B-174513, JAN 7, 1972

B-174513: Jan 7, 1972

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A BUY AMERICAN ACT CLAUSE IS INCLUDED IN THE PRIME CONTRACT AS PRESCRIBED BY ASPR 7-602.20 AND 18-509.5. EXECUTIVE ORDER 10582 HAS PROVIDED THAT ITEMS WILL BE TERMED "DOMESTIC CONSTRUCTION MATERIAL" UNDER THE BUY AMERICAN ACT IF SUCH MATERIALS CONSTITUTE FIFTY PERCENT OF THE COST OF ALL THE PRODUCTS USED IN SUCH MATERIALS. IN VIEW OF THE FACT THAT BOTH DEMAG AND THE PROCURING ACTIVITY HAVE CERTIFIED THAT DOMESTIC MATERIALS INCORPORATED IN THE DEMAG CRANE WILL ACCOUNT FOR MORE THAN SEVENTY-ONE PERCENT OF THE TOTAL COST OF ALL THE MATERIALS USED. IS CONSTRUCTING THE BUILDING FOR THE DEPARTMENT OF THE AIR FORCE UNDER PRIME CONTRACT F20613-72-C 0022. YOU STATE THAT THE PROPOSED SUBCONTRACTOR FOR SUPPLYING THE CRANE IS DEMAG CORPORATION OF WEST GERMANY.

B-174513, JAN 7, 1972

BID PROTEST - PROPRIETY OF PROCUREMENT - BUY AMERICAN ACT DECISION DENYING PROTEST BY ALBERT W. TAYLOR AGAINST THE PROCUREMENT OF A CRANE AND HOIST THROUGH THE BABUSH CORPORATION, A DEALER FOR THE DEMAG CORPORATION, AND A SUBCONTRACTOR UNDER A PRIME CONTRACT AWARDED TO CHAMPION, INC., FOR THE CONSTRUCTION OF A BUILDING AT SAWYER AFB, MICH. PROTESTANT QUESTIONS THE PROPRIETY OF THE PROCUREMENT IN LIGHT OF CURRENT ECONOMIC CONDITIONS AND THE AVAILABILITY OF SPARE PARTS IN TIMES OF NATIONAL EMERGENCY. A BUY AMERICAN ACT CLAUSE IS INCLUDED IN THE PRIME CONTRACT AS PRESCRIBED BY ASPR 7-602.20 AND 18-509.5. SINCE 1954, EXECUTIVE ORDER 10582 HAS PROVIDED THAT ITEMS WILL BE TERMED "DOMESTIC CONSTRUCTION MATERIAL" UNDER THE BUY AMERICAN ACT IF SUCH MATERIALS CONSTITUTE FIFTY PERCENT OF THE COST OF ALL THE PRODUCTS USED IN SUCH MATERIALS. IN VIEW OF THE FACT THAT BOTH DEMAG AND THE PROCURING ACTIVITY HAVE CERTIFIED THAT DOMESTIC MATERIALS INCORPORATED IN THE DEMAG CRANE WILL ACCOUNT FOR MORE THAN SEVENTY-ONE PERCENT OF THE TOTAL COST OF ALL THE MATERIALS USED, AND IN THE ABSENCE OF ANY EVIDENCE OF CONGRESSIONAL INTENT CONCERNING THE AVAILABILITY OF SPARE PARTS, THE COMP. GEN. SEES NO LEGAL BASIS TO OBJECT TO THE AWARD.

TO MR. ALBERT W. TAYLOR:

WE REFER TO YOUR PROTEST, BY LETTER OF NOVEMBER 5, 1971, ADDRESSED TO SENATOR WILLIAM PROXMIRE, AGAINST PROCUREMENT OF A CRANE AND HOIST, WHICH YOU BELIEVE TO BE OF WEST GERMAN MANUFACTURE, FOR INSTALLATION IN A MISSILE ASSEMBLY BUILDING AT SAWYER AIR FORCE BASE, MICHIGAN. CHAMPION, INC., IRON MOUNTAIN, MICHIGAN, IS CONSTRUCTING THE BUILDING FOR THE DEPARTMENT OF THE AIR FORCE UNDER PRIME CONTRACT F20613-72-C 0022, AND YOU STATE THAT THE PROPOSED SUBCONTRACTOR FOR SUPPLYING THE CRANE IS DEMAG CORPORATION OF WEST GERMANY.

