B-169253, JUN. 2, 1970

B-169253: Jun 2, 1970

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TRUST TERRITORY OF PACIFIC ISLANDS IS NOT SUBJECT TO UNITED STATES JURISDICTION. THEREFORE SINCE TRUST TERRITORY OF PACIFIC IS NOT SUBJECT TO JURISDICTION OF UNITED STATES IN ITS SOVEREIGN CAPACITY AND IS NOT WITHIN PURVIEW OF BUY AMERICAN ACT. NO LEGAL BASIS IS SHOWN ON WHICH GAO MAY QUESTION POLICY OF TRUST TERRITORY GOVERNMENT. SPECIFIC MENTION IS MADE OF CONTRACT TT-70-1114-17 FOR CONSTRUCTION OF SEWER. YOU STATE THAT THE DIFFERENTIAL WAS ESTABLISHED ABOUT TWO YEARS AGO TO ENABLE THE TRUST TERRITORY TO ACCEPT BIDS FROM ALIEN CONTRACTORS WHILE AT THE SAME TIME PROVIDING SOME PROTECTION FOR UNITED STATES CONTRACTORS WHO HAVE MADE SUBSTANTIAL INVESTMENTS IN THE PACIFIC AREA AND WHO HAVE HERETOFORE PROVIDED THE NECESSARY CONSTRUCTION FOR GOVERNMENT AND UNITED STATES DEFENSE REQUIREMENTS.

B-169253, JUN. 2, 1970

BUY AMERICAN ACT--APPLICABILITY--TRUST TERRITORIES OF THE PACIFIC ISLANDS WHILE BUY AMERICAN ACT GIVES PREFERENCE TO DOMESTIC CORPORATIONS IN GOVERNMENT PROCUREMENT OF SUPPLIES AND MATERIALS FOR USE OUTSIDE UNITED STATES WHICH INCLUDES ANY PLACE SUBJECT TO UNITED STATES JURISDICTION, TRUST TERRITORY OF PACIFIC ISLANDS IS NOT SUBJECT TO UNITED STATES JURISDICTION, STATUS OF UNITED STATES BEING THAT OF ADMINISTRATOR UNDER TRUSTEESHIP AGREEMENT. THEREFORE SINCE TRUST TERRITORY OF PACIFIC IS NOT SUBJECT TO JURISDICTION OF UNITED STATES IN ITS SOVEREIGN CAPACITY AND IS NOT WITHIN PURVIEW OF BUY AMERICAN ACT, NO LEGAL BASIS IS SHOWN ON WHICH GAO MAY QUESTION POLICY OF TRUST TERRITORY GOVERNMENT. SEE CALLAS V UNITED STATES, 253 F. 2D 838 (1958).

TO GUAM CONTRACTORS ASSOCIATION:

WE REFER TO YOUR LETTER OF APRIL 7, 1970, AND ENCLOSURE, PROTESTING AGAINST THE DISCONTINUANCE BY THE GOVERNMENT OF THE TRUST TERRITORY OF THE PACIFIC ISLANDS OF USE OF A 12-PERCENT PRICE DIFFERENTIAL IN THE EVALUATION OF BIDS OF CONTRACTORS FROM NATIONS OTHER THAN THE UNITED STATES FOR PERFORMANCE OF CONSTRUCTION CONTRACTS IN THE TRUST TERRITORY. SPECIFIC MENTION IS MADE OF CONTRACT TT-70-1114-17 FOR CONSTRUCTION OF SEWER, WATER AND OTHER FACILITIES IN PALAU.

YOU STATE THAT THE DIFFERENTIAL WAS ESTABLISHED ABOUT TWO YEARS AGO TO ENABLE THE TRUST TERRITORY TO ACCEPT BIDS FROM ALIEN CONTRACTORS WHILE AT THE SAME TIME PROVIDING SOME PROTECTION FOR UNITED STATES CONTRACTORS WHO HAVE MADE SUBSTANTIAL INVESTMENTS IN THE PACIFIC AREA AND WHO HAVE HERETOFORE PROVIDED THE NECESSARY CONSTRUCTION FOR GOVERNMENT AND UNITED STATES DEFENSE REQUIREMENTS. THE ELIMINATION OF THE DIFFERENTIAL, YOU ASSERT, SERIOUSLY THREATENS THE ABILITY OF UNITED STATES CONTRACTORS TO COMPETE SUCCESSFULLY WITH ALIEN CONTRACTORS.

THE USE OF PRICE DIFFERENTIALS IN THE EVALUATION OF BIDS OFFERING FOREIGN SUPPLIES OR MATERIALS FOR PUBLIC USE AND UNDER CONTRACTS FOR PUBLIC WORKS IN THE UNITED STATES IS REQUIRED, WITH CERTAIN EXCEPTIONS, BY THE PROVISIONS OF THE BUY AMERICAN ACT, 41 U.S.C. 10A-D, AND THE IMPLEMENTING PROVISIONS OF EXECUTIVE ORDER 10582, DATED DECEMBER 17, 1954, AS AMENDED. BY THE TERMS OF THE STATUTE, HOWEVER, THE RESTRICTION ON THE USE OF FOREIGN ITEMS DOES NOT APPLY WITH RESPECT TO ARTICLES, MATERIALS OR SUPPLIES FOR USE OUTSIDE THE UNITED STATES, WHICH TERM IS DEFINED AS INCLUDING THE UNITED STATES AND ANY PLACE SUBJECT TO THE JURISDICTION THEREOF. THERE IS NO GENERAL LAW REQUIRING A PREFERENCE FOR DOMESTIC CONTRACTORS OR RESTRICTING FOREIGN INDIVIDUALS OR FIRMS FROM BIDDING ON CONTRACTS WITH THE UNITED STATES.

