B-168708, MARCH 10, 1970, 49 COMP. GEN. 562

B-168708: Mar 10, 1970

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PROPOSALS THAT WERE SOLICITED ON BOTH A NONBARTER BASIS AND A BARTER BASIS UNDER PUBLIC LAW 80-806. THE ADDITION OF THE 50 PERCENT BALANCE OF PAYMENTS PROGRAM FACTOR TO THE COST OF THE FOREIGN SOURCE ITEMS OFFERED IN THE PROPOSALS RECEIVED ON BOTH A BARTER AND NONBARTER BASIS WAS PROPER AND WAS NOT PRECLUDED BY THE BARTER PROCEDURES PRESCRIBED IN SECTION 4. IT WAS REASONABLE TO USE A 50 PERCENT BALANCE OF PAYMENTS FACTOR IN EVALUATING THE LOWEST PRICED BARTER PROPOSAL. OFFSET CREDITS UNDER BARTER AGREEMENTS FOREIGN SOURCE ITEMS PURCHASED IN THE UNITED KINGDOM FOR USE OVERSEAS THAT ARE OFFERED IN A PROPOSAL SUBMITTED ON A BARTER BASIS PURSUANT TO PUBLIC LAW 80-806. PROPERLY WERE SUBJECT TO A 50 PERCENT BALANCE OF PAYMENTS PROGRAM EVALUATION FACTOR UPON DETERMINATION THE OFFSET CREDITS PROVIDED UNDER BARTER AGREEMENTS BETWEEN THE UNITED STATES AND THE UNITED KINGDOM WERE NOT AVAILABLE FOR APPLICATION.

B-168708, MARCH 10, 1970, 49 COMP. GEN. 562

BIDS -- BUY AMERICAN ACT -- EVALUATION -- BALANCE OF PAYMENTS PROGRAM RESTRICTIONS -- SURPLUS AGRICULTURAL PRODUCTS EFFECT IN THE EVALUATION OF THE PROPOSALS SUBMITTED TO CONSTRUCT A SUBMARINE CABLE SUBSYSTEM LINKING OKINAWA TO TAIWAN, PROPOSALS THAT WERE SOLICITED ON BOTH A NONBARTER BASIS AND A BARTER BASIS UNDER PUBLIC LAW 80-806, WHICH AUTHORIZES DISPOSAL BY BARTER AND EXCHANGE OF SURPLUS AGRICULTURAL COMMODITIES FOR USE OUTSIDE THE UNITED STATES, THE ADDITION OF THE 50 PERCENT BALANCE OF PAYMENTS PROGRAM FACTOR TO THE COST OF THE FOREIGN SOURCE ITEMS OFFERED IN THE PROPOSALS RECEIVED ON BOTH A BARTER AND NONBARTER BASIS WAS PROPER AND WAS NOT PRECLUDED BY THE BARTER PROCEDURES PRESCRIBED IN SECTION 4, PART 5, OF THE ARMED SERVICES PROCUREMENT REGULATION. THEREFORE, IT WAS REASONABLE TO USE A 50 PERCENT BALANCE OF PAYMENTS FACTOR IN EVALUATING THE LOWEST PRICED BARTER PROPOSAL, EVEN THOUGH WHEN ADDED TO THE COST OF THE FOREIGN ITEMS THE PRICE BECAME THE HIGHEST OFFERED. FUNDS -- BALANCE OF PAYMENTS PROGRAM -- OFFSET CREDITS UNDER BARTER AGREEMENTS FOREIGN SOURCE ITEMS PURCHASED IN THE UNITED KINGDOM FOR USE OVERSEAS THAT ARE OFFERED IN A PROPOSAL SUBMITTED ON A BARTER BASIS PURSUANT TO PUBLIC LAW 80-806, WHICH AUTHORIZES THE DISPOSAL OF SURPLUS AGRICULTURAL COMMODITIES OVERSEAS, PROPERLY WERE SUBJECT TO A 50 PERCENT BALANCE OF PAYMENTS PROGRAM EVALUATION FACTOR UPON DETERMINATION THE OFFSET CREDITS PROVIDED UNDER BARTER AGREEMENTS BETWEEN THE UNITED STATES AND THE UNITED KINGDOM WERE NOT AVAILABLE FOR APPLICATION, THAT INSUFFICIENT DOLLAR SAVINGS DID NOT WARRANT PAYMENT OF THE BALANCE OF PAYMENTS PENALTY, AND THAT THE BALANCE OF PAYMENTS IMPACT WOULD BE ADVERSE. THE APPLICATION OF OFFSET CREDITS IS NOT MANDATORY, NOR IS THE APPLICATION OF THE BALANCE OF PAYMENTS PROCEDURE AUTOMATICALLY WAIVED WHEN OFFSETS ARE AVAILABLE. BIDS -- COMPETITIVE SYSTEM -- EQUAL BIDDING BASIS FOR ALL BIDDERS -- ORAL STATEMENTS THE ELEMENTARY PRINCIPLE OF COMPETITIVE PROCUREMENT THAT AWARDS ARE TO BE DETERMINED ACCORDING TO THE RULES SET OUT IN THE SOLICITATION RATHER THAN ON THE BASIS OF THE ORAL STATEMENTS OF PROCUREMENT OFFICIALS TO INDIVIDUALS IS FOR APPLICATION WHEN A PROPONENT OFFERING FOREIGN COMPONENTS UNDER PUBLIC LAW 80-806, WHICH AUTHORIZES THE DISPOSAL BY BARTER OF AGRICULTURAL COMMODITIES FOR USE OUTSIDE THE UNITED STATES, IS ORALLY INFORMED THAT BARTER OFFSET CREDITS WOULD BE AVAILABLE TO PRECLUDE APPLICATION OF THE 50 PERCENT BALANCE OF PAYMENTS FACTOR IN THE EVALUATION OF THE FOREIGN SUPPLIES OFFERED IN ITS BARTER PROPOSAL. IF THE INFORMATION WAS CONSIDERED ESSENTIAL BY THE CONTRACTING AGENCY, OR THE LACK OF SUCH INFORMATION WOULD BE PREJUDICIAL, IT SHOULD HAVE BEEN FURNISHED TO ALL PROSPECTIVE OFFERORS.

