUCH COST EXCEEDS THE COMBINED COST OF THE OTHER INGREDIENTS (STARCH AND MAGNESIUM STEARATE) USED IN THE MANUFACTURE OF THE TABLETS.

YOU PROTEST THE AWARD TO LEDERLE ON THREE BASIC GROUNDS:

(1) THE CONTRACTING OFFICER ERRONEOUSLY CONCLUDED THAT SINCE YOUR SUBCONTRACTOR PROPOSED TO PROCURE A COMPONENT THAT CONTAINED SOME MATERIAL OF FOREIGN ORIGIN YOU SHOULD BE PENALIZED 6 PERCENT IN THE EVALUATION OF YOUR OFFER, A PROCEDURE WHICH YOU STATE IS NOT UNIFORMLY APPLIED BY THE DEFENSE PERSONNEL SUPPORT CENTER IN ITS PURCHASES OF DRUGS.

(2) THE FOREIGN DERIVED INGREDIENTS COMPRISE LESS THAN 50 PERCENT OF THE COST (PRICE) OF THE END PRODUCT PROPOSED TO BE FURNISHED BY YOUR FIRM.

(3) EXECUTIVE ORDER 10582 SETS FORTH CRITERIA FOR EVALUATING BIDS FROM PRIME CONTRACTORS AND DOES NOT PROVIDE FOR THE EVALUATION OF FOREIGN MATERIALS CONTAINED IN COMPONENTS PURCHASED IN THE OPEN MARKET BY MANUFACTURERS BELOW THE PRIME CONTRACTOR'S LEVEL.

INSOFAR AS IT PERTAINS TO THE SUBJECT PROCUREMENT, THE BUY AMERICAN ACT, 47 STAT. 1520, AS CODIFIED IN 41 U.S.C. 10A-D, REQUIRES THAT ONLY SUCH MANUFACTURED ARTICLES AS HAVE BEEN ,MANUFACTURED IN THE UNITED STATES SUBSTANTIALLY ALL FROM ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED," IN THE UNITED STATES BE ACQUIRED "FOR PUBLIC USE" UNLESS THE HEAD OF THE AGENCY CONCERNED SHALL DETERMINE IT TO BE INCONSISTENT WITH THE PUBLIC INTEREST, OR THE COST TO BE UNREASONABLE. THE TERM "PUBLIC USE" IS DEFINED (10C (B) ( AS MEANING "USE BY * * * THE UNITED STATES.' TO ESTABLISH UNIFORM PROCEDURES FOR ADMINISTRATIVE DETERMINATIONS, EXECUTIVE ORDER NO. 10582 OF DECEMBER 17, 1954, AS AMENDED, SPECIFIED UNDER SECTION 2 (A) THAT ARTICLES SHALL BE CONSIDERED TO BE OF FOREIGN ORIGIN IF THE COST OF THE FOREIGN PRODUCTS USED IN SUCH ARTICLES CONSTITUTES 50 PERCENT OR MORE OF THE COST OF ALL PRODUCTS USED THEREIN, AND THAT THE PRICE OF DOMESTIC ARTICLES IS UNREASONABLE IF IT EXCEEDS THE COST OF LIKE FOREIGN ARTICLES PLUS A DIFFERENTIAL COMPUTED PURSUANT TO THAT ORDER (GENERALLY 6 PERCENT, AND, BY IMPLEMENTING REGULATIONS, 12 PERCENT FOR SMALL BUSINESS CONCERNS AND LABOR SURPLUS AREAS). HOWEVER, SECTION 5 OF THAT ORDER VESTS DISCRETIONARY AUTHORITY IN AN AGENCY HEAD TO DETERMINE THAT A GREATER DIFFERENTIAL THAN THAT AUTHORIZED BY THE ORDER WOULD NOT BE UNREASONABLE OR INCONSISTENT WITH THE PUBLIC INTEREST. TO ALLEVIATE THE IMPACT OF EXPENDITURES ON THE NATION'S BALANCE OF INTERNATIONAL PAYMENTS (FLOW OF GOLD) THE DEPARTMENT OF DEFENSE HAS INSTITUTED A 50 PERCENT EVALUATION FACTOR IN FAVOR OF DOMESTIC ARTICLES. SEE PARAGRAPHS 6-102.2 AND 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION. IT WAS THAT 50 PERCENT DIFFERENTIAL WHICH WAS APPLIED IN THE EVALUATION OF YOUR PROPOSAL AND THE TWO OTHER PROPOSALS OFFERING TABLETS MANUFACTURED FROM FOREIGN SULFADIAZINE.

