B-173667, OCT 7, 1971, 51 COMP GEN 195

B-173667: Oct 7, 1971

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THE CONTRACTING OFFICER UPON FINDING THE LOW BID OF A NORWEGIAN FIRM ACCEPTABLE IS REQUIRED UNDER THE MOU AGREEMENT TO REQUEST WAIVER OF THE BUY AMERICAN ACT RESTRICTIONS AS BEING IN THE PUBLIC INTEREST PURSUANT TO 41 U.S.C. 10D. SINCE THE WAIVER WILL HAVE NO IMPACT ON THE BALANCE OF PAYMENTS. THE PROCUREMENT ITEMS ARE TIRE CHAIN ASSEMBLIES. ON WHICH NOSTED'S BID IS LOWEST AND YOUR BID IS SECOND LOW. YOU MAINTAIN THAT THE EFFECT OF SUCH WAIVER IS TO REDUCE THE ACT TO A NULLITY. YOU STATE THAT YOU ARE UNAWARE OF ANY INHERENT POWER IN THE SECRETARY OF DEFENSE TO COMPLETELY VITIATE THE PROVISIONS OF THE ACT. NOSTED'S BID IS SOME $5. YOU FURTHER ASSERT THAT WHEN THE PROCLAMATION IS COMPLIED WITH.

B-173667, OCT 7, 1971, 51 COMP GEN 195

BUY AMERICAN ACT - WAIVER - PUBLIC INTEREST THE PROCUREMENT OF TIRE CHAIN ASSEMBLIES HAVING BEEN INCLUDED IN ITEMS COVERED BY THE UNITED STATES-NORWAY MEMORANDUM OF UNDERSTANDING RELATING TO THE PROCUREMENT OF DEFENSE ARTICLES AND SERVICES (MOU), THE INVITATION FOR BIDS ON THE ITEM PROPERLY INCLUDED NOTICE OF POTENTIAL NORWEIGAN SOURCE COMPETITION AND DUTY-FREE NORWEGIAN END PRODUCT CLAUSES. THEREFORE, THE CONTRACTING OFFICER UPON FINDING THE LOW BID OF A NORWEGIAN FIRM ACCEPTABLE IS REQUIRED UNDER THE MOU AGREEMENT TO REQUEST WAIVER OF THE BUY AMERICAN ACT RESTRICTIONS AS BEING IN THE PUBLIC INTEREST PURSUANT TO 41 U.S.C. 10D, AND SINCE THE WAIVER WILL HAVE NO IMPACT ON THE BALANCE OF PAYMENTS, AND EXEMPTS THE IMPORT DUTY AS AN EVALUATION FACTOR, THUS EXEMPTING THE ADDITIONAL 10 PERCENT LEVY IMPOSED BY PRESIDENTIAL PROCLAMATION 4074 OF AUGUST 15, 1971, UPON ISSUANCE OF THE WAIVER, AN AWARD MAY BE MADE TO THE LOW NORWEGIAN BIDDER, IF A RESPONSIBLE, PROSPECTIVE CONTRACTOR.

TO THE CAMPBELL CHAIN, DIVISION OF UNITEC INDUSTRIES, INC., OCTOBER 7, 1971:

WE REFER TO YOUR PROTEST, BY LETTER OF JULY 20, 1971, AND SUBSEQUENT CORRESPONDENCE, AGAINST ANY AWARD BY THE DEPARTMENT OF THE ARMY OF A CONTRACT TO NOSTED KJETTING (NOSTED), A NORWEGIAN CONCERN, UNDER BID EVALUATION PROCEDURES SET FORTH IN INVITATION FOR BIDS (IFB) DAAEO7-71 B- 1747 ISSUED BY THE UNITED STATES ARMY TANK AUTOMOTIVE COMMAND (TACOM), WARREN, MICHIGAN. THE PROCUREMENT ITEMS ARE TIRE CHAIN ASSEMBLIES, ON WHICH NOSTED'S BID IS LOWEST AND YOUR BID IS SECOND LOW.

YOU OBJECT TO PROVISIONS IN THE IFB WHICH PROVIDE FOR EVALUATION OF BIDS OFFERING ITEMS OF NORWEGIAN SOURCE WITHOUT REGARD TO THE RESTRICTIONS OF THE BUY AMERICAN ACT (41 U.S.C. 10A-D) UPON WAIVER THEREOF BY THE SECRETARY OF DEFENSE. YOU MAINTAIN THAT THE EFFECT OF SUCH WAIVER IS TO REDUCE THE ACT TO A NULLITY. FURTHER, YOU STATE THAT YOU ARE UNAWARE OF ANY INHERENT POWER IN THE SECRETARY OF DEFENSE TO COMPLETELY VITIATE THE PROVISIONS OF THE ACT.