YOU QUESTION THE PROPRIETY IN THIS INSTANCE OF USE OF EQUIPMENT OF FOREIGN MANUFACTURE IN LIGHT OF CURRENT ECONOMIC CONDITIONS IN THIS COUNTRY, THE BALANCE OF PAYMENTS SITUATION, AND CONSIDERATIONS WHICH WOULD BE INVOLVED IN OBTAINING SPARE PARTS IN THE EVENT OF A NATIONAL EMERGENCY AND BREAKDOWN OF THE EQUIPMENT, IN ORDER TO KEEP THE EQUIPMENT IN OPERATION.

THE PRIME CONTRACT INCLUDES THE BUY AMERICAN ACT CLAUSE PRESCRIBED BY ARMED SERVICES PROCUREMENT REGULATION (ASPR) 7-602.20 AND 18-509.5, WHICH READS AS FOLLOWS:

"BUY AMERICAN ACT (1966 OCT)

(A) AGREEMENT. IN ACCORDANCE WITH THE BUY AMERICAN ACT (41 U.S.C. 10A- 10D), THE CONTRACTOR AGREES THAT ONLY DOMESTIC CONSTRUCTION MATERIAL WILL BE USED (BY THE CONTRACTOR, SUBCONTRACTORS, MATERIALMEN, AND SUPPLIERS) IN THE PERFORMANCE OF THIS CONTRACT, EXCEPT FOR NONDOMESTIC CONSTRUCTION MATERIAL LISTED IN THE 'NONDOMESTIC CONSTRUCTION MATERIALS' CLAUSE, IF ANY, OF THIS CONTRACT.

"(B) DOMESTIC CONSTRUCTION MATERIAL. 'CONSTRUCTION MATERIAL' MEANS ANY ARTICLE, MATERIAL, OR SUPPLY BROUGHT TO THE CONSTRUCTION SITE FOR INCORPORATION IN THE BUILDING OR WORK. AN UNMANUFACTURED CONSTRUCTION MATERIAL IS A 'DOMESTIC CONSTRUCTION MATERIAL' IF IT HAS BEEN MINED OR PRODUCED IN THE UNITED STATES. A MANUFACTURED CONSTRUCTION MATERIAL IS A 'DOMESTIC CONSTRUCTION MATERIAL' IF IT HAS BEEN MANUFACTURED IN THE UNITED STATES AND IF THE COST OF ITS COMPONENTS WHICH HAVE BEEN MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES EXCEEDS 50 PERCENT OF THE COST OF ALL ITS COMPONENTS. 'COMPONENT' MEANS ANY ARTICLE, MATERIAL, OR SUPPLY DIRECTLY INCORPORATED IN A CONSTRUCTION MATERIAL.

(C) DOMESTIC COMPONENT. A COMPONENT SHALL BE CONSIDERED TO HAVE BEEN 'MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES' (REGARDLESS OF ITS SOURCE IN FACT) IF THE ARTICLE, MATERIAL, OR SUPPLY IN WHICH IT IS INCORPORATED WAS MANUFACTURED IN THE UNITED STATES AND THE COMPONENT IS OF A CLASS OR KIND DETERMINED BY THE GOVERNMENT TO BE NOT MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF A SATISFACTORY QUALITY."

THE RECORD FORWARDED TO OUR OFFICE BY THE DEPARTMENT OF THE AIR FORCE INDICATES THAT THE PRIME CONTRACTOR HAS PLACED AN ORDER WITH THE BABUSH CORPORATION (BABUSH), MILWAUKEE, WISCONSIN, FOR ONE DEMAG MODEL 122H1 10- TON, 38'-0" SPAN MOTOR DRIVEN CRANE, WHICH IS TO BE MANUFACTURED IN CLEVELAND, OHIO, OF DOMESTIC AND IMPORTED MATERIALS. BABUSH IS A DEALER FOR DEMAG MATERIAL HANDLING CORPORATION (DEMAG), WHO HAS FURNISHED TO THE CONTRACTING OFFICER A BREAKDOWN OF THE COST OF THE MATERIALS TO BE USED IN THE CRANE, WHICH SHOWS THAT THE DOMESTIC MATERIALS WILL ACCOUNT FOR APPROXIMATELY 71 PERCENT OF THE TOTAL COST OF ALL MATERIALS. POOR'S REGISTER OF CORPORATIONS, DIRECTORS AND EXECUTIVES 1971 INDICATES THAT DEMAG, WHOSE PRODUCTS INCLUDE CRANES AND HOISTS, IS BASED IN ONTARIO, CANADA, AND THAT IT IS A SUBSIDIARY OF A GERMAN CORPORATION.