CONCERNING YOUR CONTENTION THAT THE COST OF THE FOREIGN INGREDIENTS IN YOUR END PRODUCT, WHICH YOU ESTIMATE AT $2.61 A UNIT, AMOUNTS TO LESS THAN 50 PERCENT OF THE PRICE OF THAT PRODUCT, THE APPLICABILITY OF THE BUY AMERICAN ACT IS NOT DETERMINED BY REFERENCE TO THE PRICE OF THE U.S. MANUFACTURED END ARTICLE. THE ACT REQUIRES THE PURCHASE OF ARTICLES MANUFACTURED "SUBSTANTIALLY ALL" FROM MATERIALS MINED, PRODUCED OR MANUFACTURED IN THE UNITED STATES. WHILE THE ACT DOES NOT DEFINE "SUBSTANTIALLY ALL," THE TEST PRESCRIBED BY SECTION 2 OF EXECUTIVE ORDER NO. 10582 HAS BEEN ACCEPTED SINCE 1954 AND MATERIALS, ARTICLES AND SUPPLIES ARE CONSIDERED TO BE OF FOREIGN ORIGIN IF THE COST OF THE FOREIGN PRODUCTS USED IN SUCH MATERIALS, ARTICLES OR SUPPLIES CONSTITUTES 50 PERCENT OR MORE OF THE COST OF ALL THE PRODUCTS USED THEREIN. ADDITIONALLY, IN DETERMINING WHETHER ARTICLES TO BE ACQUIRED FOR USE BY THE UNITED STATES ARE TO BE REGARDED AS FOREIGN OR DOMESTIC, THE IMPLEMENTING ARMED SERVICES PROCUREMENT REGULATION PROVIDES UNDER PARAGRAPH 6-102.1 THAT ONLY THE END PRODUCT AND ITS COMPONENTS (MATERIALS DIRECTLY INCORPORATED THEREIN) SHALL BE CONSIDERED, AND PARAGRAPH 6-101 (A) DEFINES A DOMESTIC SOURCE END PRODUCT AS MEANING: AN UNMANUFACTURED END PRODUCT WHICH HAS BEEN MINED, OR PRODUCED IN THE UNITED STATES, OR 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. A LIKE DEFINITION OF A DOMESTIC SOURCE END PRODUCT IS CONTAINED IN STANDARD FORM 32 (JUNE 1964 EDITION) INCORPORATED BY REFERENCE IN THE RFP.

SINCE VARIOUS ELEMENTS (LABOR, FREIGHT, PROFIT, OVERHEAD, ETC.) INCLUDED IN THE PRICE OF A MANUFACTURED ARTICLE ARE NOT CONSIDERED TO BE "PRODUCTS" OR "COMPONENTS" USED THEREIN, THE COST OF THESE ITEMS MUST BE EXCLUDED FROM CONSIDERATION IN DETERMINING WHETHER THE ARTICLE IS FOREIGN OR DOMESTIC, AND YOUR UNIT PRICE OF $5.79 DOES NOT SERVE AS A BASIS OF COMPARISON AGAINST THE $2.61 ESTIMATED COST OF FOREIGN INGREDIENTS CONTAINED THEREIN. COMPARE 35 COMP. GEN. 7, AND 43 ID. 306. IN THIS CONNECTION, IT IS DSA'S POSITION THAT YOUR $2.61 ESTIMATED COST OF FOREIGN INGREDIENTS FAR EXCEEDS THE COMBINED COSTS OF CARTONS, BOTTLES, AND COTTON.