THE STATUS OF THE UNITED STATES WITH RESPECT TO THE TRUST TERRITORY OF THE PACIFIC, AS YOU HAVE NOTED, IS THAT OF ADMINISTRATOR UNDER A TRUSTEESHIP AGREEMENT APPROVED BY THE SECURITY COUNCIL OF THE UNITED NATIONS. BY JOINT RESOLUTION OF JULY 18, 1947, PUBLIC LAW 80-204, 61 STAT. 397, THE CONGRESS AUTHORIZED THE PRESIDENT OF THE UNITED STATES TO APPROVE THE TRUSTEESHIP AGREEMENT. HOWEVER, NO CLAIM OF SOVEREIGNTY ON THE PART OF THE UNITED STATES ARISES FROM SUCH ADMINISTRATIVE FUNCTION. SEE CALLAS V. UNITED STATES, 253 F. 2D 838 (1958), CERTIORARI DENIED 357 U. S. 936 (1958).

IN THE CIRCUMSTANCES, IT MAY REASONABLY BE CONCLUDED THAT THE TRUST TERRITORY OF THE PACIFIC IS NOT SUBJECT TO THE JURISDICTION OF THE UNITED STATES IN ITS SOVEREIGN CAPACITY AND IS THEREFORE NOT WITHIN THE PURVIEW OF THE BUY AMERICAN ACT AND EXECUTIVE ORDER 10582. COMPARE 34 COMP. GEN. 448 (1955), COPY ENCLOSED, RELATING TO APPLICABILITY OF THE ACT TO PROCUREMENTS FOR MILITARY BASES LEASED BY THE UNITED STATES FROM FOREIGN GOVERNMENTS.

IN LINE WITH THE FOREGOING, IT IS OUR VIEW THAT WHETHER THE BIDS OF ALIEN FIRMS ON THE PALAU PROJECT SHOULD BE SUBJECT TO ADDITION OF A PRICE DIFFERENTIAL FOR THE PURPOSE OF EVALUATION AGAINST BIDS OF UNITED STATES FIRMS IS A MATTER WHICH LIES WITHIN THE DISCRETION OF THE TRUST TERRITORY GOVERNMENT. IN THIS CONNECTION, YOU ARE ADVISED THAT INFORMATION MADE AVAILABLE TO OUR OFFICE BY THE DEPARTMENT OF THE INTERIOR REVEALS THAT THE USE OF THE 12-PERCENT DIFFERENTIAL WAS DISCONTINUED BY THE HIGH COMMISSIONER OF THE TRUST TERRITORY FOR THE REASON THAT, IN THE JUDGMENT OF THE HIGH COMMISSIONER, THE TRUST TERRITORY WOULD NOT, BY USING THE 12- PERCENT DIFFERENTIAL, BE ABLE TO MEET ITS CONSTRUCTION AND PROGRAM GOALS, WHICH ENTAIL CRITICAL TIME RESTRICTIONS AND SERIOUS BUDGET LIMITATIONS.

WITH SPECIFIC REFERENCE TO THE PALAU PROJECT, THE HIGH COMMISSIONER IS QUOTED AS FOLLOWS:

"FURTHER, WE DO NOT CONSIDER THAT THE WAIVER OF THE FOREIGN DIFFERENTIAL FOR THIS CONTRACT WILL GIVE THE FOREIGN BIDDERS AN ADVANTAGE OVER THE UNITED STATES CONTRACTORS. THE SAME MARKETS, BOTH LABOR AND MATERIALS, ARE OPEN TO ALL CONTRACTORS. WE EXPECT BOTH UNITED STATES AND FOREIGN FIRMS TO BRING IN A CERTAIN AMOUNT OF FOREIGN LABOR, SUCH AS FILIPINOS AND OKINAWANS TO SUPPLEMENT THE QUALIFIED MICRONESIAN LABOR THAT MAY BE AVAILABLE. THE SPECIFICATIONS FOR THE WATER AND SEWER WILL UNDOUBTEDLY REQUIRE PROCUREMENT FROM UNITED STATES SOURCES. MATERIALS FOR THE SCHOOLS AND THE PUBLIC SAFETY FACILITIES MAY BE PURCHASED ELSEWHERE, BUT AS STATED ABOVE, THESE SOURCES ARE OPEN TO ALL CONTRACTORS. OTHER REQUIREMENTS, SUCH AS CONCRETE, ARE AVAILABLE TO ALL CONTRACTORS ON KOROR FROM A PRIVATE SOURCE, AND THE PRICES WILL BE THE SAME TO ALL BIDDERS."

THE DEPARTMENT REPORTS, HOWEVER, THAT THE PRESENT POLICY OF THE HIGH COMMISSIONER IS TO APPLY A SIX-PERCENT DIFFERENTIAL EXCEPT IN THOSE INSTANCES IN WHICH THE HIGH COMMISSIONER DECIDES THAT IT IS NOT PRACTICAL.

FOR THE REASONS STATED, WE SEE NO LEGAL BASIS ON WHICH OUR OFFICE MAY QUESTION THE POLICY OF THE TRUST TERRITORY GOVERNMENT.