BASED ON THE INFORMATION FURNISHED BY BABUSH AND DEMAG, THE DEPARTMENT OF THE AIR FORCE TAKES THE POSITION THAT PROCUREMENT OF THE DEMAG CRANE WILL BE IN COMPLIANCE WITH THE PROVISIONS OF THE BUY AMERICAN ACT CLAUSE IN THE PRIME CONTRACT.

THE BUY AMERICAN ACT, CITED IN THE CONTRACT CLAUSE QUOTED ABOVE, READS, IN PART, AS FOLLOWS:

SECTION 2 (41 U.S.C. 10A)

"AMERICAN MATERIALS REQUIRED FOR PUBLIC USE.

"NOTWITHSTANDING ANY OTHER PROVISION OF LAW, AND UNLESS THE HEAD OF THE DEPARTMENT OR INDEPENDENT ESTABLISHMENT CONCERNED SHALL DETERMINE IT TO BE INCONSISTENT WITH THE PUBLIC INTEREST, OR THE COST TO BE UNREASONABLE, ONLY SUCH UNMANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MINED OR PRODUCED IN THE UNITED STATES, AND ONLY SUCH MANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MANUFACTURED IN THE UNITED STATES SUBSTANTIALLY ALL FROM ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES, SHALL BE ACQUIRED FOR PUBLIC USE. ***

SECTION 3 (41 U.S.C. 10B)

"CONTRACTS FOR PUBLIC WORKS: SPECIFICATION FOR USE OF AMERICAN MATERIALS; BLACKLISTING CONTRACTORS VIOLATING REQUIREMENTS.

"(A) EVERY CONTRACT FOR THE CONSTRUCTION, ALTERATION, OR REPAIR OF ANY PUBLIC BUILDING OR PUBLIC WORK IN THE UNITED STATES GROWING OUT OF AN APPROPRIATION HERETOFORE MADE OR HEREAFTER TO BE MADE SHALL CONTAIN A PROVISION THAT IN THE PERFORMANCE OF THE WORK THE CONTRACTOR, SUBCONTRACTORS, MATERIALMEN, OR SUPPLIERS, SHALL USE ONLY SUCH UNMANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MINED OR PRODUCED IN THE UNITED STATES, AND ONLY SUCH MANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MANUFACTURED IN THE UNITED STATES SUBSTANTIALLY ALL FROM ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES EXCEPT AS PROVIDED IN SECTION 10A OF THIS TITLE: PROVIDED, HOWEVER, THAT IF THE HEAD OF THE DEPARTMENT OR INDEPENDENT ESTABLISHMENT MAKING THE CONTRACT SHALL FIND THAT IN RESPECT TO SOME PARTICULAR ARTICLES, MATERIALS, OR SUPPLIES IT IS IMPRACTICABLE TO MAKE SUCH REQUIREMENT OR THAT IT WOULD UNREASONABLY INCREASE THE COST, AN EXCEPTION SHALL BE NOTED IN THE SPECIFICATIONS AS TO THAT PARTICULAR ARTICLE, MATERIAL, OR SUPPLY, AND A PUBLIC RECORD MADE OF THE FINDINGS WHICH JUSTIFIED THE EXCEPTION."