WITH REFERENCE TO YOUR CONTENTION THAT EXECUTIVE ORDER NO. 10582 DOES NOT PROVIDE FOR EVALUATION OF FOREIGN MATERIALS CONTAINED IN COMPONENTS PROVIDED BY MANUFACTURERS BELOW THE "PRIME CONTRACTOR-S" LEVEL, NEITHER THE BUY AMERICAN ACT NOR EXECUTIVE ORDER NO. 10582 SPEAKS WITH RESPECT TO THE SUPPLIERS OF THE ARTICLES, MATERIALS AND SUPPLIES DEALT WITH BY THE ACT, BUT ONLY WITH RESPECT TO THE NATIONAL ORIGINS OF THE ITEMS TO BE PURCHASED AND OF THE COMPONENTS OF SUCH ITEMS AS ARE MANUFACTURED. THE "PRIME CONTRACTOR" MAY BE MERELY A DEALER, AS YOU ARE, HAVING NO PARTICIPATION IN THE PRODUCTION OR MANUFACTURE OF THE ITEMS INVOLVED. INDICATED ABOVE, THE ACT, AS IMPLEMENTED, REQUIRES AN END ARTICLE MANUFACTURED IN THE UNITED STATES TO BE CLASSIFIED AS AMERICAN WHEN, ON A COST BASIS, MORE THAN 50 PERCENT OF THE COMPONENTS USED IN THE MANUFACTURING PROCESS WHICH PRODUCES THE ARTICLE ARE ALSO MANUFACTURED OR PRODUCED IN THE UNITED STATES. THEREFORE, CONSIDERATION IS REQUIRED TO BE GIVEN TO THE ORIGIN OF AN END ARTICLE'S COMPONENTS, WHETHER THE ARTICLE IS MADE BY A PRIME CONTRACTOR OR A SUBCONTRACTOR OR MATERIALMAN.

THE DEFENSE SUPPLY AGENCY REPORTS THE PROCESS OF PRODUCTION OF SULFADIAZINE TABLETS AS FOLLOWS:

SULFADIAZINE TABLETS ARE PRODUCED BY COMPOUNDING THREE INGREDIENTS INTO A TABLET DOSAGE FORM. THE INGREDIENTS HAVE DIFFERENT FUNCTIONS. FIRST IS THE ACTIVE INGREDIENT OR DRUG FOR WHICH THE TABLET IS PRESCRIBED. IN THIS CASE IT IN THE SULADIAZINE. SECOND IS A DISINTEGRATING COMPONENT STARCH, WHICH IS USED TO ASSIST IN THE BREAKING UP OF THE TABLET AFTER INGESTION IN ORDER TO AID ABSORBTION. THIRD, IS A LUBRICANT, MAGNESIUM STEARATE, WHICH IS ESSENTIAL FOR THE PROPER FORMATION OF TABLETS IN THE TABLETTING MACHINE.

IN GENERAL, THE PRODUCTION OF TABLETS BY A QUALIFIED FIRM OPERATING WITHIN ACCEPTABLE STANDARDS, INVOLVES THE FOLLOWING PROCEDURES:

A. RECEIPT OF COMPONENT.

B. RECEIVING DATA IS RECORDED; E.G., NAME OF INGREDIENT, MANUFACTURER, INVOICE NUMBER, QUANTITY, NUMBER OF LOTS, DATE.

C. INGREDIENTS ARE QUARANTINED AND CONTAINERS ANNOTATED ACCORDINGLY.

D. CONTENTS ARE SAMPLED FROM EACH LOT WITHIN ACCEPTABLE STATISTICAL LIMITS.

E. SAMPLED INGREDIENTS ARE TESTED TO DETERMINE PURITY, QUALITY, AND STRENGTH IN ACCORDANCE WITH ESTABLISHED SPECIFICATIONS AND STANDARDS.

F. COMPLIANCE WITH THE SPECIFICATIONS AND STANDARDS QUALIFIES THE COMPONENTS TO BE RELEASED FROM QUARANTINE AND PLACED IN WAREHOUSE AS ISSUABLE STOCK. (WAREHOUSE) CONTAINERS ARE MARKED ACCORDINGLY.

G. WHEN THE COMPONENTS ARE REQUIRED FOR TABLETTING, THEY ARE DRAWN FROM THE WAREHOUSE, THE CONTAINERS ARE PROPERLY CLEANED, AND THEN TAKEN TO THE WEIGHING ROOM.

H. PREDETERMINED QUANTITIES ARE WEIGHED BY ONE QUALIFIED PERSON AND CHECKED BY ANOTHER QUALIFIED PERSON.

I. THE WEIGHED-OUT COMPONENTS ARE TAKEN TO A MIXING ROOM WHERE THEY ARE BLENDED IN MIXING MACHINES. GENERALLY, THIS INCLUDES THE PREPARATION OF A STARCH SOLUTION (MIXTURE) WHICH IS ADDED IN THE FORM OF A THICK, VISCOUS LIQUID.

J. WHEN A UNIFORM POWDER MIXTURE IS ATTAINED, THE BLENDED COMPONENTS ARE SPREAD OUT IN TRAYS AND PLACED IN DRYING OVENS. THIS OPERATION GIVES THE BLENDED POWDER A CRYSTALLINE CHARACTERISTIC WHICH IS NECESSARY FOR TABLET COMPRESSION.