TO SELLERS, CONNER & CUNEO, MARCH 10, 1970:

WE REFER TO A TELEGRAM OF DECEMBER 29, 1969, AND SUPPLEMENTAL COMMUNICATIONS, FROM YOUR CLIENT, FEDERAL ELECTRIC CORPORATION, PROTESTING ANY AWARD OF A CONTRACT TO UNITED STATES UNDERSEAS CABLE CORPORATION FOR A SUBMARINE CABLE SUBSYSTEM LINKING OKINAWA TO TAIWAN, UNDER RFP F34601-69-R -0244A, ISSUED BY THE DEPARTMENT OF THE AIR FORCE, OKLAHOMA CITY AIR MATERIEL AREA, TINKER AIR FORCE BASE, OKLAHOMA.

THE PROCUREMENT WAS ORIGINALLY SET OUT IN RFP F34601-69-R-0244, WHICH WAS ISSUED DURING SEPTEMBER 1968 AND FOR WHICH SUBMISSION OF PROPOSALS WAS EXTENDED INDEFINITELY. THE SUBJECT RFP APPEARS TO HAVE BEEN ISSUED IN APRIL 1969, WITH CLOSING DATES FOR SUBMISSION FOR TECHNICAL AND PRICING PROPOSALS OF JUNE 13 AND JUNE 20, 1969, RESPECTIVELY. FIFTEEN DOMESTIC SOURCES WERE SOLICITED FOR PROPOSALS ON BOTH A BARTER AND A NONBARTER BASIS, AND TWO SOURCES, FEDERAL ELECTRIC CORPORATION (FEC) AND UNITED STATES UNDERSEAS CABLE CORPORATION (UCC), SUBMITTED PROPOSALS. THE PROPOSALS OF BOTH FIRMS, AFTER SUBSEQUENT REVISIONS, WERE DETERMINED TO BE TECHNICALLY ACCEPTABLE BY THE PROCURING ACTIVITY DURING SEPTEMBER 1969, AND A PRICE EVALUATION WAS MADE IN ACCORDANCE WITH THE PERTINENT PROVISIONS OF THE RFP. WHILE THE ACTUAL PRICE OF FEC'S PROPOSAL IS LOWER THAN THE ACTUAL PRICE OF THE UCC PROPOSAL, THE FEC PROPOSAL SHOWS A MUCH LARGER DOLLAR AMOUNT OF FOREIGN PURCHASES (MAINLY FROM THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND (UK)). CONSEQUENTLY, WHEN THE 50 PERCENT BALANCE OF PAYMENTS PROGRAM EVALUATION FACTOR IS ADDED TO THE COST OF THE FOREIGN PURCHASES SET OUT IN THE TWO PROPOSALS AS PROVIDED BY THE RFP, THE EVALUATED PRICE OF THE FEC PROPOSAL BECOMES CONSIDERABLY HIGHER THAN THE EVALUATED PRICE OF THE UCC PROPOSAL.

THE AIR FORCE PROPOSES TO MAKE AWARD TO UCC ON THE BASIS OF ITS LOWER EVALUATED PRICE. HOWEVER, YOU PROTEST ANY USE OF THE 50 PERCENT BALANCE OF PAYMENTS FACTOR IN THE EVALUATION OF FEC'S PRICE ON TWO GROUNDS. FIRST, THAT FEC'S PRICE MUST BE EVALUATED IN CONJUNCTION WITH ITS BARTER OFFER WITHOUT ADDING A BALANCE OF PAYMENTS PENALTY. SECOND, THAT IF EVALUATION IS TO BE MADE ON A NONBARTER BASIS, THE SECRETARY OF DEFENSE MUST APPLY CERTAIN OFFSET CREDITS TO FEC'S PROPOSED PURCHASES IN THE UK PURSUANT TO AN EXISTING BALANCE OF PAYMENTS OFFSET AGREEMENT BETWEEN THE UNITED STATES AND THE UK. YOU CONTEND THAT FEC IS THE LOW OFFEROR WHEN EITHER THE PRINCIPLES OF BARTER OR THE OFFSET AGREEMENT ARE PROPERLY CONSIDERED.

PART XX, BALANCE OF PAYMENTS, OF THE RFP INCLUDES THE FOLLOWING CLAUSE: EVALUATION OF BIDS

IN IMPLEMENTATION OF THE BALANCE OF PAYMENTS PROGRAM, AND FOR BID EVALUATION PURPOSES ONLY, FIFTY PERCENT (50%) OF THE AMOUNT CERTIFIED HEREIN BY THE BIDDER AS THE COST OF COMPONENTS OF FOREIGN ORIGIN AND OF WORK OR SERVICES OF FOREIGN ORIGIN WILL BE ADDED TO THE TOTAL BID.