YOU CONTEND THEREFORE THAT NOSTED'S BID SHOULD BE EVALUATED UNDER THE PROVISIONS OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) 6-104.4, ISSUED IN IMPLEMENTATION OF THE BUY AMERICAN ACT, AS A BID OFFERING A FOREIGN END PRODUCT, TO WHICH A PRICE DIFFERENTIAL AND CUSTOMS DUTIES APPLY. AS THUS EVALUATED, NOSTED'S BID WOULD NOT BE THE LOWEST BID, AND YOU THEREFORE ASSERT THAT AWARD SHOULD BE MADE TO YOU AS THE LOWEST RESPONSIVE BIDDER.

IN ADDITION, YOU SPECIFICALLY STATE THAT WITH APPLICATION TO NOSTED'S BID PRICE OF THE 10 PERCENT "LEVY" IMPOSED ON ALL IMPORTED ITEMS PURSUANT TO PRESIDENTIAL PROCLAMATION 4074 OF AUGUST 15, 1971, NOSTED'S BID IS SOME $5,000 HIGHER THAN YOUR BID. ACCORDINGLY, YOU FURTHER ASSERT THAT WHEN THE PROCLAMATION IS COMPLIED WITH, THERE CAN BE NO LEGITIMATE REASON FOR NOT MAKING AWARD TO YOU.

THE IFB, WHICH WAS ISSUED ON MAY 27, 1971, INCLUDED THE FOLLOWING PERTINENT LANGUAGE WITH RESPECT TO BIDS OF NORWEGIAN FIRMS:

C-37 NOTICE OF POTENTIAL NORWEGIAN SOURCE COMPETITION:

A. GENERAL: BIDS FOR THIS PROCUREMENT ARE BEING SOLICITED FROM SOURCES IN NORWAY PURSUANT TO THE UNITED STATES-NORWAY MEMORANDUM OF UNDERSTANDING RELATING TO THE PROCUREMENT OF DEFENSE ARTICLES AND SERVICES OF 27, FEBRUARY 1968.

B. PRIME CONTRACT BASIS: BIDS OF NORWEGIAN FIRMS WILL BE EVALUATED EXCLUSIVE OF IMPORT DUTY AND IF FOUND OTHERWISE ACCEPTABLE FOR AWARD EXCEPT FOR THE CLAUSE ENTITLED, "BUY AMERICAN ACT," THEY WILL BE FORWARDED TO THE SECRETARY OF DEFENSE FOR A DETERMINATION AS TO WHETHER IT WOULD BE IN THE PUBLIC INTEREST TO WAIVE THE RESTRICTIONS OF THE BUY AMERICAN ACT AND ACCEPT SUCH BIDS FOR NORWEGIAN SOURCE SUPPLIES, PROVIDED THE FOLLOWING THREE CONDITIONS EXIST:

(I) THE NORWEGIAN FIRMS' BID IS ACCEPTABLE IN EVERY WAY INCLUDING PRICE AND OTHER FACTORS; AND

(II) THE END PRODUCTS OFFERED ARE MANUFACTURED IN NORWAY OR THE UNITED STATES; AND

(III) THE COST OF THE COMPONENTS IN THOSE END PRODUCTS WHICH ARE MINED, PRODUCED, OR MANUFACTURED IN NORWAY, THE UNITED STATES, OR CANADA, OR ANY COMBINATION OF THESE THREE COUNTRIES, EXCEEDS FIFTY PERCENT (50%) OF THE TOTAL COST OF ALL COMPONENTS IN THE END PRODUCTS.

C. SUBCONTRACT BASIS: U.S. FIRMS WHICH PROPOSE TO USE NORWEGIAN SUBCONTRACTORS WILL HAVE THEIR BIDS EVALUATED FREE OF IMPORT DUTY FOR THE NORWEGIAN END PRODUCTS, PROVIDED THOSE PORTIONS OF THE BID PRICES ARE IDENTIFIED ACCORDINGLY. IF AWARD IS MADE TO A U.S. FIRM MAKING SUCH A BID, IMPORT DUTY WILL BE WAIVED UPON APPLICATION TO THE CONTRACTING OFFICER."