K. UPON REMOVAL FROM THE OVENS AND COOLING TO ROOM TEMPERATURE, THE BLENDED CRYSTALLINE POWDER IS RUN THROUGH A COMMINUTOR WHICH REDUCES THE POWDER TO A SMALL AND UNIFORM CRYSTALLINE MATERIAL.

L. A SAMPLE OF THE POWDER IS ASSAYED TO DETERMINE THE AMOUNT OF ACTIVE INGREDIENT PER WEIGHT OF POWDER.

M. THE POWDER IS TAKEN TO A TABLETTING ROOM WHERE IT IS GRADUALLY FED INTO THE HOPPER OF A TABLETTING MACHINE.

N. BASED UPON THE ASSAY DETERMINATION, THE WEIGHT OF TABLETS ARE ADJUSTED ON THE TABLET MACHINE.

O. DURING THE TABLETTING OPERATION, WHICH MAY LAST A DAY OR MORE DEPENDING UPON THE SPEED OF THE TABLETTING MACHINE AND QUANTITY OF BLENDED POWDER, VARIOUS IN-PROCESS TESTING IS PERFORMED IN ORDER TO INSURE UNIFORMITY OF PRODUCTION. THE IN-PROCESS TESTING INCLUDES: WEIGHT VARIATION PERFORMED APPROXIMATELY EVERY 15 MINUTES, HARDNESS DETERMINATION ABOUT EVERY HALF HOUR, AND DISINTEGRATION TIME AT THE BEGINNING, MIDDLE AND END OF THE RUN.

P. DURING TABLETTING, THE TABLETS ARE COLLECTED IN DRUMS HOLDING 50,000, 100,000, OR MORE TABLETS.

Q. THE TABLETS ARE TESTED FOR FULL COMPLIANCE WITH ALL APPLICABLE SPECIFICATIONS WHICH MAY INCLUDE ANY OR ALL OF THE FOLLOWING: ASSAY FOR STRENGTH, DISINTEGRATION TIME, WEIGHT VARIATION, HARDNESS, MOISTURE CONTENT, DISSOLUTION RATE, E.G., ARSENIC AND HEAVY METALS, SPECIFICALLY DESIGNATED IMPURITIES AND DEGRADATION PRODUCTS.

R. IF THE TABLETS COMPLY WITH ALL THE TESTING REQUIREMENTS OF THE SPECIFICATION, THEY ARE VISUALLY EXAMINED FOR PHYSICAL DEFECTS; E.G., FOREIGN SPOTS, PITTING, CAPPING, CAVITATION, CHIPS, BREAKS, EXCESS POWDERING, DIE SPOTS, MOTTLING, CLEAVAGE, CRACKS, OVERTURNED EDGES, FEATHERED EDGES, AND SPLITTING.

S. ACCEPTABLE TABLETS ARE TAKEN TO A PACKAGING LINE WHERE THEY ARE FILLED INTO BOTTLES OF ONE OR MORE SIZES.

T. ABSORBENT COTTON IS ADDED TO THE BOTTLES IN ORDER TO COMPACT THE TABLETS, SCREW CAP IS APPLIED, AND A LABEL IS PLACED ON EACH BOTTLE.

U. BOTTLES ARE PLACED INTO CARTONS (CALLED: INTERMEDIATE CARTONS), VARYING FROM SIX TO 24 BOTTLES PER CARTON. THE CARTONS ARE LABELLED.

V. TWO OR MORE INTERMEDIATE CARTONS ARE PLACED IN AN EXTERIOR CARTON (SHIPPING CONTAINER). WHEN REQUIRED, PACKAGE INSERTS AND INDIVIDUAL CARTONS (ENCLOSING EACH BOTTLE) ARE DESIGNATED. 12. DURING THE PRODUCTION PROCESS DESCRIBED ABOVE, THE SULFADIAZINE POWDER DOES NOT CHANGE EITHER CHEMICALLY OR MOLECULARLY. THROUGHOUT THE PROCESS, THE ONLY STAGES AT WHICH THE PRODUCT COULD BE CONSIDERED "MARKETABLE" ARE AS A POWDER (THE DRUG INGREDIENT) AND AS A TABLET. DEPENDING ON THE COMPANY INVOLVED, ALL OR NEARLY ALL OF THE STEPS CAN BE PERFORMED AT ONE LOCATION. PROBABLY THE MOST COMMON ARRANGEMENT IS FOR A FIRM TO OBTAIN THE TABLET INGREDIENTS AND TO CONTINUE THE PROCESS THROUGH TO A DELIVERABLE FORM. IT IS TRUE THAT, DEPENDING UPON SUCH FACTORS AS THE EQUIPMENT AVAILABLE, AND EMPLOYING PROPER PROCEDURES, THE PROCESS MAY BE SUB-DIVIDED SO THAT SEVERAL FIRMS PARTICIPATE, BUT THE FUNCTIONS ARE THE SAME; NAMELY, TO PUT THE PRODUCT IN A MARKETABLE FORM, WHICH, AFTER THE COMBINING OF INGREDIENTS, IS IN TABLET FORM ONLY. * * *