PART XXII OF THE RFP CALLS ATTENTION TO THE COMMODITY CREDIT CORPORATION CHARTER ACT OF 1948, PUBLIC LAW 80-806, 62 STAT. 1070, 15 U.S.C. 714 NOTE, AND OTHER STATUTORY PROVISIONS WHICH AUTHORIZE DISPOSAL BY BARTER OR EXCHANGE OF SURPLUS AGRICULTURAL COMMODITIES FOR USE OUTSIDE THE UNITED STATES. WHILE PARAGRAPH D.4 OF PART XXII STATES THAT THE LOWEST PROPOSAL ON A BARTER BASIS ACCEPTABLE TO THE COMMODITY CREDIT CORPORATION WILL BE CONSIDERED AND EVALUATED IN CONNECTION WITH EVALUATION OF THE NONBARTER PROPOSALS, AND THAT PREFERENCE WILL BE GIVEN TO THE BARTER PROPOSAL WHERE IT IS DETERMINED TO BE IN THE BEST INTEREST OF THE GOVERNMENT, NEITHER THAT PARAGRAPH NOR PARAGRAPH (8) OF THE BARTER CLAUSE SET OUT IN PARAGRAPH 4-503.5 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), AND REFERRED TO IN YOUR PROTEST, PROVIDES THAT FOREIGN SUPPLIES ARE TO BE EVALUATED ON AN EQUAL COMPETITIVE BASIS WITH DOMESTIC SUPPLIES WHEN BARTER IS OFFERED. TO THE CONTRARY, PARAGRAPH E, PART XXII, ENTITLED "BARTER BIDDING" STATES:

*** COMPONENTS AND SERVICE OF FOREIGN ORIGIN WILL BE EVALUATED AS FOREIGN AS PROVIDED IN PART I, NOTE A, OF THE SCHEDULE, AND THE FOREIGN COST INCLUDED IN THE COLUMN ENTITLED FOREIGN COST, WHETHER OR NOT ACQUIRED BY BARTER. AND NOTE A.2, PART I, OF THE SCHEDULE ADVISES OFFERORS THAT, EXCEPT AS MODIFIED BY NOTE A.3 (CONCERNING POTENTIAL UK AND FEDERAL REPUBLIC OF GERMANY COMPETITION), THE 50 PERCENT EVALUATION FACTOR SET FORTH IN PART XX WILL APPLY TO THE FOREIGN COSTS SET FORTH IN THE SPECIFIED ITEMS FOR BOTH BARTER AND NONBARTER PROPOSALS.

YOU CONTEND THAT IT IS ERRONEOUS TO INCLUDE PROVISIONS IN THE RFP WHICH PROVIDE FOR APPLICATION OF THE 50 PERCENT EVALUATION FACTOR TO FOREIGN COSTS ON BOTH THE BARTER AND NONBARTER PROPOSALS, SINCE THERE IS NO ADVERSE BALANCE OF PAYMENTS EXPENDITURE IN A BARTER TRANSACTION; THAT SUCH EVALUATION IS CONTRARY TO THE BARTER PROVISIONS OF ASPR AS SET OUT IN SECTION 4, PART 5; AND THAT SUCH EVALUATION RUNS COUNTER TO OUR REPORT TO THE CONGRESS OF THE UNITED STATES OF JANUARY 6, 1966, B 152980. WHILE YOU POINT OUT THAT 7 U.S.C. 1692 DIRECTS THE SECRETARY OF AGRICULTURE TO BARTER OR EXCHANGE, TO THE MAXIMUM EXTENT PRACTICABLE, AGRICULTURAL COMMODITIES OWNED BY THE COMMODITY CREDIT CORPORATION FOR MATERIALS REQUIRED IN SUBSTANTIAL QUANTITIES FOR OFFSHORE CONSTRUCTION PROGRAMS, AND DIRECTS THE PROCURING AGENCIES TO CO-OPERATE WITH THE SECRETARY IN THE DISPOSAL OF SURPLUS AGRICULTURAL COMMODITIES BY MEANS OF BARTER OR EXCHANGE, WE NOTE THAT PARAGRAPH 4 501 OF PART 5 OF ASPR SPECIFICALLY STATES THAT THE BARTER PROCEDURES SET OUT IN THAT PART WERE DEVELOPED IN CONJUNCTION WITH THE COMMODITY CREDIT CORPORATION.

CONTRARY TO YOUR CONTENTIONS, WE DO NOT FIND THAT SECTION 4, PART 5 OF ASPR PRECLUDES APPLICATION OF THE 50 PERCENT BALANCE OF PAYMENTS FACTOR TO FOREIGN SUPPLIES IN PROPOSALS SUBMITTED ON A BARTER BASIS. THE AIR FORCE STATES IN ITS REPORT OF JANUARY 30, 1970, THAT THE ABOVE ASPR PROVISIONS DO NOT PERTAIN TO THE METHOD FOR EVALUATION OF FOREIGN AND DOMESTIC ELEMENTS OF PROPOSALS, AND THAT THE BARTER PROVISIONS APPLY ONLY AFTER PROPOSALS HAVE BEEN EVALUATED AS PRESCRIBED BY THE SOLICITATION. CANNOT CONCLUDE THAT THE AIR FORCE VIEW AS TO THE APPLICATION OF THE ABOVE ASPR BARTER PROVISIONS IS UNREASONABLE, OR THAT SUCH PROCEDURES CLEARLY REFLECT AN AGREEMENT WITH THE COMMODITY CREDIT CORPORATION THAT THE DEPARTMENT OF DEFENSE WILL EVALUATE FOREIGN PRODUCTS IN BARTER PROPOSALS ON AN EQUAL COMPETITIVE BASIS WITH DOMESTIC PRODUCTS IN NONBARTER PROPOSALS. CONVERSELY, SUCH AN AGREEMENT WOULD APPEAR TO ENTAIL A REVERSAL (WHICH IS NOT INDICATED BY THE RECORD, SEE PARAGRAPH 5F OF SUPPLEMENTAL AIR FORCE REPORT DATED FEBRUARY 20, 1970) OF THE LONGSTANDING DEPARTMENT OF DEFENSE POLICY TO EVALUATE BARTER OFFERS ONLY AFTER APPLICATION OF THE DEPARTMENT OF DEFENSE BALANCE OF PAYMENTS DIRECTIVES.

