B-170498, MAR 30, 1971, 50 COMP GEN 699

B-170498, MAR 30, 1971, 50 COMP GEN 699

BIDS - BUY AMERICAN ACT - FOREIGN PRODUCT DETERMINATION - COMPARISON OF FOREIGN AND DOMESTIC COMPONENT COSTS IN THE EVALUATION UNDER PARAGRAPH 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION OF MICROWAVE TRANSISTORS OF FOREIGN MAKE TO BE USED IN ELECTRONIC EQUIPMENT SOLICITED UNDER A REQUEST FOR PROPOSALS TO DETERMINE IF THE PRICE DIFFERENTIAL IMPOSED BY THE BUY AMERICAN ACT (41 U.S.C. 10A-D) SHOULD BE CONSIDERED, THE TRANSISTORS WERE PROPERLY HELD TO BE A DOMESTIC SOURCE END ITEM AS EVIDENCED BY THE OFFEROR'S ENTRY OF "NONE" IN THE BLOCK ENTITLED "EXCLUDED END PRODUCTS" OF THE BUY AMERICAN CERTIFICATE, IN VIEW OF THE FACT THE COST - MATERIALS, LABOR, AND OTHER ITEMS OF EXPENSE - OF THE POWER UNIT MANUFACTURED IN-HOUSE AND ITS CASE, WHICH TOGETHER WITH THE TRANSISTOR COMPRISE THE AMPLIFIER, EXCEED THE COST OF THE FOREIGN TRANSISTOR, THEREFORE, CONSTITUTING THE AMPLIFIER AS A DOMESTIC SOURCE END PRODUCT WITHIN THE MEANING OF THE BUY AMERICAN ACT. BIDS - BUY AMERICAN ACT - BUY AMERICAN CERTIFICATE - ACCEPTANCE WHERE AN OFFER IS ACCEPTED FROM AN OFFEROR WHO EXCLUDES NO PRODUCTS FROM THE BUY AMERICAN CERTIFICATES, OR OTHERWISE INDICATES HE IS NOT OFFERING A DOMESTIC SOURCE END ITEM, THE GENERAL ACCEPTANCE OF THE CERTIFICATE BY CONTRACTING OFFICIALS IS PROPER SINCE THE OFFEROR IS LEGALLY OBLIGATED UNDER THE CONTRACT TO FURNISH THE GOVERNMENT A DOMESTIC SOURCE END PRODUCT, AND COMPLIANCE WITH THAT OBLIGATION IS A MATTER OF CONTRACT ADMINISTRATION WHICH HAS NO EFFECT ON THE VALIDITY OF THE CONTRACT AWARD. BIDS - BUY AMERICAN ACT - FOREIGN PRODUCT DETERMINATION - COST INFORMATION ALTHOUGH THE COST INFORMATION WHICH PROCURING ACTIVITIES OBTAIN WHEN THE DOMESTIC SOURCE OF THE ITEM OFFERED IS QUESTIONED UNDER THE BUY AMERICAN ACT (41 U.S.C. 10A-D), NEED NOT BE MADE PUBLIC AS A PART OF THE BID, AN AGENCY SHOULD OBTAIN SUFFICIENT INFORMATION TO ASCERTAIN THAT FOREIGN MATERIALS CONSTITUTE LESS THAN 50 PERCENT OF THE COST OF THOSE MATERIALS DIRECTLY INCORPORATED IN THE ITEM BEING PROCURED.

TO AVANTEK, INC., MARCH 30, 1971:

WE REFER YOUR PROTEST BY LETTER OF JULY 29, 1970, AGAINST THE AWARD BY THE DEPARTMENTS OF THE ARMY AND NAVY OF CERTAIN CONTRACTS TO WATKINS JOHNSON COMPANY (WJ) FOR THE FURNISHING OF ELECTRONIC EQUIPMENT. THE PROCUREMENTS ARE IDENTIFIED AS REQUESTS FOR PROPOSALS (RFP) DAHCO7-70-R 0185 AND RFP DAHCO7-71-R-0002, ISSUED BY THE ARMY SECURITY AGENCY (ASA), VINT HILL FARMS, VIRGINIA, AND REQUEST FOR QUOTATIONS (RFQ) NOO173-70-Q- M766, ISSUED BY THE NAVAL RESEARCH LABORATORY (NRL), WASHINGTON, D.C.