D-3 EVALUATION OF BIDS.

C. FOR EVALUATION PURPOSES ONLY, AN EVALUATION FACTOR EQUAL TO THE APPLICABLE U.S. MANUFACTURER'S EXCISE TAX SHALL BE ADDED BY THE GOVERNMENT TO ALL CANADIAN BIDS AND NORWEGIAN BIDS RECEIVED IN RESPONSE TO THIS INVITATION.

IN ADDITION, A DUTY-FREE ENTRY CLAUSE FOR NORWEGIAN END PRODUCTS WAS SET FORTH IN PARAGRAPH D-11.

THE MEMORANDUM OF UNDERSTANDING (MOU) REFERENCED IN THE IFB IS AN EXECUTIVE AGREEMENT BASED ON AUTHORITY CONTAINED IN SECTION 402 OF THE MUTUAL DEFENSE ASSISTANCE ACT OF 1949, 63 STAT. 714. IT WAS SIGNED FOR THE GOVERNMENT OF NORWAY BY THE MINISTER OF DEFENSE OF NORWAY AND FOR THE UNITED STATES BY THE SECRETARY OF DEFENSE. THE MOU PROVIDES IN PERTINENT PART THAT IN CONSIDERATION OF SUBSTANTIAL PROCUREMENT BY THE MINISTRY OF DEFENSE OF NORWAY OF CERTAIN ITEMS FROM SOURCES IN THE UNITED STATES, THE DEPARTMENT OF DEFENSE (DOD) WILL SEARCH OUT POTENTIAL DOD REQUIREMENTS SUITABLE FOR PROCUREMENT FROM NORWEGIAN SOURCES WITH THE OBJECTIVE OF PROCURING SELECTED EQUIPMENT AND SUPPLIES IN NORWAY THROUGH CALENDAR YEAR 1973 WITH A TARGET VALUE OF $30,000,000. PROVISION IS ALSO MADE FOR ADDITIONAL PROCUREMENT OF DEFENSE ITEMS WITH A TARGET VALUE OF $10,000,000 FOR USE BY THE UNITED STATES IN NORWAY. IN THIS CONNECTION, THE MOU INCLUDES THE FOLLOWING PERTINENT LANGUAGE:

SUCH PROCUREMENTS WILL INCLUDE SELECTED DEFENSE ITEMS WHICH: (I) SATISFY DOD REQUIREMENTS FOR PERFORMANCE, QUALITY, AND DELIVERY AND (II) COST DOD NO MORE THAN WOULD COMPARABLE U.S.-SOURCE DEFENSE ARTICLES OR FOREIGN- SOURCE DEFENSE ITEMS ELIGIBLE FOR PROCUREMENT CONTRACT AWARD. IN INVITING COMPETITIVE BIDS FROM NORWEGIAN SOURCES FOR SUCH SELECTED DEFENSE ITEMS, THE DOD WILL EVALUATE SUCH BIDS WITHOUT IMPOSING ANY DIFFERENTIAL UNDER THE BUY AMERICAN ACT OR THE BALANCE OF PAYMENTS PROGRAM AND WITHOUT TAKING APPLICABLE U.S. CUSTOMS AND DUTIES INTO CONSIDERATION SO THAT NORWEGIAN FIRMS MAY BETTER COMPETE FOR THE SALE OF SUCH DEFENSE ITEMS TO THE DOD WITH U.S. FIRMS OR FOREIGN FIRMS WHICH ARE ELIGIBLE FOR PROCUREMENT CONTRACT AWARDS.

INSTRUCTIONS ISSUED BY THE DEPARTMENT OF DEFENSE AND BY THE DEPARTMENT OF THE ARMY IN IMPLEMENTATION OF THE MOU ARE TO THE EFFECT THAT EXEMPTIONS THEREUNDER WILL BE DETERMINED IN ADVANCE OF A PROCUREMENT; THAT EXEMPTED ITEMS WILL BE PLACED ON A SELECTED ITEM LIST; THAT EACH PROCUREMENT SOLICITATION WILL INCLUDE A NOTICE OF POTENTIAL NORWEGIAN SOURCE COMPETITION; AND THAT EACH CONTRACT FOR AN ITEM ON A LIST SHALL INCLUDE A CLAUSE PROVIDING FOR DUTY-FREE ENTRY OF NORWEGIAN END PRODUCTS UNLESS IT IS CLEAR THAT NO NORWEGIAN END PRODUCT WILL BE IMPORTED INTO THE UNITED STATES IN CONNECTION WITH THE PERFORMANCE OF THE CONTRACT.