THAT POLICY WAS CONSIDERED IN OUR DECISION OF NOVEMBER 23, 1964, B 152980, ON A PROTEST BY YOUR CLIENT CONCERNING A SOMEWHAT SIMILAR PROCUREMENT OF AN UNDERSEAS CABLE COMMUNICATIONS SYSTEM BY THE AIR FORCE. AT THAT TIME, WE MADE AN EXTENSIVE REVIEW OF THE DEPARTMENT OF DEFENSE POLICY, WHICH DID NOT PERMIT CONSIDERATION OF A BIDDER'S BARTER OFFER ON FOREIGN SOURCE ITEMS AFTER THE BIDDER'S DOLLAR BID HAD BEEN REJECTED PURSUANT TO BALANCE OF PAYMENT DIRECTIVES. OUR REVIEW CULMINATED IN OUR REPORT TO THE CONGRESS OF JANUARY 6, 1966, IN WHICH WE STATED (PAGE 16) THE BASIS FOR THE DEPARTMENT OF DEFENSE RULE AS FOLLOWS:

PERHAPS THE PRINCIPAL REASON FOR THE ESTABLISHED RULE IS THAT A BARTER BID OFFERING FOREIGN ITEMS IS LIKELY TO BE DISADVANTAGEOUS TO THE NATION'S BALANCE OF PAYMENTS IN THAT THERE IS NO ASSURANCE THAT THE BARTER TRANSACTION, WHICH EVENTUALLY RESULTS IN A SALE OF AMERICAN AGRICULTURAL COMMODITIES, WILL NOT DISPLACE A NORMAL EXPORT SALE. UNLESS THE BARTER TRANSACTION RESULTS IN AN ADDITION TO THE TOTAL FOREIGN CONSUMPTION OF AMERICAN AGRICULTURAL COMMODITIES (I.E., ADDITIONALITY) SUCH A DISPLACEMENT OF EXPORTS WILL OCCUR. WE ALSO NOTED ON PAGE 17 OF THE REPORT THE FOLLOWING DEPARTMENT OF AGRICULTURE POSITION IN THE MATTER:

THE DEPARTMENT OF AGRICULTURE WILL NOT NEGOTIATE A BARTER CONTRACT FOR THE DEPARTMENT OF DEFENSE UNLESS THE MILITARY HAS FIRST DETERMINED THAT PROCUREMENT CAN BE MADE FROM FOREIGN SOURCES UNDER ITS BALANCE-OF PAYMENTS REGULATIONS. IT IS CONSIDERED PROPER FOR THE DEPARTMENT OF DEFENSE TO MAKE THE INITIAL JUDGMENT IN THIS RESPECT. WE FURTHER OBSERVED (PAGE 23) THAT BARTER PROGRAMS HAVE BEEN EXTENSIVELY STUDIED BY RESPONSIBLE UNITED STATES AGENCIES TO ENSURE THE FORMULATION OF PROGRAMS WHICH WOULD SERVE THE OVERALL INTERESTS OF THE UNITED STATES, AND THAT AS A RESULT THE BARTER PROGRAMS HAD BEEN REDIRECTED TOWARD THE PROCUREMENT OF GOODS AND SERVICES WHICH WOULD OTHERWISE HAVE BEEN PURCHASED ABROAD BY THE DEPARTMENT OF DEFENSE AND OTHER UNITED STATES AGENCIES.

DURING THE COURSE OF OUR REVIEW, A SPECIAL INTERAGENCY STUDY GROUP WAS FORMED AND ITS FINDINGS WERE APPROVED BY THE CABINET COMMITTEE ON BALANCE OF PAYMENTS. THE COMMITTEE ADVISED US THAT THE OVERALL VOLUME OF PROCUREMENT THROUGH BARTER OF SURPLUS COMMODITIES WAS AT AN APPROPRIATE LEVEL AND THAT ANY INCREASE IN THE VOLUME OF BARTER PROCUREMENT PROBABLY WOULD RESULT IN THE DISPOSAL OF AGRICULTURAL SURPLUSES AT THE EXPENSE OF NORMAL COMMERCIAL SALES. THE COMMITTEE ALSO STATED THAT THERE IS NO PRACTICAL WAY TO DETERMINE SPECIFICALLY, ON A PERCENTAGE BASIS, THE EXTENT TO WHICH A PARTICULAR BARTER TRANSACTION MIGHT DISPLACE COMMERCIAL SALES. AFTER TAKING INTO ACCOUNT THE ABOVE AND OTHER FACTORS, THE COMMITTEE INFORMED US THAT IT DID NOT PLAN TO RECOMMEND CHANGES IN THE PROCUREMENT POLICIES OF THE EXECUTIVE BRANCH WHICH PERMITTED THE PROCURING AGENCY TO IGNORE BARTER OFFERS UNTIL AND UNLESS IT WAS DETERMINED THAT PROCUREMENT OF FOREIGN SOURCE ITEMS WAS PERMISSIBLE UNDER APPLICABLE BALANCE OF PAYMENT DIRECTIVES.