UNDER YOUR PROPOSAL THE SULFADIAZINE TABLETS WERE TO BE MANUFACTURED IN THE UNITED STATES FROM FOREIGN SULFADIAZINE COSTING MORE THAN ALL THE OTHER INGREDIENTS USED IN THE MANUFACTURE OF THE TABLETS. THEREAFTER, THE MANUFACTURED TABLETS WERE TO BE FORWARDED TO CHASE WHERE THE BOTTLING AND PACKAGING OPERATION DESCRIBED ABOVE WOULD BE PERFORMED USING DOMESTIC CARTONS, GLASSWARE, COTTON, ETC. THUS, THE PRINCIPAL QUESTION FOR RESOLUTION IS WHETHER, AS YOU CONTEND, THE END ARTICLE BEING OBTAINED FOR USE BY THE UNITED STATES WOULD BE BOTTLES OF SULFADIAZINE TABLES ,MANUFACTURED" BY CHASE (IN WHICH EVENT, ITS COMPONENTS HAVING BEEN LIKEWISE MANUFACTURED IN THE U.S., IT WOULD BE AN AMERICAN ARTICLE UNDER THE ACT), OR WHETHER THE END ARTICLE BEING PURCHASED WOULD BE THE SULFADIAZINE TABLETS (IN WHICH EVENT THE ACT WOULD BE FOR APPLICATION SINCE THE FOREIGN MADE SULFADIAZINE CONSTITUTES THE MAIN COST OF ITS COMPONENTS).

THE PURPOSE OF THE CONGRESS IN ENACTING THE BUY AMERICAN ACT WAS TO AFFORD SOME PROTECTION TO THE AMERICAN INDUSTRY AND ECONOMY AGAINST FOREIGN COMPETITION WITH RESPECT TO SUCH UNMANUFACTURED AND MANUFACTURED ARTICLES AS WERE TO BE ACQUIRED FOR "USE BY THE UNITED STATES.' THE ACT DOES NOT DEFINE THE TERM "MANUFACTURED" AND IS SILENT AS TO THE STAGES IN THE PRODUCTION PROCESSES AT WHICH AN END ARTICLE MAY BE REGARDED AS HAVING BEEN MANUFACTURED. A REVIEW OF THE LEGISLATIVE HISTORY OF THE ACT, HOWEVER, AFFORDS NO BASIS FOR A CONCLUSION THAT IN THE PROCUREMENT OF A MANUFACTURED ARTICLE THE TERM WAS INTENDED TO EXTEND BEYOND THE COMPLETION OF THAT ARTICLE IN THE FORM REQUIRED FOR ITS USE BY THE UNITED STATES, OR THAT THE ACT WAS INTENDED TO PROTECT ANY INDUSTRY OR MATERIALS NOT THERETOFORE INVOLVED IN THE PRODUCTION OF THAT ARTICLE OR ITS COMPONENTS. IN ITS REPORT ON YOUR PROTEST, THE DEFENSE SUPPLY AGENCY MADE THE FOLLOWING OBSERVATIONS:

