B-165321, DECEMBER 12, 1968, 48 COMP. GEN. 403

B-165321: Dec 12, 1968

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THE MINIMUM FIXED BY THE ACT FOR ADDITION TO THE COST OF FOREIGN PRODUCTS TO DETERMINE WHETHER A DOMESTIC PRICE IS UNREASONABLE. A DOMESTIC PRICE THAT EXCEEDS A FOREIGN BID BY MORE THAN 6 PERCENT IS UNREASONABLE AND MUST BE REJECTED. THE PROCUREMENT AGENCIES OF THE GOVERNMENT ARE ONLY REQUIRED TO PREPARE SPECIFICATIONS DESCRIBING THEIR NEEDS AND NOT THE MAXIMUM QUALITY OBTAINABLE AS THE PUBLIC ADVERTISING STATUTES DO NOT AUTHORIZE AN AGENCY TO PAY A HIGHER PRICE FOR AN ARTICLE WHICH MAY BE SUPERIOR TO ONE THAT ADEQUATELY MEETS ITS NEEDS. BIDS - BUY AMERICAN ACT - PRICE DIFFERENTIAL - REASONABLENESS THE APPLICATION OF THE DIFFERENT PERCENTAGES SPECIFIED BY THE ARMED SERVICES PROCUREMENT REGULATION (50 PERCENT IN PARAGRAPH 6-104.4) AND THE FEDERAL PROCUREMENT REGULATIONS (6 PERCENT IN SECTION 1-6.104-4) CREATING UNREALISTIC RESULTS IN DETERMINING WHETHER THE PRICE OF A DOMESTIC ITEM IS UNREASONABLE.

B-165321, DECEMBER 12, 1968, 48 COMP. GEN. 403

BIDS - BUY AMERICAN ACT - PRICE DIFFERENTIAL - DISCRETIONARY DETERMINATIONS IN EVALUATING BIDS FOR WRENCHES SUBJECT TO THE BUY AMERICAN ACT (41 U.S.C. 10A-D), THE FACT THAT DEFENSE DEPARTMENT AGENCIES MAY BE THE PREDOMINANT USERS OF THE ITEM DOES NOT REQUIRE THE GENERAL SERVICES ADMINISTRATION (GSA), RESPONSIBLE FOR THE PROCUREMENT AND THE APPLICATION OF THE ACT, TO USE THE 50 PERCENT PRICE DIFFERENTIAL PRESCRIBED BY PARAGRAPH 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION UNDER THE DISCRETIONARY AUTHORITY PROVIDED IN SECTION 5 OF EXECUTIVE ORDER NO. 10582, IN LIEU OF A 6 PERCENT DIFFERENTIAL, THE MINIMUM FIXED BY THE ACT FOR ADDITION TO THE COST OF FOREIGN PRODUCTS TO DETERMINE WHETHER A DOMESTIC PRICE IS UNREASONABLE, WHICH ADOPTED BY GSA IN SECTION 1-6.104-4 OF THE FEDERAL PROCUREMENT REGULATIONS GOVERNS THE PROCUREMENT AND, THEREFORE, A DOMESTIC PRICE THAT EXCEEDS A FOREIGN BID BY MORE THAN 6 PERCENT IS UNREASONABLE AND MUST BE REJECTED. BIDS EVALUATION - FACTORS OTHER THAN PRICE - SUPERIOR PRODUCT IF A LOW BID MEETS THE MINIMUM REQUIREMENTS PRESCRIBED IN AN INVITATION FOR BIDS, THE FACT THAT THE PRODUCT OFFERED MAY BE INFERIOR TO THAT OFFERED BY OTHER BIDDERS DOES NOT PRECLUDE CONSIDERATION OF THE LOW BID. THE PROCUREMENT AGENCIES OF THE GOVERNMENT ARE ONLY REQUIRED TO PREPARE SPECIFICATIONS DESCRIBING THEIR NEEDS AND NOT THE MAXIMUM QUALITY OBTAINABLE AS THE PUBLIC ADVERTISING STATUTES DO NOT AUTHORIZE AN AGENCY TO PAY A HIGHER PRICE FOR AN ARTICLE WHICH MAY BE SUPERIOR TO ONE THAT ADEQUATELY MEETS ITS NEEDS. BIDS - BUY AMERICAN ACT - PRICE DIFFERENTIAL - REASONABLENESS THE APPLICATION OF THE DIFFERENT PERCENTAGES SPECIFIED BY THE ARMED SERVICES PROCUREMENT REGULATION (50 PERCENT IN PARAGRAPH 6-104.4) AND THE FEDERAL PROCUREMENT REGULATIONS (6 PERCENT IN SECTION 1-6.104-4) CREATING UNREALISTIC RESULTS IN DETERMINING WHETHER THE PRICE OF A DOMESTIC ITEM IS UNREASONABLE, THE ESTABLISHMENT OF A UNIFORM POLICY FOR THE GUIDANCE OF FEDERAL AGENCIES AND CONTRACTORS REGARDING THE USE OF PRICE DIFFERENTIALS UNDER THE BUY AMERICAN ACT HAS BEEN RECOMMENDED.