WHILE OUR REPORT INDICATED THAT WE RETAINED THE OPINION THAT AGENCIES SHOULD FULLY CONSIDER THE MERITS OF EACH BARTER OFFER, WE DID NOT RECOMMEND ANY CHANGES TO THE EXECUTIVE BRANCH IN ITS PROCEDURES FOR EVALUATION OF PROPOSALS OFFERING BARTER, AND OUR REPORT WAS ISSUED ON THE BASIS THAT THE CONGRESS MIGHT WISH TO INQUIRE INTO THE MATTER. WE HAVE NOT BEEN APPRISED OF ANY CHANGE IN THE POSITION OF THE EXECUTIVE BRANCH REGARDING THE APPLICABILITY OF BALANCE OF PAYMENT DIRECTIVES TO BARTER OFFERS, OR OF ANY STATUTORY OR REGULATORY PROVISIONS CLEARLY EXEMPTING BARTER OFFERS FROM SUCH DIRECTIVES. FURTHER, WE DO NOT BELIEVE YOUR PROTEST HAS PRESENTED ANY NEW MATERIAL WHICH REQUIRES A MODIFICATION OF OUR POSITION, AS INDICATED IN OUR 1966 REPORT, THAT THE POLICY CONSIDERATIONS INVOLVED ARE FOR SUCH ATTENTION AS THE CONGRESS MAY DEEM APPROPRIATE, RATHER THAN BEING SUBJECT TO AFFIRMATIVE RESOLUTION BY THIS OFFICE. ACCORDINGLY, WE WILL INTERPOSE NO OBJECTION TO THE AIR FORCE USING THE DEPARTMENT OF DEFENSE 50 PERCENT BALANCE OF PAYMENTS FACTOR IN EVALUATING YOUR BARTER OFFER.

REGARDING YOUR CONTENTION THAT THE SECRETARY OF DEFENSE MUST APPLY OFFSET CREDITS, PURSUANT TO EXISTING AGREEMENTS BETWEEN THE UNITED STATES AND THE UK, IN EVALUATING FEC'S PROPOSED PURCHASES OF COMPONENTS IN THE UK, THE PERTINENT PROVISIONS OF THE RFP ARE SET FORTH IN PART I, NOTE A.3, AS FOLLOWS:

NOTICE OF POTENTIAL U.K. AND FRG SOURCE COMPETITION. PROPOSALS FOR THIS PROCUREMENT ARE BEING SOLICITED FROM SOURCES WHICH MAY OFFER END ITEMS OR COMPONENTS (INCLUDING THE USE OF CABLE LAYING VESSELS OR BOATS) PRODUCED IN THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE FEDERAL REPUBLIC OF GERMANY. IF A PROPOSAL OFFERING SUCH END ITEMS OR COMPONENTS WOULD BE ACCEPTABLE FROM THE STANDPOINT OF PRICE AND OTHER FACTORS BUT FOR THE BALANCE-OF-PAYMENTS PROVISIONS OF THIS PROCUREMENT, THEN THE MATTER WILL BE FORWARDED TO THE SECRETARY OF DEFENSE FOR A DETERMINATION AS TO WHETHER IT WOULD BE IN THE PUBLIC INTEREST TO EXCEPT THE END PRODUCT FROM THE RESTRICTIONS OF THE BALANCE OF-PAYMENTS PROGRAM. IF THE SECRETARY OF DEFENSE DECIDES TO EXCEPT THE END PRODUCT FROM THE PROVISIONS OF THE BALANCE-OF-PAYMENTS PROGRAM, U.K. AND FRG PRODUCTS WILL NOT BE TREATED AS BEING OF FOREIGN ORIGIN FOR THE PURPOSE OF THE BALANCE- OF-PAYMENT PROVISIONS OF THIS PROCUREMENT. PROVIDED: SINCE, AS THE ABOVE NOTICE INDICATES, THE FINAL DECISION AS TO WHETHER COMPONENTS OR END ITEMS FROM THE INDICATED SOURCES WILL BE EXCEPTED FROM BALANCE-OF-PAYMENTS RESTRICTIONS RESTS WITH THE SECRETARY OF DEFENSE, PROPOSALS SUBMITTED FOR THIS PROCUREMENT WILL BE EVALUATED BOTH AS REQUIRED BY THE BALANCE-OF- PAYMENTS PROVISIONS PRESENTLY INCLUDED IN THE REQUEST FOR PROPOSALS AND AS THEY MIGHT BE IF COMPONENTS OR END ITEMS FROM THE INDICATED SOURCES WERE EXCEPTED.