IN THE ACTUALITY OF GOVERNMENT PROCUREMENT, THERE ARE A NUMBER OF IDENTIFIABLE ARTICLES DELIVERED TO THE GOVERNMENT UNDER ALMOST EVERY CONTRACT. IN THE NATURE OF THINGS, DETAILED PACKAGING AND PACKING REQUIREMENTS, A COMMON PART OF SPECIFICATIONS, UNDOUBTEDLY CONTRIBUTE A SIGNIFICANT NUMBER OF THE ITEMS. IN THE AREA OF DRUG PROCUREMENT, IDENTIFIABLE ARTICLES WOULD BE CARTONS OF VARIOUS SIZES, BOTTLES AND CLOSURES, COTTON, SULFADIAZINE TABLETS (AS AN EXAMPLE), ETC. EACH ARTICLE IS READILY SEVERABLE FROM THE OTHERS, THEY DO NOT FUNCTION TOGETHER, NOR DO THEY HAVE A COMMON PURPOSE. THE OUTER CARTON PROTECTS THE CONTENTS DURING SHIPPING AND WILL PROBABLY BE DISCARDED AT THE FIRST DESTINATION. THE INTERMEDIATE CONTAINER WILL BE DISTRIBUTED TO LARGER USING UNITS, SUCH AS HOSPITALS, AND WILL SERVE TO STORE THE BOTTLES UNTIL THEY ARE SENT TO MORE IMMEDIATE AREAS OF USE. THE BOTTLE WILL STORE AND IDENTIFY THE CONTENTS BEFORE AND DURING THE DISPENSATION OF THE TABLETS TO PATIENTS. THE TABLETS FUNCTION SEPARATELY TO SERVE THE PRESCRIBED MEDICAL PURPOSE.

HERE, THE ARTICLE NEEDED BY THE UNITED STATES IS THE DRUG SULFADIAZINE PREPARED IN A TABLET FORM TO BE USED AS A MEDICINE FOR HUMAN CONSUMPTION. THE BOTTLING AND PACKAGING FUNCTIONS, AS WELL AS THE MATERIALS USED IN CONNECTION THEREWITH, TO BE PERFORMED BY CHASE WOULD PROVIDE MERELY A CONVENIENT MEANS FOR SHIPPING, DISTRIBUTING AND STORING THE TABLETS UNTIL REMOVED FROM THE BOTTLE AND ADMINISTERED TO PATIENTS. CHASE WOULD NOT ADD ANYTHING TO THE TABLET OR CHANGE ITS PHYSICAL APPEARANCE OR CHARACTERISTICS, NOR WOULD ANY OF THE MATERIALS USED BY THAT FIRM CONSTITUTE A PART OF AN INTEGRATED UNIT FOR THE ACCOMPLISHMENT OF THE INTENDED MEDICAL PURPOSE. WE FEEL THAT THE LEGISLATIVE HISTORY OF THE ACT REQUIRES THE CONCLUSION THAT THE PROCESS OF PACKAGING OR PACKING PREVIOUSLY MANUFACTURED END ARTICLES TO BE USED BY THE GOVERNMENT, OR THE PLACING OF SUCH ARTICLES INTO STORAGE CONTAINERS WHICH DO NOT SERVE A SPECIAL FUNCTION IN THE ACTUAL USE OF THE ARTICLE BY THE GOVERNMENT, SHOULD NOT BE REGARDED AS AN ADDITIONAL ,MANUFACTURING" PROCESS SO AS TO REMOVE AN OTHERWISE FOREIGN END PRODUCT FROM THE RESTRICTIONS OF THE ACT. ON FEBRUARY 3, 1933, AS APPEARS IN 76 CONG. REC. 3267, THE SENATE CONSIDERED AN AMENDMENT WHICH WOULD HAVE OMITTED THE PROVISION THAT ARTICLES MANUFACTURED IN THE UNITED STATES BE SUBSTANTIALLY ALL FROM MATERIALS OR ARTICLES WHICH LIKEWISE HAD BEEN PRODUCED OR MANUFACTURED IN THE UNITED STATES. IN COMMENTING ON THE SUGGESTED AMENDMENT, SENATOR HIRAM W. JOHNSON, THE SPONSOR OF THE PROVISION, MADE THE FOLLOWING STATEMENT AND ILLUSTRATION:

FROM MY STANDPOINT, THE VICE OF HIS AMENDMENT IS THAT FROM OUTSIDE, FROM A FOREIGN COUNTRY, COULD BE BROUGHT INTO THIS COUNTRY THE MATERIAL WHICH COULD BE MANUFACTURED AS SEEN FIT, AND THEN IT WOULD NOT BE WITHIN THE PROHIBITION OF THE LAW.