EXECUTIVE ORDER 10582, ISSUED BY PRESIDENT EISENHOWER ON DECEMBER 17, 1954, INCLUDES THE FOLLOWING PERTINENT PROVISIONS BY WAY OF IMPLEMENTATION OF THE PROVISIONS OF THE BUY AMERICAN ACT:

"SECTION 1. AS USED IN THIS ORDER, (A) THE TERM 'MATERIALS' INCLUDES ARTICLES AND SUPPLIES, (B) THE TERM 'EXECUTIVE AGENCY' INCLUDES EXECUTIVE DEPARTMENT, INDEPENDENT ESTABLISHMENT, AND OTHER INSTRUMENTALITY OF THE EXECUTIVE BRANCH OF THE GOVERNMENT, AND (C) THE TERM 'BID OR OFFERED PRICE OF MATERIALS OF FOREIGN ORIGIN' MEANS THE BID OR OFFERED PRICE OF SUCH MATERIALS DELIVERED AT THE PLACE SPECIFIED IN THE INVITATION TO BID INCLUDING APPLICABLE DUTY AND ALL COSTS INCURRED AFTER ARRIVAL IN THE UNITED STATES.

"SEC. 2. (A) FOR THE PURPOSES OF THIS ORDER MATERIALS SHALL BE CONSIDERED TO BE OF FOREIGN ORIGIN IF THE COST OF THE FOREIGN PRODUCTS USED IN SUCH MATERIALS CONSTITUTES FIFTY PER CENTUM OR MORE OF THE COST OF ALL THE PRODUCTS USED IN SUCH MATERIALS.

"(B) FOR THE PURPOSES OF THE SAID ACT OF MARCH 3, 1933, AND THE OTHER LAWS REFERRED TO IN THE FIRST PARAGRAPH OF THE PREAMBLE OF THIS ORDER, THE BID OR OFFERED PRICE OF MATERIALS OF DOMESTIC ORIGIN SHALL BE DEEMED TO BE UNREASONABLE, OR THE PURCHASE OF SUCH MATERIALS SHALL BE DEEMED TO BE INCONSISTENT WITH THE PUBLIC INTEREST, IF THE BID OR OFFERED PRICE THEREOF EXCEEDS THE SUM OF THE BID OR OFFERED PRICE OF LIKE MATERIALS OF FOREIGN ORIGIN AND A DIFFERENTIAL COMPUTED AS PROVIDED IN SUBSECTION (C) OF THIS SECTION.

"(C) THE EXECUTIVE AGENCY CONCERNED SHALL IN EACH INSTANCE DETERMINE THE AMOUNT OF THE DIFFERENTIAL REFERRED TO IN SUBSECTION (B) OF THIS SECTION ON THE BASIS OF ONE OF THE FOLLOWING-DESCRIBED FORMULAS, SUBJECT TO THE TERMS THEREOF:

"(1) THE SUM DETERMINED BY COMPUTING SIX PER CENTUM OF THE BID OR OFFERED PRICE OF MATERIALS OF FOREIGN ORIGIN.

"(2) THE SUM DETERMINED BY COMPUTING TEN PER CENTUM OF THE BID OR OFFERED PRICE OF MATERIALS OF FOREIGN ORIGIN EXCLUSIVE OF APPLICABLE DUTY AND ALL COSTS INCURRED AFTER ARRIVAL IN THE UNITED STATES: PROVIDED THAT WHEN THE BID OR OFFERED PRICE OF MATERIALS OF FOREIGN ORIGIN AMOUNTS TO LESS THAN $25,000, THE SUM SHALL BE DETERMINED BY COMPUTING TEN PER CENTUM OF SUCH PRICE EXCLUSIVE ONLY OF APPLICABLE DUTY."

THE BUY AMERICAN ACT CLAUSE IN THE PRIME CONTRACT IS CONSISTENT WITH THE PROVISIONS OF THE BUY AMERICAN ACT AND THE EXECUTIVE ORDER. FURTHER, THE 50-PERCENT RULE SET FORTH IN THE EXECUTIVE ORDER AND IN THE ASPR AND THE CLAUSE PRESCRIBED THEREBY HAS BEEN ACCEPTED SINCE 1954 AS THE SOLE TEST OF WHETHER A MANUFACTURED ARTICLE OF SUPPLY OR MATERIAL HAS BEEN MANUFACTURED "SUBSTANTIALLY ALL" FROM DOMESTIC ARTICLES, MATERIALS OR SUPPLIES WITHIN THE MEANING OF THE STATUTE. WHERE NONDOMESTIC MATERIAL IS MERELY INCORPORATED WITH DOMESTIC MATERIAL IN DOMESTICALLY MANUFACTURED CONSTRUCTION MATERIAL AND THE COST OF THE NONDOMESTIC MATERIAL REPRESENTS LESS THAN 50 PERCENT OF THE COST OF BOTH CLASSES OF MATERIAL, THE CONSTRUCTION MATERIAL IS DOMESTIC UNDER THE TERMS OF THE BUY AMERICAN ACT CLAUSE AND ITS USE DOES NOT VIOLATE THE BUY AMERICAN STIPULATION THEREIN. 46 COMP. GEN. 813 (1967).