TO SHAW, PITTMAN, POTTS, TROWBRIDGE AND MADDEN, DECEMBER 12, 1968:

REFERENCE IS MADE TO YOUR LETTERS OF SEPTEMBER 25 AND 27, 1968, PROTESTING ON BEHALF OF THE RIDGE TOOL COMPANY, ELYRIA, OHIO, ANY AWARD OF A CONTRACT FOR PIPE WRENCHES TO R-AND-O TOOL CO., INC., PICO RIVERA, CALIFORNIA, UNDER ITEMS 3 THROUGH 7 OF INVITATION FOR BIDS NO. FPNTN-D1- 70116-A-6-27-68 ISSUED MAY 27, 1968, BY THE GENERAL SERVICES ADMINISTRATION, FEDERAL SUPPLY SERVICE.

THE BID OF R-AND-O TOOL CO., INC., OFFERING WRENCHES MANUFACTURED IN SPAIN, WAS LOW ON THE SUBJECT ITEMS AT A TOTAL PRICE (AGGREGATED ON THE BASIS OF ESTIMATED QUANTITIES STATED IN THE INVITATION) OF $246,527, AND REMAINED LOW AFTER EVALUATION AND APPLICATION OF A 6 PERCENT BUY AMERICAN DIFFERENTIAL IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 1-6.104-4 OF THE FEDERAL PROCUREMENT REGULATIONS (FPR). THE BID OF THE RIDGE TOOL COMPANY WAS SECOND LOW ON THE ITEMS AT $272,785 WHICH WAS APPROXIMATELY 10 PERCENT HIGHER THAN THE BID OF R-AND-O. THE DIFFERENCES BETWEEN THE TOTAL PRICES ARE ROUGHLY PROPORTIONATE TO THE DIFFERENCES ON EACH INDIVIDUAL ITEM INVOLVED.

ESSENTIALLY, YOUR PROTEST IS ON THE GROUNDS THAT (1) PARAGRAPH 6 104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) REQUIRES FOREIGN BIDS TO BE ADJUSTED FOR EVALUATION BY ADDING 50 PERCENT OF THE BID PRICE, AND SINCE 80 TO 90 PERCENT OF THE WRENCHES ARE EXPECTED TO BE USED AND ULTIMATELY PAID FOR BY THE DEPARTMENT OF DEFENSE, THE 50 PERCENT DIFFERENTIAL SPECIFIED IN ASPR SHOULD GOVERN INSTEAD OF THE 6 PERCENT DIFFERENTIAL SET FORTH IN FPR; (2) THE BUY AMERICAN ACT, 41 U.S.C. 10A-D, REQUIRES AWARD BE MADE TO A BIDDER SUPPLYING A DOMESTIC PRODUCT UNLESS THE COST IS UNREASONABLE OR THE AWARD IS INCONSISTENT WITH THE PUBLIC INTEREST, AND EVEN THOUGH RIDGE'S BID EXCEEDED THAT OF THE LOW BIDDER BY APPROXIMATELY 10 PERCENT, ITS PRICE WAS NOT UNREASONABLE NOR WOULD AN AWARD TO RIDGE FOR DOMESTIC GOODS BE INCONSISTENT WITH THE NATIONAL INTEREST IN VIEW OF THE UNITED STATES' BALANCE OF PAYMENTS PROBLEM AND RIDGE'S POLICY TO ACTIVELY RECRUIT EMPLOYEES THROUGH MINORITY GROUP ORGANIZATIONS; AND (3) THE SPANISH WRENCHES OFFERED BY R-AND-O ARE OF INFERIOR QUALITY AND INFRINGE A PATENT HELD BY RIDGE. YOU FURTHER UNDERSTAND THAT THE SPANISH WRENCHES HAVE BEEN TESTED BY GSA, AND YOU REQUEST THAT GSA BE REQUIRED TO PRODUCE THE TEST RESULTS FOR ANALYSIS.