AS PROVIDED FOR BY NOTE A.3, THE PROPOSALS WERE EVALUATED BOTH WITH AND WITHOUT APPLICATION OF THE 50 PERCENT BALANCE OF PAYMENTS DIFFERENTIAL ON UK AND FRG COMPONENTS AND, AS FEC'S PROPOSAL WOULD HAVE BEEN ACCEPTABLE EXCEPT FOR THE DIFFERENTIAL, THE MATTER WAS SUBMITTED TO THE SECRETARY OF DEFENSE FOR A DECISION AS TO WHETHER SUCH COMPONENTS WOULD BE EXEMPTED FROM THE BALANCE OF PAYMENTS PROVISIONS OF THE SOLICITATION. IN A MEMORANDUM TO THE AIR FORCE DATED DECEMBER 23, 1969, THE ASSISTANT SECRETARY OF DEFENSE, INSTALLATIONS AND LOGISTICS, DETERMINED THAT THE DOLLAR SAVINGS TO BE REALIZED FROM AN AWARD ON THE FEC PROPOSAL WERE INSUFFICIENT TO WARRANT PAYMENT OF THE BALANCE OF PAYMENTS PENALTY INVOLVED, AND THE UK AND FRG COMPONENTS THEREFORE WERE NOT EXEMPTED FROM THE SOLICITATION'S BALANCE OF PAYMENTS PROVISIONS. YOU STATE THAT IT WAS FEC'S UNDERSTANDING THE ABOVE NOTICE SET OUT IN NOTE A.3 OF THE RFP IMPLEMENTED A US-UK OFFSET ARRANGEMENT CONCLUDED ON FEBRUARY 26, 1966, AND THAT IT WAS ON SUCH BASIS THAT FEC DECIDED TO PARTICIPATE IN THE PROCUREMENT. YOU REFER TO AN IMPLEMENTING MEMORANDUM OF JULY 21, 1966, BY THE DEPUTY SECRETARY OF DEFENSE, WHICH PROVIDED FOR THE ESTABLISHMENT OF A LIST OF ITEMS HAVING AN APPARENT POTENTIAL FOR UK COMPETITION, AND PRESCRIBED PROCEDURES FOR COMPETITIVE PROCUREMENT OF SUCH ITEMS FROM UK SOURCES. THE PROCEDURES REQUIRED THAT A NOTICE OF THE ABOVE TYPE BE INCLUDED IN EACH SOLICITATION FOR AN ITEM ON THE LIST. SUBMARINE CABLE, SUCH AS THAT WHICH YOU PROPOSED TO USE IN THE SUBJECT PROJECT, APPEARS TO HAVE BEEN ENTERED ON THE LIST DURING THE FALL OF 1967. WHILE PROCEDURES ESTABLISHED TO IMPLEMENT THE FEBRUARY 26, 1966 AGREEMENT, AND MADE APPLICABLE TO THE LATEST SPECIAL AGREEMENT RELATIVE TO OFFSET, PROVIDED FOR EVALUATION OF SUCH ITEMS FROM THE UK WITHOUT IMPOSING ANY DIFFERENTIALS UNDER THE BUY AMERICAN ACT OR UNDER THE DEPARTMENT OF DEFENSE BALANCE OF PAYMENTS PROGRAM, THE MEMORANDUM OF JULY 21, 1966, SPECIFICALLY STATED THAT EXCEPTIONS TO SUCH DIFFERENTIALS WOULD BE AUTHORIZED ON A CASE-BY-CASE BASIS.

YOU REFER TO A MEETING IN SEPTEMBER 1969 BETWEEN THE DEPUTY SECRETARY OF DEFENSE AND UK OFFICIALS, AND TO A MEMORANDUM OF THAT MEETING PREPARED BY ONE OF THE ATTENDING UK PARTIES. YOU ALLEGE THAT DURING THE MEETING THE DEPUTY SECRETARY REAFFIRMED THAT UK BIDS ON THE SUBJECT PROJECT WOULD BE EVALUATED UNDER THE OFFSET AGREEMENT. YOU FURTHER CONTEND THAT SUCH ACTION BY THE DEPUTY SECRETARY CONSTITUTES A DECISION BY THE SECRETARY OF DEFENSE TO EXCEPT THE END PRODUCT FROM THE RESTRICTIONS OF THE BALANCE OF PAYMENTS PROGRAM WITHIN THE MEANING OF NOTE A.3, PART I, OF THE RFP.

IN OPPOSITION TO YOUR STATEMENTS CONCERNING THE MEETING, THE AIR FORCE REPORTS THAT THE DEPUTY SECRETARY TOOK NO ACTION IN, OR AS A RESULT OF, THAT MEETING WHICH COULD IN ANY MANNER BE CONSIDERED TO CONSTITUTE A DECISION UNDER NOTE A.3. FURTHER, THE AIR FORCE CONTENDS THAT THE SUBJECT PROCUREMENT IS NOT REFLECTED AS HAVING BEEN DISCUSSED IN THE UK OFFICIAL'S MEMORANDUM OF THE MEETING OF SEPTEMBER 22, 1969. WE HAVE EXAMINED A COPY OF THE MEMORANDUM AND DO NOT FIND THEREIN ANY REFERENCE TO THE PROCUREMENT, OR ANY INDICATION OF ACTIONS DURING THE MEETING BY THE DEPUTY SECRETARY WHICH COULD REASONABLY BE REGARDED AS CONSTITUTING A DECISION PURSUANT TO NOTE A.3.