FOR INSTANCE, AS I HAVE REPEATEDLY STATED UPON THE FLOOR, THE IMPELLING CAUSE OF THIS MEASURE WAS THE SITUATION AT THE BOULDER DAM, WHERE IT WAS EXPECTED THAT THE LOWEST BID WOULD BE FROM GERMANY FOR THE TURBINES OR GENERATING MACHINERY AND THE LIKE--- A TRANSACTION INVOLVING ABOUT $6,000,000. NOW, ASSUME THAT THEY BROUGHT OVER FROM GERMANY PART OF THE MACHINERY, AND ASSUME THAT THEY BROUGHT OVER THEN IN ANOTHER SHIP ANOTHER PART OF IT, AND IN ANOTHER SHIP ANOTHER PART OF IT, AND THEN, IN SOME FACTORY IN THIS COUNTRY IT WAS ASSEMBLED AND MANUFACTURED. THEN, THERE WOULD BE NO PROHIBITION UPON IT SUCH AS I DESIRE TO PUT IN THIS BILL UPON BIDS OF THAT SORT.

IT IS CLEARLY EVIDENT FROM THE ABOVE ILLUSTRATION THAT IF A SUBSEQUENT PACKING OF THE ASSEMBLED TURBINES OR GENERATING MACHINERY IN CONTAINERS, FOR SHIPPING TO AND STORING AT THE DAM SITE UNTIL SUCH EQUIPMENT COULD BE INSTALLED TO PERFORM ITS PLANNED PURPOSE, WAS REGARDED AS CONSTITUTING AN ADDITIONAL "MANUFACTURE" OF SUCH EQUIPMENT, THE DESIRED EFFECT OF THE PROVISION AS INTENDED BY THE CONGRESS WOULD BE DEFEATED.

THE BUY AMERICAN ACT CLAUSE INCORPORATED INTO THE RFP (ASPR 6-104.5) DEFINES "END PRODUCTS" AS ,THOSE ARTICLES, MATERIALS, AND SUPPLIES WHICH ARE TO BE ACQUIRED UNDER THIS CONTRACT FOR PUBLIC USE.' IN STATING A SIMILAR DEFINITION FOR END PRODUCTS, ASPR 6-001 (A) FURTHER PROVIDES THAT AS TO A GIVEN CONTRACT "THE END PRODUCTS ARE THE ITEMS TO BE DELIVERED TO THE GOVERNMENT, AS SPECIFIED IN THE CONTRACT * * *.' IN A REDUCTION OF SUCH PROVISION FROM ITS PLURAL TERMS TO THE SINGULAR FORM IT WOULD STATE THAT AS TO A GIVEN CONTRACT THE END PRODUCT IS THE ITEM TO BE DELIVERED TO THE GOVERNMENT, AS SPECIFIED IN THE CONTRACT. THUS, CONSISTENT WITH OUR ABOVE STATED VIEWS, WE BELIEVE PROPER ADMINISTRATION OF THE ACT REQUIRES THAT THE END PRODUCT IN A CONTRACT CONTAINING THE ABOVE BUY AMERICAN ACT CLAUSE BE REGARDED AS THE BASIC ITEM TO BE DELIVERED TO THE GOVERNMENT FOR ACTUAL USE BY THE UNITED STATES, EXCLUSIVE OF PACKAGING MATERIALS OR CONTAINERS SERVING ONLY TO EFFECT DELIVERY OF THE ITEM IN THE MANNER AS SPECIFIED IN THE CONTRACT AND WHICH HAVE NO FUNCTION IN THE ULTIMATE USE OF THE ITEM.

IN VIEW OF THE FOREGOING WE MUST CONCLUDE THAT THE ESSENTIAL NEED OF THE GOVERNMENT WAS FOR SULFADIAZINE TABLETS, NOT BOTTLES, AND THAT CHASE WOULD NOT HAVE BEEN A MANUFACTURER, WITHIN THE CONTEMPLATION OF THE BUY AMERICAN ACT, OF THE REQUIRED PRODUCT (SULFADIAZINE TABLETS). THE TABLETS, BEING FOREIGN ARTICLES UNDER THE ACT, COULD NOT BE TRANSFORMED INTO AMERICAN ITEMS BY BEING PUT INTO AMERICAN BOTTLES. YOUR PROPOSAL WAS THEREFORE PROPERLY DETERMINED BY THE DEFENSE SUPPLY AGENCY TO BE SUBJECT TO THE RESTRICTIONS OF THAT ACT. IN THIS CONNECTION, AND WITH REFERENCE TO THE MANUFACTURE OF DRUGS GENERALLY, IT IS NOTED THAT THE BUREAU OF ENFORCEMENT, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, FOOD AND DRUG ADMINISTRATION, ISSUED A GUIDELINE, BE-103, ON NOVEMBER 7, 1962, FOR ENFORCEMENT OF THE FEDERAL FOOD, DRUG, AND COSMETIC ACT, 21 U.S.C. 301, STATING IN PART: WE BELIEVE THAT A PERSON OR FIRM THAT PURCHASES TABLETS OR CAPSULES, ETC. IN BULK AND REPACKAGES THE PRODUCT IS NOT ENTITLED TO CLAIM THAT HE IS THE MANUFACTURER OF THE ARTICLE. SECTION 1.102 (A) OF THE GENERAL REGULATIONS (21 CFR 1.102 (A) ( STATES "IF A DRUG OR DEVICE IS NOT MANUFACTURED BY THE PERSON WHOSE NAME APPEARS ON THE LABEL, THE NAME SHALL BE QUALIFIED BY A PHRASE WHICH REVEALS THE CONNECTION SUCH PERSON HAS WITH SUCH DRUG OR DEVICE, SUCH AS -MANUFACTURED FOR AND PACKED BY ---- -----,- -DISTRIBUTED BY ----------,- OR OTHER SIMILAR PHRASE WHICH EXPRESSES THE FACTS.'