IN THIS CASE THE PROCUREMENT ACTIVITY HAS ASCERTAINED THAT THE DEMAG CRANE WILL BE MANUFACTURED IN CLEVELAND AND THAT THE DOMESTIC MATERIAL INCORPORATED THEREIN WILL ACCOUNT FOR MORE THAN 71 PERCENT OF THE TOTAL COST OF ALL MATERIAL USED IN THE CRANE. WHILE THE USE OF FOREIGN MATERIAL IN THE CRANE MAY HAVE SOME IMPACT ON THE DOMESTIC ECONOMY AND ON THE BALANCE OF PAYMENTS, THE CRANE NEVERTHELESS WILL MEET THE DEFINITION OF A MANUFACTURED "DOMESTIC CONSTRUCTION MATERIAL" IN THE BUY AMERICAN ACT CLAUSE IN THE CONTRACT, AND ITS PROCUREMENT THEREFORE WILL NOT VIOLATE THE STATUTE OR THE IMPLEMENTING PROVISIONS OF THE EXECUTIVE ORDER AND THE PROCUREMENT REGULATIONS.

AS TO THE ISSUE OF AVAILABILITY OF SPARE PARTS FOR THE DEMAG CRANE, IT IS APPARENT THAT WHERE, AS HERE, AN END PRODUCT INCLUDES COMPONENTS OR MATERIALS OF FOREIGN ORIGIN, THERE IS INVOLVED A RISK THAT REPLACEMENT OF SUCH COMPONENTS OR MATERIALS MAY BECOME DIFFICULT OR EVEN IMPOSSIBLE. THE BUY AMERICAN ACT, HOWEVER, DOES NOT REQUIRE THAT THE END PRODUCTS WHICH ARE TO BE PREFERRED FOR PUBLIC USE SHALL BE COMPRISED ENTIRELY OF DOMESTIC COMPONENTS OR MATERIALS; RATHER, THE STATUTE USES THE TERM "SUBSTANTIALLY ALL" TO DESCRIBE THE REQUIRED DEGREE OF DOMESTICITY FOR PREFERRED END PRODUCTS. SINCE 1954 THE 50 PERCENT COMPONENT COST RULE SET FORTH IN THE IMPLEMENTING PROVISIONS OF EXECUTIVE ORDER 10582 AND THE PROCUREMENT REGULATIONS HAS BEEN ACCEPTED AS THE SOLE TEST OF WHETHER AN END PRODUCT IS COMPRISED "SUBSTANTIALLY ALL" OF DOMESTIC COMPONENTS OR MATERIALS WITHIN THE MEANING OF THE STATUTE. IT MUST BE ASSUMED THAT THE CONGRESS, IN INCLUDING THE "SUBSTANTIALLY ALL" CRITERIA IN THE BUY AMERICAN ACT, WAS AWARE OF THE POSSIBILITY THAT FOREIGN COMPONENTS OR MATERIALS USED IN DOMESTIC END PRODUCTS MAY NOT BE REPLACEABLE IN THE EVENT OF A NATIONAL EMERGENCY, BUT DID NOT CONSIDER THAT POSSIBILITY OF SUFFICIENT SIGNIFICANCE TO WARRANT LEGISLATION REQUIRING GOVERNMENT SUPPLIES TO BE MANUFACTURED EXCLUSIVELY FROM DOMESTIC MATERIALS OR COMPONENTS. IN THE ABSENCE OF ANY INDICATION THAT SUCH WAS THE CONGRESSIONAL INTENT, THIS OFFICE IS WITHOUT AUTHORITY TO IMPOSE SUCH A REQUIREMENT ON THE PROCURING AGENCIES OF THE GOVERNMENT.

FOR THE REASONS STATED, WE SEE NO LEGAL BASIS TO OBJECT TO THE PROCUREMENT OF THE DEMAG CRANE. YOUR PROTEST IS THEREFORE DENIED.