YOU CITE OUR DECISION OF JULY 14, 1967, 47 COMP. GEN. 29, IN SUPPORT OF YOUR CONTENTION THAT THE PROVISIONS OF ASPR SHOULD GOVERN THE PROCUREMENT, FROM WHICH DECISION YOU QUOTE THE STATEMENT: WHILE GSA WILL EXECUTE THE CONTRACT BASED ON THE AIR FORCE SOURCE SELECTION, SELECTION OF THE SOURCE, UNDER CIRCUMSTANCES SUCH AS HERE INVOLVED, IS IN OUR OPINION A PART OF THE PROCUREMENT PROCESS AND SUBJECT TO THE REQUIREMENTS OF 10 U.S.C. 2304 (G) AND THE APPLICABLE PROVISIONS OF ASPR.

IT SHOULD BE NOTED THAT SUCH STATEMENT EXPRESSES THE OPINION THAT SINCE THE AIR FORCE WOULD MAKE THE SOURCE SELECTION OF THE EQUIPMENT, THE SELECTION OF THE SOURCE PROCESS WAS SUBJECT TO THE APPLICABLE PROVISIONS OF ASPR. THE PROCUREMENT INVOLVED IN THAT DECISION WAS OF AUTOMATIC DATA PROCESSING EQUIPMENT AND WAS SUBJECT TO THE SPECIFIC PROVISIONS OF THE ACT OF OCTOBER 30, 1965, PUBLIC LAW 89-306, 40 U.S.C. 759, WHICH GAVE THE ADMINISTRATOR OF GENERAL SERVICES SPECIAL AUTHORITY WITH RESPECT TO THAT TYPE OF EQUIPMENT, BUT ALSO RESTRICTED HIS AUTHORITY TO IMPAIR THE DETERMINATION BY OTHER AGENCIES OF THEIR REQUIREMENTS OR SELECTION OF EQUIPMENT TO MEET THEM. WE DO NOT VIEW THE ABOVE QUOTED LANGUAGE AS HOLDING THAT PROVISIONS OF ASPR NOT DIRECTLY PERTAINING TO THE DISCHARGE OF THE AIR FORCE'S RESPONSIBILITIES IN THAT PARTICULAR PROCUREMENT WERE FOR APPLICATION, NOR AS IMPLYING THAT PROCUREMENTS BY GSA UNDER ITS GENERAL AUTHORITY ARE SUBJECT TO THE ASPR MERELY BECAUSE THE DEFENSE AGENCIES MAY OBTAIN SUPPLIES UNDER THEM. THE DEPARTMENT OF DEFENSE HAS NO RESPONSIBILITIES IN THE CONDUCT OF THE PROCUREMENT PROCESS HERE INVOLVED. THE CONTRACT TO BE ENTERED INTO, WHICH STIPULATES THAT IT PROVIDES FOR THE NORMAL SUPPLY REQUIREMENTS OF THE GSA SUPPLY DEPOTS, WILL BE A GSA CONTRACT AND THE NECESSARY DETERMINATIONS FOR ITS FORMATION WILL BE MADE BY GSA PERSONNEL. PROCUREMENTS BY GSA ARE GOVERNED BY FPR, AND WE FIND NO MATERIAL SIGNIFICANCE IN THE FACT THAT AGENCIES OF THE DEPARTMENT OF DEFENSE, IN ACCORDANCE WITH THE PROVISIONS OF THE ASPR (SEE SECTION 5, PARTS 1, 2 AND 12), MAY BE PREDOMINANT USERS OF THE WRENCHES. SEE IN SUCH CONNECTION ASPR 6 102.3 WHICH PROVIDES GENERALLY THAT COMPLIANCE WITH THE BUY AMERICAN ACT AND APPLICATION OF ITS EXCEPTIONS ARE THE RESPONSIBILITY OF THE AGENCY WHICH FIRST ACQUIRES THE ITEM. UNDER SUCH CIRCUMSTANCES WE PERCEIVE NO AUTHORITY AT LAW, NOR DO WE CONSIDER THAT YOU HAVE CITED ANY, ON WHICH GSA MAY BE REQUIRED TO MAKE THE AWARD ON THE BASIS OF THE PROVISIONS OF ASPR INSTEAD OF THOSE APPLICABLE PROVISIONS CONTAINED IN FPR.