TO THE EXTENT THAT 43 COMP. GEN. 306, AND SUBSEQUENT DECISIONS BASED THEREON, MAY BE CONTRARY TO THE POSITION HERE STATED, THEY ARE HEREBY OVERRULED.

CONCERNING YOUR CONTENTION THAT YOUR PROPOSED SUBCONTRACTOR, CHASE CHEMICAL COMPANY, HAS BEEN SINGLED OUT BY THE DEFENSE PERSONNEL SUPPORT CENTER FOR BUYING PRODUCTS CONTAINING A PERCENTAGE OF FOREIGN MATERIALS AND THAT THE CENTER DOES NOT APPLY SIMILAR STANDARDS IN ITS PURCHASES FROM OTHER SUPPLIERS OF OVER 1,300 DRUGS, THE CENTER REPORTS ITS PRACTICES AS FOLLOWS:

A DETERMINATION AS TO WHETHER OR NOT THIS CENTER WILL PURCHASE DRUG PRODUCTS CONTAINING FOREIGN MATERIALS IS NORMALLY REQUIRED IN THE FOLLOWING CASES: (A) WHERE THE DRUG COMPONENT IS NOT AVAILABLE DOMESTICALLY BUT CAN ONLY BE PURCHASED FROM A FOREIGN SOURCE, IT IS CONSIDERED A DOMESTIC COMPONENT IN ACCORDANCE WITH ASPR 6-101 (A) IF THE END ITEM IS MANUFACTURED IN THE UNITED STATES; (B) WHERE THE COST OF THE FOREIGN COMPONENT IS LESS THAN 50 PERCENT OF THE COST OF ALL COMPONENTS, THE END ITEM IS CONSIDERED DOMESTIC; AND, (C) WHERE THE END ITEM IS CONSIDERED FOREIGN (FOREIGN COMPONENT COSTS MORE THAN 50 PERCENT) BUT THE COST OF A DOMESTIC ITEM IS UNREASONABLE ON EVALUATION, THE FOREIGN ITEM MAY BE PURCHASED. IN THE PRESENT CASE, SULFADIAZINE IS PRODUCED DOMESTICALLY AND, SINCE IT IS THE MOST COSTLY INGREDIENT IN THE END PRODUCT, PROPOSALS OFFERING TO FURNISH SULFADIAZINE PRODUCED IN DENMARK WERE EVALUATED AS FOREIGN END ITEMS. AS SHOWN IN THE EVALUATION, NONE OF THE FOREIGN PROPOSALS COULD ESTABLISH THE LOW DOMESTIC COST AS UNREASONABLE. THOSE PROCEDURES DO NOT APPEAR INCONSISTENT WITH THE PROVISIONS OF THE BUY AMERICAN ACT REGARDING PURCHASES OF ITEMS FOR USE IN THE UNITED STATES, AND IN THE ABSENCE OF ANY SPECIFIC EVIDENCE SHOWING THAT SUCH PROCEDURES ARE NOT APPLIED UNIFORMLY BY THE CENTER TO ALL SUPPLIERS AND PACKERS OF THE DRUG PRODUCTS THE PRESENT RECORD AFFORDS NO BASIS FOR CONSIDERING THEIR APPLICATION IN THIS CASE TO BE PREJUDICIAL TO YOU.