IT SEEMS THAT THE US-UK OFFSET ARRANGEMENT OF FEBRUARY 26, 1966, WAS ORIGINATED AS A MEANS OF OFFSETTING A BALANCE OF PAYMENTS DEFICIT RESULTING FROM A UK AGREEMENT TO PURCHASE F-111 AIRCRAFT IN THE UNITED STATES, AND THAT THE ARRANGEMENT WAS EFFECTIVELY TERMINATED IN MAY 1968 AFTER THE UK CANCELED ITS AGREEMENT TO PURCHASE THE F-111 AIRCRAFT. WHILE IT IS STATED IN THE AIR FORCE REPORT OF JANUARY 30 THAT THE UNITED STATES SUBSEQUENTLY MADE OTHER SPECIAL COMMITMENTS TO THE UK FOR OFFSET, AND THAT NOTE A.3 IS IN RESPONSE TO SUCH A SPECIAL OFFSET COMMITMENT, IT IS ALSO STATED THEREIN THAT THE OFFSET COMMITMENTS TO UK ARE CONSIDERED TO BE FULLY COMPLETED THROUGH THE CURRENT UNITED STATES PROCUREMENT OF HARRIER AIRCRAFT FROM THE UK, WHICH APPEARS TO HAVE BEEN CONSUMMATED ON DECEMBER 20, 1969.

IN REBUTTAL TO THE AIR FORCE REPORT, YOU SAY THAT THE BRITISH EMBASSY HAS ADVISED YOU THAT THERE IS NO AGREEMENT BETWEEN THE UNITED STATES AND THE UK FOR INCLUSION OF THE HARRIER PROCUREMENT UNDER OFFSET. YOU CONTEND, HOWEVER, THAT THERE WAS AN UNDERSTANDING BETWEEN THE DEPARTMENT OF DEFENSE AND THE BRITISH EMBASSY THAT, IRRESPECTIVE OF WHAT MIGHT BE ULTIMATELY DECIDED ABOUT THE EFFECT OF THE HARRIER PROCUREMENT ON THE SPECIAL OFFSET ARRANGEMENT, PROCUREMENTS ALREADY ACCEPTED FOR OFFSET TREATMENT WOULD NOT BE AFFECTED, AND THAT THIS PROCUREMENT HAS BEEN ACCEPTED FOR OFFSET BY INCLUDING THE NOTE A.3 CLAUSE IN THE PRESENT RFP. YOU FURTHER STATE THAT FEC WAS INFORMED IN ALL THE PREBIDDING NEGOTIATIONS, AND IN CONVERSATIONS WITH OFFICIALS OF THE DEPARTMENT OF DEFENSE AND THE BRITISH GOVERNMENT, THAT OFFSET WOULD BE APPLIED IF ITS BID, WITHOUT REFERENCE TO THE 50 PERCENT DIFFERENTIAL, WAS THE LOW RESPONSIVE BID.

NEITHER THE AIR FORCE NOR THE DEPARTMENT OF DEFENSE HAS BEEN INCLINED TO COMMENT ON YOUR STATEMENTS CONCERNING THE POSITION OF THE BRITISH GOVERNMENT IN THIS MATTER; HOWEVER, IN ITS SUPPLEMENTAL REPORT OF FEBRUARY 20, 1970, THE AIR FORCE HAS AFFIRMED, AS FOLLOWS, ITS PRIOR STATEMENT THAT THE HARRIER CONTRACT FULFILLED THE SPECIAL OFFSET COMMITMENTS TO THE UK:

IN THE JUDGMENT OF THE DEPARTMENT OF DEFENSE, THE SPECIAL COMMITMENT WHICH THE U.S. GOVERNMENT MADE TO THE BRITISH GOVERNMENT AS SET FORTH IN THE NITZE-HEALEY LETTER OF 8 MAY 1968 (WHICH IS THE BASIS FOR NOTE A.3) IS SATISFIED BY THE PROCUREMENT OF HARRIER AIRCRAFT BY THE DEFENSE DEPARTMENT. IT IS UNDERSTOOD THAT TREASURY DEPARTMENT SHARES THIS VIEW.

ALTHOUGH YOU CONTEND THAT, IN VIEW OF THE STATEMENTS ALLEGEDLY MADE TO FEC, A DENIAL OF OFFSET WOULD CHANGE THE RULES GOVERNING THE PROCUREMENT AFTER FEC HAS SUBMITTED ITS PROPOSAL, IT IS AN ELEMENTARY PRINCIPLE OF COMPETITIVE PROCUREMENT THAT AWARDS ARE TO BE DETERMINED ACCORDING TO THE RULES SET OUT IN THE SOLICITATION TO ALL PROSPECTIVE OFFERORS, RATHER THAN BY ORAL STATEMENTS OF PROCUREMENT OFFICIALS TO INDIVIDUAL OFFERORS. SUCH MATTERS ARE COVERED BY PARAGRAPH 3 OF THE SOLICITATION INSTRUCTIONS AND CONDITIONS, STANDARD FORM 33A, WHICH PROVIDES THAT ORAL EXPLANATIONS OR INSTRUCTIONS GIVEN BEFORE AWARD WILL NOT BE BINDING, AND THAT ANY INFORMATION GIVEN TO A PROSPECTIVE OFFEROR CONCERNING A SOLICITATION WILL BE FURNISHED TO ALL PROSPECTIVE OFFERORS AS AN AMENDMENT TO THE SOLICITATION, IF SUCH INFORMATION IS NECESSARY TO OFFERORS IN SUBMITTING OFFERS ON THE SOLICITATION OR IF THE LACK OF SUCH INFORMATION WOULD BE PREJUDICIAL TO UNINFORMED OFFERORS. HAD A PREPROPOSAL DECISION BEEN MADE EXEMPTING UK PRODUCTS FROM THE SOLICITATION'S BALANCE OF PAYMENTS PROVISIONS, AND HAD FEC BEEN INFORMED OF SUCH A DECISION, THEN THE SOLICITATION SHOULD HAVE BEEN AMENDED SO THAT UCC AND THE OTHER SOLICITED SOURCES COULD LIKEWISE HAVE HAD THE BENEFIT OF SUCH INFORMATION. NOTE A.3 CLEARLY SHOWS THAT THE SECRETARY OF DEFENSE DECISION WAS TO BE MADE AFTER SUBMISSION AND EVALUATION OF THE INDIVIDUAL PROPOSALS, AND HAD A FINAL DECISION BEEN MADE PRIOR THERETO, AND ONLY FEC NOTIFIED, SUCH ACTIONS WOULD HAVE BEEN IN DISREGARD OF THE RULES GOVERNING THE PROCUREMENT, RATHER THAN A PROPER PROCEDURE UNDER THE RULES AS YOU SEEM TO IMPLY.