AS RELATED TO YOUR PROTEST, THE BUY AMERICAN ACT REQUIRES THAT PURCHASES OF ITEMS FOR PUBLIC USE BE OF DOMESTIC PRODUCTION OR MANUFACTURE UNLESS THE HEAD OF THE DEPARTMENT OR AGENCY CONCERNED DETERMINES IT TO BE INCONSISTENT WITH THE PUBLIC INTEREST OR THE COST TO BE UNREASONABLE. EXECUTIVE ORDER NO. 10582 ISSUED DECEMBER 17, 1954, PROVIDES FOR THE ADDITION OF A 6 PERCENT DIFFERENTIAL (WHICH IS SPECIFIED IN FPR) TO THE COST OF FOREIGN MATERIALS IN DETERMINING WHETHER THE PRICE OF DOMESTIC PRODUCTS IS UNREASONABLE OR THE PURCHASE OF SUCH PRODUCTS IS INCONSISTENT WITH THE PUBLIC INTEREST. SECTION 5 OF THAT ORDER STATES: * * * 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. * * *

SINCE THE BUY AMERICAN ACT PROVIDES FOR THE PURCHASE OF FOREIGN PRODUCTS WHERE THE COST OF DOMESTIC PRODUCTS IS UNREASONABLE, AND EXECUTIVE ORDER NO. 10582 FIXES A 6 PERCENT DIFFERENTIAL AS A CRITERION FOR DETERMINING UNREASONABLE COST, THE PURCHASE OF DOMESTIC PRODUCTS AT A PRICE WHICH EXCEEDS THE COST OF FOREIGN PRODUCTS BY MORE THAN 6 PERCENT MAY NOT BE MADE UNLESS THE AGENCY HEAD DETERMINES UNDER SECTION 5 OF THE ORDER THAT A GREATER DIFFERENTIAL IS NOT UNREASONABLE OR THAT THE PURCHASE OF DOMESTIC SUPPLIES IS NOT INCONSISTENT WITH THE PUBLIC INTEREST. THE AUTHORITY VESTED IN THE AGENCY HEAD BY SECTION 5 IS DISCRETIONARY, AND ALTHOUGH THE SECRETARY OF DEFENSE HAS DETERMINED THAT THE ADDITION OF A 50 PERCENT DIFFERENTIAL IS NOT UNREASONABLE (ASPR 6-104.4), NO DETERMINATION THAT A DIFFERENTIAL GREATER THAN THE 6 PERCENT SPECIFIED IN EXECUTIVE ORDER NO. 10582 IS NOT UNREASONABLE HAS BEEN MADE BY THE ADMINISTRATOR OF GSA EITHER GENERALLY OR IN CONNECTION WITH THE SUBJECT PROCUREMENT. ACCORDINGLY, UNDER THE CRITERIA ESTABLISHED BY EXECUTIVE ORDER NO. 10582 AND FPR 1- 6.104-4 IN THE IMPLEMENTATION OF THE BUY AMERICAN ACT, THE PRICE BID FOR YOUR WRENCHES, WHICH EXCEEDS R-AND-O'S PRICE ON SPANISH WRENCHES BY MORE THAN 6 PERCENT, MUST BE REGARDED AS UNREASONABLE AND THEREFORE YOUR BID MAY NOT BE ACCEPTED. COMPARE 42 COMP. GEN. 608.