THE RECORD PERTAINING TO THIS PROCUREMENT SHOWS THAT ON MAY 12, 1971, 2 WEEKS BEFORE THE IFB WAS ISSUED, THE PROCURING ACTIVITY WAS ADVISED THAT THE TIRE CHAIN ASSEMBLIES WERE INCLUDED ON THE TACOM LIST OF CANDIDATE ITEMS COVERED BY THE MOU. PURSUANT TO THE INSTRUCTIONS ISSUED IN IMPLEMENTATION OF THE MOU THE PROCURING ACTIVITY INCLUDED IN THE IFB THE REQUIRED NOTICE OF POTENTIAL NORWEGIAN SOURCE COMPETITION AND THE DUTY- FREE NORWEGIAN END PRODUCTS CLAUSES.

THE CONTRACTING OFFICER STATES THAT NOSTED'S LOW BID WILL BE SUBMITTED TO THE SECRETARY OF DEFENSE FOR DETERMINATION WHETHER IT WOULD BE IN THE PUBLIC INTEREST TO WAIVE THE RESTRICTIONS OF THE BUY AMERICAN ACT ONLY IF SUCH BID IS FIRST FOUND BY THE CONTRACTING OFFICER TO BE COMPLETELY ACCEPTABLE. TO THIS END A PREAWARD SURVEY OF NOSTED IS BEING CONDUCTED BY THE UNITED STATES PROCUREMENT CENTER, FRANKFURT, GERMANY. IF THE SURVEY REPORT IS UNFAVORABLE, THE CONTRACTING OFFICER FURTHER STATES, NO REFERRAL WILL BE MADE TO THE SECRETARY OF DEFENSE RESPECTING NOSTED'S BID, AND AWARD WILL BE MADE TO THAT LOW BIDDER WHO IS DETERMINED TO BE BOTH RESPONSIVE AND RESPONSIBLE.

THE INTENT OF THE CONGRESS WITH RESPECT TO APPLICATION OF THE PROVISIONS OF THE BUY AMERICAN ACT, AUTHORIZING DETERMINATIONS BY THE AGENCY HEAD CONCERNED THAT APPLICATION OF THE ACT WOULD BE INCONSISTENT WITH THE PUBLIC INTEREST, IS CLARIFIED IN 41 U.S.C. 10D AS FOLLOWS:

IN ORDER TO CLARIFY THE ORIGINAL INTENT OF CONGRESS, HEREAFTER, SECTION 10A OF THIS TITLE AND THAT PART OF SECTION 10B (A) OF THIS TITLE PRECEDING THE WORDS "PROVIDED, HOWEVER," SHALL BE REGARDED AS REQUIRING THE PURCHASE, FOR PUBLIC USE WITHIN THE UNITED STATES, OF ARTICLES, MATERIALS, OR SUPPLIES MANUFACTURED IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF A SATISFACTORY QUALITY, UNLESS THE HEAD OF THE DEPARTMENT OR INDEPENDENT ESTABLISHMENT CONCERNED SHALL DETERMINE THEIR PURCHASE TO BE INCONSISTENT WITH THE PUBLIC INTEREST OR THEIR COST TO BE UNREASONABLE.

UNDER SUCH PROVISIONS, THE DECISIONS AS TO WHETHER IT IS IN THE PUBLIC INTEREST TO APPLY THE BUY AMERICAN ACT TO FEDERAL PROCUREMENTS ARE MATTERS OF DISCRETION WHICH IS VESTED IN THE HEADS OF THE GOVERNMENT DEPARTMENTS. IN THE EXERCISE OF SUCH ADMINISTRATIVE DISCRETION, AND PURSUANT TO THE MOU IN QUESTION, APPROPRIATE OFFICIALS IN DOD HAVE DETERMINED THAT IT WOULD BE INCONSISTENT WITH THE PUBLIC INTEREST TO APPLY THE BUY AMERICAN ACT RESTRICTIONS TO CERTAIN SUPPLIES OF NORWEGIAN SOURCE. FURTHER, IT IS TO BE NOTED THAT THE PROCEDURES WHICH ARE APPLIED IN CONNECTION WITH PROCUREMENT OF SUCH PRODUCTS UNDER THE MOU ARE CONSISTENT WITH THE PROCEDURES APPLIED UNDER ASPR 6-504 TO BIDS OFFERING CANADIAN END PRODUCTS, THE LEGALITY OF WHICH WE HAVE UPHELD AS A PROPER EXERCISE BY DOD OF ITS DISCRETION UNDER THE "PUBLIC INTEREST" EXCEPTION IN THE BUY AMERICAN ACT. B-151898, AUGUST 22, 1963. IN THE CIRCUMSTANCES, WE DO NOT BELIEVE THAT THE WAIVER OF THE RESTRICTIONS OF THE BUY AMERICAN ACT AS TO THE END PRODUCTS OFFERED BY NOSTED IN THIS PROCUREMENT MAY BE REGARDED AS IN VIOLATION OF THAT STATUTE. SEE B-170026, DECEMBER 14, 1970.