THE SUBSTANCE OF YOUR PROTEST IS THAT WJ USES TRANSISTORS OF FOREIGN MAKE IN ITS EQUIPMENT, THE COST OF WHICH, YOU STATE, RUNS FROM 70 TO 80 PERCENT OF THE TOTAL COST OF ALL OF THE COMPONENTS INCORPORATED IN THE EQUIPMENT, THEREBY REQUIRING EVALUATION OF WATKIN'S OFFERS AS FOREIGN OFFERS TO WHICH A PRICE DIFFERENTIAL SHOULD BE ADDED FOR THE PURPOSE OF EVALUATION UNDER THE PROVISIONS OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) 6-104.4. WHEN THUS EVALUATED, YOU CLAIM, WATKINS WOULD NOT BE THE LOW OFFEROR ON ANY OF THE PROCUREMENTS IN QUESTION.

THE DEPARTMENT OF THE ARMY HAS INFORMED OUR OFFICE THAT RFP DAHCO7-71 R- 0002 HAS BEEN CANCELED. ACCORDINGLY, ONLY THE REMAINING TWO PROCUREMENTS WILL BE CONSIDERED IN THIS DECISION.

YOU STATE THAT UNDER EXISTING PROCUREMENT PRACTICES, WHEN A PROTEST IS MADE TO A PROCURING ACTIVITY THAT A PARTICULAR BIDDER OR OFFEROR MAY BE OFFERING A FOREIGN SOURCE END PRODUCT AS DEFINED IN THE BUY AMERICAN ACT (41 U.S.C. 10A-D) CLAUSE INCORPORATED IN THE PROCUREMENT SOLICITATION PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION (ASPR) 6 104.5, THE INVESTIGATING DEFENSE CONTRACT ADMINISTRATION SERVICES REGION (DCASR) ACCEPTS AS FACT THE UNSUPPORTED STATEMENT OF THE PARTICULAR BIDDER OR OFFEROR THAT IT IS NOT USING FOREIGN MADE COMPONENTS OR THAT THE COST OF THE FOREIGN COMPONENTS WHICH THE PRODUCER IS USING COMPRISES LESS THAN 50 PERCENT OF THE TOTAL COST OF ALL COMPONENTS USED IN THE END PRODUCT. SUCH CIRCUMSTANCES, YOU CLAIM, A VERBAL PROTEST TO THE PROCURING ACTIVITY AGAINST THE ACCEPTANCE OF THE QUESTIONED BID OR OFFER IS INEFFECTIVE.

THE REPORTS FURNISHED TO OUR OFFICE BY THE DEPARTMENTS OF THE ARMY AND NAVY WITH RESPECT TO YOUR PROTEST OF JULY 29, 1970, INCLUDE REPORTS BY DCASR-BURLINGAME STATING THAT DCASR REPRESENTATIVES VISITED WJ'S PLANT AND DISCUSSED THE RESPECTIVE PROCUREMENTS WITH WJ'S CONTRACT ADMINISTRATION PERSONNEL; REVIEWED PURCHASE ORDERS, COST DATA, AND SPECIFICATIONS; AND MADE A VISUAL EXAMINATION OF THE MICROWAVE TRANSISTOR AMPLIFIERS AND THE COMPONENTS WHICH ARE DIRECTLY INCORPORATED INTO THE AMPLIFIERS. ADDITION, REPRESENTATIVES OF OUR SAN FRANCISCO REGIONAL OFFICE HAVE ALSO VISITED WJ AND HAVE INSPECTED ITS RECORDS AND OBSERVED THE AMPLIFIERS AND THE FOREIGN SOURCE MICROWAVE TRANSISTORS WHICH WJ USES IN THE MANUFACTURE OF THE AMPLIFIERS REQUIRED UNDER THESE PROCUREMENTS. FURTHER, OUR REPRESENTATIVES HAVE ALSO CONFERRED WITH WJ'S TRANSISTOR SUPPLIER AND WITH DCASR AND HAVE VERIFIED THE RESPECTIVE FOREIGN AND DOMESTIC COMPONENT COSTS AS REPORTED BY DCASR.

