B-169111, JUN. 1, 1970

B-169111: Jun 1, 1970

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AUTHORIZATION WAS ERRONEOUS WHICH PERMITTED USE OF FOREIGN PUMPS IN TVA PUBLIC WORKS CONTRACT ON BASIS THEY WERE COMPONENTS COSTING LESS THAN 50 PERCENT OF TOTAL COMPONENT COST. UNLESS SAID PUMPS WERE DELIVERED AS COMPONENTS OF ALREADY MANUFACTURED UNITS. SUCH USE WAS APPARENTLY JUSTIFIED UNDER CRITERIA OF SEC. 2(B). SINCE USE OF DOMESTIC PUMPS WOULD HAVE UNDULY INCREASED COST. THE CONTRACT IS NO. 69F 35-67305. ON THE BASIS OF OUR UNDERSTANDING THAT THE END RESULT OF PERFORMANCE OF THE CONTRACT WILL BE A PERMANENT. WE BELIEVE THAT THE TOTAL CONTRACT IS. IT IS THEREFORE OUR VIEW THAT AUTHORIZATION OF THE USE OF THE FOREIGN MADE PUMPS ON THE BASIS THAT THEY WERE MERELY COMPONENTS. WAS ERRONEOUS UNLESS SUCH PUMPS WERE TO BE DELIVERED TO THE SITE AS COMPONENTS OF ALREADY MANUFACTURED UNITS.

B-169111, JUN. 1, 1970

BUY AMERICAN ACT--APPLICABILITY--CONTRACTORS PURCHASES FROM FOREIGN SOURCES--END PRODUCT V. COMPONENTS ALTHOUGH, UNDER SEC. 3, BUY AMERICAN ACT, AUTHORIZATION WAS ERRONEOUS WHICH PERMITTED USE OF FOREIGN PUMPS IN TVA PUBLIC WORKS CONTRACT ON BASIS THEY WERE COMPONENTS COSTING LESS THAN 50 PERCENT OF TOTAL COMPONENT COST, UNLESS SAID PUMPS WERE DELIVERED AS COMPONENTS OF ALREADY MANUFACTURED UNITS, SUCH USE WAS APPARENTLY JUSTIFIED UNDER CRITERIA OF SEC. 2(B), EXECUTIVE ORDER NO. 10582 OF DEC. 17, 1954, SINCE USE OF DOMESTIC PUMPS WOULD HAVE UNDULY INCREASED COST. HOWEVER, CONTRACT PROVISION RESPECTING METHOD OF COMPUTING PRICE DIFFERENTIAL SHOULD BE REVISED IN FUTURE ALONG LINE OF PROVISIONS IN FEDERAL PROCUREMENT REGULATIONS 1-18.603, 604, AND 605. SEE 46 COMP. GEN. 813 (1967).

TO MR. WAGNER:

WE REFER TO YOUR LETTER DATED APRIL 13, 1970, CONCERNING THE USE OF GERMAN-MADE PUMPS IN A UREA SOLUTION UNIT TO BE CONSTRUCTED AND INSTALLED BY THE H. K. FERGUSON COMPANY FOR TVA'S NATIONAL FERTILIZER DEVELOPMENT CENTER. THE CONTRACT IS NO. 69F 35-67305, DATED JUNE 25, 1969.

ON THE BASIS OF OUR UNDERSTANDING THAT THE END RESULT OF PERFORMANCE OF THE CONTRACT WILL BE A PERMANENT, INDUSTRIAL TYPE, CHEMICAL PROCESSING FACILITY FOR THE MANUFACTURE OF FERTILIZER, WE BELIEVE THAT THE TOTAL CONTRACT IS, WITHIN THE MEANING OF SECTION 3 OF THE BUY AMERICAN ACT (41 U.S.C. 10B), ONE FOR CONSTRUCTION OF A PUBLIC WORK. IT IS THEREFORE OUR VIEW THAT AUTHORIZATION OF THE USE OF THE FOREIGN MADE PUMPS ON THE BASIS THAT THEY WERE MERELY COMPONENTS, THE COST OF WHICH CONSTITUTES LESS THAN 50 PERCENT OF THE COST OF ALL COMPONENTS, OF A MANUFACTURED ARTICLE OF SUPPLY, WAS ERRONEOUS UNLESS SUCH PUMPS WERE TO BE DELIVERED TO THE SITE AS COMPONENTS OF ALREADY MANUFACTURED UNITS. SEE 46 COMP. GEN. 813 (1967). IN THE EVALUATION OF BIDS IN ANY FUTURE SIMILAR PROCUREMENTS WE THEREFORE SUGGEST THAT CONSIDERATION BE GIVEN TO THE FOREGOING. HOWEVER, AS YOU POINT OUT, IN THE INSTANT PROCUREMENT THE PRICES QUOTED FOR FOREIGN AND DOMESTIC PUMPS, RESPECTIVELY, APPEAR TO JUSTIFY THE CONCLUSION THAT THE USE OF DOMESTIC PUMPS WOULD HAVE UNDULY INCREASED THE COST, UNDER THE CRITERIA ESTABLISHED BY SECTION 2(B) OF EXECUTIVE ORDER NO. 10582 OF DECEMBER 17, 1954.

WHILE WE AGREE WITH THE CONCLUSIONS STATED IN YOUR LETTER, WE NOTE THAT SUBPARAGRAPH B OF SPECIAL CONDITION 41 OF THE CONTRACT MAY BE INTERPRETED AS REQUIRING THE SIX OR TWELVE PERCENT BUY AMERICAN DIFFERENTIAL TO BE COMPUTED ON THE TOTAL BID PRICE OF THE ENTIRE CONTRACT RATHER THAN ON THE PRICE OF THE PARTICULAR FOREIGN MATERIAL INVOLVED. SINCE SUCH AN INTERPRETATION WOULD PRODUCE A CONFLICT WITH THE REQUIREMENTS OF EXECUTIVE ORDER 10582, WE SUGGEST THAT IN FUTURE PROCUREMENTS THIS PROVISION MIGHT BE REVISED TO STATE MORE CLEARLY THE PROCEDURE INTENDED, ALONG THE LINE OF THE PROVISIONS OF FPR 1-18.603, 604, AND 605.

WE ASSUME THAT, SINCE THE URACA PUMPS ARE ASSEMBLED IN THE UNITED STATES FROM PARTLY DOMESTIC COMPONENTS, INSPECTION AT FOREIGN LOCATIONS WOULD NOT BE REQUIRED, SO THAT THE EVALUATION FACTOR PROVIDED FOR BY SUBPARAGRAPH A OF SPECIAL CONDITION 41 WOULD BE INAPPLICABLE. IF SO, IT WOULD APPEAR DESIRABLE TO INSERT "IF NECESSARY" OR SOME SIMILAR QUALIFICATION IN THAT PROVISION.

WE APPRECIATE YOUR COOPERATION IN THIS MATTER, AND WE ARE RETURNING THE COPY OF THE CONTRACT IN QUESTION.