WHILE THE APPLICATION OF THE DIFFERENT PERCENTAGES SPECIFIED BY ASPR AND FPR CREATES UNREALISTIC RESULTS IN DETERMINATIONS OF WHETHER THE PRICE OF A DOMESTIC ITEM IS UNREASONABLE, SUCH A CIRCUMSTANCE PROVIDES NO BASIS AT LAW FOR INTERVENTION BY THIS OFFICE IN PROCUREMENTS MADE BY THE MILITARY AND CIVILIAN AGENCIES IN ACCORDANCE WITH THEIR RESPECTIVE REGULATIONS. THIS SITUATION, HOWEVER, HAS BEEN A MATTER OF CONCERN TO THE CONGRESS FOR SEVERAL YEARS, AND IN AN APRIL 1968 REPORT ISSUED BY THE SUBCOMMITTEE ON ECONOMY IN GOVERNMENT OF THE JOINT ECONOMIC COMMITTEE, THE RECOMMENDATION WAS MADE THAT "THE BUREAU OF THE BUDGET SHOULD ISSUE A UNIFORM POLICY FOR THE GUIDANCE OF FEDERAL AGENCIES AND CONTRACTORS REGARDING THE USE OF PRICE DIFFERENTIALS UNDER THE BUY AMERICAN ACT.' IN MAKING SUCH RECOMMENDATION THE SUBCOMMITTEE EXPRESSED THE VIEW THAT THE ECONOMIC IMPLICATIONS OF THOSE SEPARATE AND INCONSISTENT POLICIES WERE ANTAGONISTIC, AND STATED:THE 6-PERCENT DIFFERENTIAL PERMITS GREATER PURCHASES OF FOREIGN GOODS AND THUS OPERATES AGAINST A FAVORABLE BALANCE OF PAYMENTS. THE 50-PERCENT DIFFERENTIAL PROTECTS DOMESTIC MANUFACTURERS BUT INCREASES COSTS OF PROCUREMENTS AND THEREFORE MILITATES AGAINST A BALANCED BUDGET. FROM THE EVIDENCE IT APPEARS THAT THE DOD'S 50-PERCENT DIFFERENTIAL RAISES A PROTECTIVE WALL SO HIGH THAT AMERICAN BIDDERS MAY BE ENCOURAGED TO TAKE ADVANTAGE OF IT. IT MAY ALSO BE SELF-DEFEATING IN THE LONG RUN BY PRICING THE PROTECTED ITEMS OUT OF FOREIGN MARKETS AND THUS INJURING OUR BALANCE OF PAYMENTS. FURTHER, THE DOD'S PRACTICE IS PLACING A SIGNIFICANT BURDEN ON THE ALREADY EXTREMELY HIGH LEVEL OF DEFENSE PROCUREMENT.

REGARDING YOUR CONTENTIONS THAT THE SPANISH WRENCHES ARE INFERIOR AND INFRINGE YOUR CLIENT'S PATENT, THE PUBLIC ADVERTISING STATUTES HAVE CONSISTENTLY BEEN HELD TO REQUIRE THE PROCURING AGENCIES OF THE GOVERNMENT TO PREPARE SPECIFICATIONS DESCRIBING THEIR NEEDS IN TERMS OF ACTUAL OR REASONABLE NEEDS RATHER THAN OF THE MAXIMUM QUALITY OBTAINABLE, AND IT IS WELL SETTLED THAT SUCH STATUTES DO NOT AUTHORIZE AN AGENCY TO PAY A HIGHER PRICE FOR AN ARTICLE WHICH MAY BE SUPERIOR THAN FOR ONE WHICH IS ADEQUATE FOR ITS NEEDS. GSA HAS REPORTED THAT SAMPLE WRENCHES FURNISHED BY EACH BIDDER WERE INSPECTED ONLY FOR THE PURPOSE OF DETERMINING WHETHER THE WORKMANSHIP COMPLIED WITH THE SPECIFICATION REQUIREMENTS, AND UPON INSPECTION IT WAS DETERMINED THAT THE SPANISH WRENCHES MET THOSE REQUIREMENTS. EVEN IF THE SPANISH WRENCHES ARE, IN FACT,"INFERIOR" TO THE WRENCHES OFFERED BY YOUR CLIENT AND OTHER DOMESTIC MANUFACTURERS SUCH FACTOR WOULD PROVIDE NO BASIS FOR CONCLUDING THAT THE FOREIGN WRENCHES DO NOT MEET THE GOVERNMENT'S MINIMUM REQUIREMENTS AS SET FORTH IN THE INVITATION FOR BIDS. LIKEWISE, IF THE SPANISH WRENCHES INFRINGE RIDGE'S PATENT, AS YOU CONTEND, IT DOES NOT AFFECT R-AND-O'S ENTITLEMENT TO THE AWARD SINCE IT IS WELL ESTABLISHED THAT AWARD IS REQUIRED TO BE MADE TO THE LOWEST BIDDER WITHOUT REGARD TO POSSIBLE PATENT INFRINGEMENT. COMP. GEN. 276.

IN THE EVENT YOU WISH TO MAKE A REQUEST FOR THE RESULTS OF GSA'S INSPECTION OF THE SPANISH WRENCHES, IT SHOULD BE ADDRESSED TO THAT ADMINISTRATION INASMUCH AS IT IS THE POLICY OF THIS OFFICE TO TRANSFER REQUESTS FOR ADMINISTRATIVE RECORDS TO THE FEDERAL AGENCY HAVING THE PRIMARY INTEREST IN THE RECORD, 4 CFR 81.4 (E).

IN VIEW OF THE FOREGOING, YOUR PROTEST AGAINST THE PROPOSED AWARD TO R- AND-O TOOL COMPANY, NC., IS DENIED.