THE INFORMATION THUS OBTAINED BY DCASR AND OUR OFFICE IS, OF COURSE, PROPRIETARY TO WJ AND WAS SUBMITTED ON A CONFIDENTIAL BASIS. WHILE WE MAY NOT DIVULGE ANY SPECIFIC COST DATA, YOU ARE ADVISED THAT OUR EVALUATION OF THE COST INFORMATION REQUIRES THE CONCLUSION THAT THE COST OF ONLY ONE OF THE DOMESTIC COMPONENTS, THE POWER UNIT WHICH IS MANUFACTURED IN-HOUSE BY WJ FOR THE SUBJECT PROCUREMENTS, NEARLY EQUALS THE COST OF THE MICROWAVE TRANSISTORS, WHICH ARE THE ONLY FOREIGN MADE PARTS IN THE WJ AMPLIFIERS. WHEN THE COST OF POWER UNIT IS COMBINED WITH THE COST OF THE CASE, ANOTHER DOMESTIC COMPONENT OF THE AMPLIFIER, THE TOTAL COST OF THESE TWO DOMESTIC COMPONENTS EXCEEDS THE COST OF THE FOREIGN TRANSISTORS, THUS CONSTITUTING THE AMPLIFIER A DOMESTIC SOURCE END PRODUCT, AS DEFINED IN THE BUY AMERICAN ACT CLAUSE EVEN IF THE TRANSISTORS CLASSIFY AS COMPONENTS AS YOU CONTEND.

IN YOUR LETTER OF JULY 29, 1970, YOU COMPARE THE ESTIMATED COST OF THE TRANSISTORS WITH THE ESTIMATED COST OF MATERIALS AND/OR COMPONENTS USED IN THE MANUFACTURE OF A TYPICAL AMPLIFIER. A COMPONENT IS DEFINED IN THE BUY AMERICAN ACT CLAUSE AS MEANING THOSE ARTICLES, MATERIALS AND SUPPLIES WHICH ARE DIRECTLY INCORPORATED INTO THE END PRODUCTS, AND THE COMPARATIVE COST OF THE DOMESTICALLY MANUFACTURED COMPONENTS AND THE FOREIGNLY MANUFACTURED COMPONENTS SERVES AS THE BASIS FOR DETERMINING WHETHER A MANUFACTURED ARTICLE BEING ACQUIRED UNDER A CONTRACT CAN BE CLASSIFIED AS A DOMESTIC SOURCE END PRODUCT. ALTHOUGH YOU INCLUDED IN YOUR COMPUTATIONS THE COST OF LABOR TO MACHINE AND ASSEMBLE THE CASE FOR THE AMPLIFIER (WHICH CASE YOU SEEM TO ACCEPT AS BEING A DOMESTIC COMPONENT AND ESTIMATE ITS COST AT $50), YOU DID NOT INCLUDE LABOR AND MANUFACTURING COSTS FOR OTHER COMPONENTS OF THE AMPLIFIER. AS INDICATED ABOVE, IT IS OUR VIEW THAT THE POWER UNIT MAY ALSO BE REASONABLY CONSIDERED AS BEING DIRECTLY INCORPORATED IN THE AMPLIFIER, AND IS THEREFORE A COMPONENT OF THAT END PRODUCT WITHIN THE MEANING OF THE BUY AMERICAN ACT CLAUSE. IN THIS CONNECTION WE UNDERSTAND THAT THE POWER ASSEMBLY, WHILE COMPOSED OF INDIVIDUAL ELECTRICAL PARTS, IS INCORPORATED INTO A METAL CASE OR SHELL, IS IDENTIFIABLE AS A DISTINCT UNIT, MAY BE USED SEPARATELY, AND SERVES THE BASIC FUNCTION OF THE POWER SUPPLY OF THE AMPLIFIER. IN SUCH CONTEXT WE BELIEVE THE AMPLIFIER'S POWER UNIT MAY BE COMPARED WITH THE ELECTRIC MOTOR WHICH WAS VIEWED AS A COMPONENT OF THE CIRCULATING PUMP UNIT CONSIDERED IN OUR DECISION WHICH IS REPORTED AT 46 COMP. GEN. 813 (1967).