CONCERNING THOSE STATEMENTS WHICH MAY HAVE BEEN MADE TO YOU BY REPRESENTATIVES OF THE BRITISH GOVERNMENT AS TO APPLICATION OF OFFSET TO THE PROCUREMENT, AND THE EFFECT OF SUCH STATEMENTS ON YOUR ACTIONS IN THE MATTER, WE BELIEVE IT IS SUFFICIENT TO NOTE THAT THE BRITISH EMBASSY WAS NOT THE FACILITY DESIGNATED IN THE SOLICITATION TO BE CONTACTED FOR INFORMATION CONCERNING THE PROCUREMENT.

WHILE THERE MAY BE A DIFFERENCE IN VIEWS BETWEEN THE DEPARTMENT OF DEFENSE AND THE BRITISH EMBASSY AS TO THE PROPER RELATIONSHIP OF THE US UK OFFSET COMMITMENTS TO THE HARRIER CONTRACT AND TO THE SUBJECT PROCUREMENT, WE ARE NOT AWARE OF ANY REQUIREMENTS OF LAW, THE RFP, OR THE OFFSET PROCEDURES WHICH WOULD MAKE IT MANDATORY UPON THE DEPARTMENT OF DEFENSE TO EXEMPT UK PRODUCTS IN THIS PROCUREMENT FROM THE DEPARTMENT OF DEFENSE BALANCE OF PAYMENTS PROGRAM EVEN IF ADEQUATE OFFSETS ARE AVAILABLE, AS YOU CONTEND. WE BELIEVE THAT NOTE A.3 MAKES IT AMPLY CLEAR THAT THE DECISION OF WHETHER IT IS IN THE PUBLIC INTEREST TO WAIVE THE BALANCE OF PAYMENTS DIFFERENTIAL WOULD BE MADE AFTER CONSIDERATION OF THE FACTORS REVEALED UPON AN EVALUATION OF ALL PROPOSALS RECEIVED, AND WE DO NOT PERCEIVE ANYTHING THEREIN WHICH WOULD JUSTIFY A CONCLUSION THAT THE SECRETARY WOULD AUTOMATICALLY AUTHORIZE WAIVER WHENEVER THERE WAS A SUFFICIENT AMOUNT OF REMAINING OFFSETS TO COVER THE PROCUREMENT INVOLVED.

ALTHOUGH THE STANDARDS WHICH THE SECRETARY WOULD USE IN MAKING HIS DECISION ARE NOT SET OUT IN THE SOLICITATION, THE REASONS FOR THE DENIAL OF WAIVER ARE CLEARLY STATED IN THE ASSISTANT SECRETARY'S DECISION OF DECEMBER 23, 1969. IN THIS CONNECTION, THE ASSISTANT SECRETARY HAS ADVISED THAT HE WOULD HAVE MADE THE SAME DETERMINATION AS WAS ACTUALLY RENDERED ON DECEMBER 23, WHETHER OR NOT THE SPECIAL OFFSET COMMITMENT WAS FULLY SATISFIED BY THE HARRIER CONTRACT, BECAUSE OF THE SUBSTANTIAL ADVERSE BALANCE OF PAYMENTS IMPACT WHICH WOULD HAVE RESULTED FROM ACCEPTANCE OF THE FEC PROPOSAL. A RESOLUTION OF WHETHER OFFSET CREDITS ARE STILL AVAILABLE UNDER THE SPECIAL US-UK AGREEMENT THEREFORE IS NOT CONSIDERED ESSENTIAL FOR PURPOSES OF THIS PROCUREMENT, INASMUCH AS THE FINAL OUTCOME, WHETHER FAVORABLE OR UNFAVORABLE TO THE BRITISH GOVERNMENT, WOULD NOT APPEAR TO HAVE AFFECTED THE ACTION TAKEN BY THE ASSISTANT SECRETARY IN THE SUBJECT PROCUREMENT.

FROM OUR REVIEW OF THIS MATTER, AND IN LIGHT OF THE RELATIVELY SMALL DIFFERENCE IN THE FEC AND UCC PRICES, AND CONSIDERING THE SUBSTANTIAL DOLLAR AMOUNT OF FOREIGN PURCHASES INVOLVED IN THE FEC PROPOSAL, WE CANNOT CONCLUDE THAT THE ASSISTANT SECRETARY'S DECISION AGAINST WAIVING THE BALANCE OF PAYMENTS DIFFERENTIAL WAS EITHER ARBITRARY OR CONTRARY TO ANY EXPRESS TERMS OF THE SOLICITATION OR OFFSET AGREEMENT.

IN VIEW OF THE FOREGOING, YOUR PROTEST AGAINST THE PROPOSED AWARD TO UCC MUST BE DENIED.