AS TO THE IMPACT OF ANY SUCH WAIVER UPON THE BALANCE OF PAYMENTS POLICY, IT IS APPARENT FROM THE LANGUAGE QUOTED ABOVE FROM THE MOU WITH NORWAY THAT SUCH FACTOR WAS CONSIDERED IN THE EXECUTION OF THE AGREEMENT. FOR YOUR INFORMATION, HOWEVER, THE MOU REFLECTS A TARGET FOR PROCUREMENT BY THE GOVERNMENT OF NORWAY FROM SOURCES IN THE UNITED STATES WHICH IS SEVERAL TIMES GREATER IN MONEY VALUE THAN THE TARGET SET BY THE UNITED STATES FOR PURCHASES FROM NORWAY.

CONCERNING THE EFFECT OF PRESIDENTIAL PROCLAMATION 4074 ON THIS PROCUREMENT, YOU ARE ADVISED THAT THE 10 PERCENT LEVY IMPOSED BY THE PROCLAMATION IS AN ADDITIONAL CUSTOMS DUTY APPLICABLE ONLY TO DUTIABLE ARTICLES IMPORTED INTO THE CUSTOMS TERRITORY OF THE UNITED STATES. THIS CONNECTION, THE DEPARTMENT OF DEFENSE HAS ISSUED GUIDELINES FOR THE MILITARY PROCUREMENT ACTIVITIES IN DEFENSE PROCUREMENT CIRCULAR NO. 91, SUPPLEMENT NO. 2, DATED AUGUST 30, 1971, TO THE EFFECT THAT ALL PROVISIONS OF SECTION VI OR ASPR WILL CONTINUE TO APPLY TO PURCHASES OF FOREIGN-MADE ITEMS; I.E., WHERE DUTY IS A BID EVALUATION FACTOR, THE ADDITIONAL DUTY WILL BE CONSIDERED, BUT WHERE FOREIGN PRODUCTS ARE EXEMPT FROM THE RESTRICTIONS OF THE BUY AMERICAN ACT AND THEREFORE ALSO EXEMPT FROM IMPORT DUTY, THE ADDITIONAL DUTY WILL NOT BE AN EVALUATION FACTOR.

INASMUCH AS NORWEGIAN END PRODUCTS, AS DEFINED IN THE IFB, ARE EXEMPTED FROM IMPORT DUTY UNDER THE PROVISIONS OF PARAGRAPH D-11, INCIDENT TO THEIR EXEMPTION FROM BUY AMERICAN ACT RESTRICTIONS, NO IMPORT DUTY, INCLUDING THE ADDITIONAL DUTY IMPOSED BY PROCLAMATION 4074, APPLIES. IT FOLLOWS THAT NO IMPORT DUTY IS REQUIRED TO BE CONSIDERED IN THE EVALUATION OF NOSTED'S BID.

FOR THE REASONS STATED, WE SEE NO LEGAL BASIS FOR OBJECTION TO THE EVALUATION OF NOSTED'S BID IN ACCORDANCE WITH THE PROVISIONS OF THE IFB, AS PROPOSED BY THE DEPARTMENT OF THE ARMY, AS THE LOWEST BID OR FOR OBJECTION TO AN AWARD BASED ON SUCH BID IN THE EVENT NOSTED IS DETERMINED TO BE A RESPONSIBLE PROSPECTIVE CONTRACTOR AND THE SECRETARY OF DEFENSE ISSUES A WAIVER OF THE BUY AMERICAN ACT RESTRICTIONS AS TO THE BID. YOUR PROTEST IS THEREFORE DENIED.