IT IS OBVIOUS THAT IN PURCHASING COMPONENTS, THE PRICE PAID FOR THE COMPONENTS INCLUDES, IN ADDITION TO THE COST OF MATERIALS, THE COST OF THE LABOR AND OTHER ITEMS OF EXPENSE RELATED TO THE MANUFACTURE OF THE COMPONENTS. AS TO THE COMPONENTS WHICH A GOVERNMENT CONTRACTOR MANUFACTURES IN-HOUSE, IT IS EQUALLY APPARENT THAT THE EXPENSES INCURRED IN PRODUCING THOSE ITEMS CONSTITUTE AS MUCH A PART OF THE COST OF THE COMPONENTS AS THE COST OF THE MATERIALS USED THEREIN. IN THIS CASE, THEREFORE, IN DETERMINING THE COST OF THE POWER UNIT IN WJ'S AMPLIFIERS, WE HAVE INCLUDED, UNDER THE PRINCIPLE ENUNCIATED IN 39 COMP. GEN. 695 (1960), AS ELEMENTS OF THE COST OF THAT COMPONENT NOT ONLY THE COST TO WJ OF THE MATERIALS USED THEREIN BUT ALSO ITS COSTS FOR LABOR, PLUS OVERHEAD AND GENERAL AND ADMINISTRATIVE RATES, AS APPROVED BY THE DEFENSE CONTRACT ADMINISTRATION AREA, PALO ALTO, CALIFORNIA. WHEN SO COMPUTED, THE COST OF THE POWER UNIT COMPONENT AND THE COST OF THE CASE ARE SUFFICIENT TO CONSTITUTE THE WJ AMPLIFIER A DOMESTIC SOURCE END PRODUCT.

AS TO THE GENERAL ACCEPTANCE OF THE BUY AMERICAN CERTIFICATE BY CONTRACTING OFFICIALS, WE HAVE HELD THAT WHERE AN OFFER IS ACCEPTED FROM AN OFFEROR WHO EXCLUDES NO PRODUCTS FROM THE CERTIFICATE OR OTHERWISE INDICATES THAT HE IS NOT OFFERING A DOMESTIC SOURCE END ITEM, THE OFFEROR IS LEGALLY OBLIGATED UNDER ITS CONTRACT TO FURNISH THE GOVERNMENT A DOMESTIC SOURCE END PRODUCT, AND COMPLIANCE WITH THAT OBLIGATION IS A MATTER OF CONTRACT ADMINISTRATION WHICH HAS NO EFFECT ON THE VALIDITY OF THE CONTRACT AWARD. B-150652, JULY 19, 1963; B 153899, SEPTEMBER 24, 1964; 47 COMP. GEN. 624, 626 (1968).

IN LINE WITH THE FOREGOING, WE FIND NO OBJECTION TO THE AWARD TO WJ OF EITHER THE ASA CONTRACT OR THE PROPOSED NRL CONTRACT, AND YOUR PROTEST AGAINST SUCH AWARDS IS THEREFORE DENIED.

AS TO THE INFORMATION WHICH PROCURING ACTIVITIES SHOULD OBTAIN WHEN THE DOMESTIC SOURCE OF THE ITEM OFFERED IS QUESTIONED, WE HAVE STATED THAT DETAILED COST INFORMATION NEED NOT BE MADE PUBLIC AS A PART OF THE BID. 39 COMP. GEN. 695, 699 (1960). WE BELIEVE, HOWEVER, THAT THE AGENCY SHOULD OBTAIN SUFFICIENT INFORMATION TO ASCERTAIN THAT FOREIGN MATERIALS CONSTITUTE LESS THAN 50 PERCENT OF THE COST OF THOSE MATERIALS DIRECTLY INCORPORATED IN THE ITEM BEING PROCURED. WE ARE THEREFORE CALLING THIS MATTER TO THE ATTENTION OF THE CONTRACTING AGENCIES INVOLVED IN YOUR PROTESTS.