B-181268, NOV 13, 1974

B-181268: Nov 13, 1974

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THERE IS NO BASIS FOR GAO TO DIRECT PROCURING AGENCY TO CANCEL IFB AND OBTAIN ITEM ON SOLE-SOURCE BASIS FROM PROTESTER IN ORDER TO SATISFY NEEDS OF FOREIGN COUNTRY. 529 ARE TO BE RESOLD TO THE GOVERNMENT OF IRAN AND THE REMAINING 7 UNITS ARE GOING ULTIMATELY TO THE GOVERNMENT OF GREECE. SENTINEL ELECTRONICS (SENTINEL) ALLEGES THAT THE SUBJECT PROCUREMENT IS ILLEGAL. SENTINEL'S ALLEGATION IS BASED ON SECTION 22 OF THE FOREIGN MILITARY SALES ACT (FMSA). SENTINEL HAS EXPRESSED THE VIEW THAT THE PROCUREMENT IS ILLEGAL UNDER BOTH THE FMSA AND DEPARTMENT OF DEFENSE REGULATIONS. THE ARMY CONCURS WITH SENTINEL'S OBSERVATION THAT THE PROCUREMENT IS OF UNCLASSIFIED. COMMERCIALLY AVAILABLE MILITARY EQUIPMENT WHICH WILL BE RESOLD IN MAJOR PART TO THE GOVERNMENT OF IRAN.

B-181268, NOV 13, 1974

1. THE PROPOSED SALE BY THE ARMY OF AN UNCLASSIFIED, COMMERCIALLY AVAILABLE DEFENSE ARTICLE TO AN ECONOMICALLY DEVELOPED NATION DOES NOT CONTRAVENE EITHER SECTION 22 OF THE FOREIGN MILITARY SALES ACT, 22 U.S.C. SEC 2762 (1970 ED.), AS AMENDED BY PUBLIC LAW NO. 93-189, DECEMBER 17, 1973, OR DEPARTMENT OF DEFENSE REGULATIONS WHICH PERMIT SUCH SALES AS IN THE NATIONAL INTEREST WHEN MADE PURSUANT TO A GOVERNMENT-TO-GOVERNMENT AGREEMENT, AS HERE. 2. THERE IS NO BASIS FOR GAO TO DIRECT PROCURING AGENCY TO CANCEL IFB AND OBTAIN ITEM ON SOLE-SOURCE BASIS FROM PROTESTER IN ORDER TO SATISFY NEEDS OF FOREIGN COUNTRY, ABSENT AN INDICATION FROM THAT COUNTRY THAT IT DESIRES SOLE-SOURCE PROCUREMENT.

SENTINEL ELECTRONICS, INC.:

INVITATION FOR BIDS (IFB) NO. DAAB07-74-B-0438, ISSUED BY THE ARMY ELECTRONICS COMMAND, FORT MONMOUTH, NEW JERSEY, CALLED FOR BIDS COVERING THE PROCUREMENT OF 1,536 RADIO SETS. OF THESE UNCLASSIFIED MILITARY RADIOS, 1,529 ARE TO BE RESOLD TO THE GOVERNMENT OF IRAN AND THE REMAINING 7 UNITS ARE GOING ULTIMATELY TO THE GOVERNMENT OF GREECE.

SENTINEL ELECTRONICS (SENTINEL) ALLEGES THAT THE SUBJECT PROCUREMENT IS ILLEGAL. SENTINEL'S ALLEGATION IS BASED ON SECTION 22 OF THE FOREIGN MILITARY SALES ACT (FMSA), 22 U.S.C. SEC 2762 (1970 ED.) WHICH GOVERNS PROCUREMENT OF DEFENSE ARTICLES BY THE UNITED STATES FOR SALE TO FOREIGN COUNTRIES. SENTINEL HAS EXPRESSED THE VIEW THAT THE PROCUREMENT IS ILLEGAL UNDER BOTH THE FMSA AND DEPARTMENT OF DEFENSE REGULATIONS.

THE ARMY CONCURS WITH SENTINEL'S OBSERVATION THAT THE PROCUREMENT IS OF UNCLASSIFIED, COMMERCIALLY AVAILABLE MILITARY EQUIPMENT WHICH WILL BE RESOLD IN MAJOR PART TO THE GOVERNMENT OF IRAN. HOWEVER, THE ARMY BELIEVES THAT THE SUBJECT PROCUREMENT IS NOT ILLEGAL. BASED ON THE FACTS OF THE CASE, WE MUST AGREE WITH THE ARMY'S POSITION.

WE BELIEVE THE MOST LOGICAL DEVELOPMENT OF THE ISSUES PRESENTED BY THIS PROTEST IS THROUGH SEPARATE DISCUSSION OF THE STATUTES AND REGULATIONS GOVERNING FOREIGN MILITARY SALES BY THE DEPARTMENT OF THE ARMY.

STATUTES

FOR A NUMBER OF YEARS, THE EXECUTIVE DEPARTMENT HAS BEEN AUTHORIZED TO ENTER INTO CONTRACTS FOR THE PROCUREMENT OF DEFENSE ARTICLES WHICH ARE TO BE RESOLD TO FRIENDLY COUNTRIES OR INTERNATIONAL ORGANIZATIONS. THE FOLLOWING LIMITATION WAS PLACED UPON THIS AUTHORITY BY THE FOREIGN ASSISTANCE ACT OF 1962, PUB. L. 87-565, PART II, CH. 1, SEC 201(C), 76 STAT. 259-60:

"NO SALES OF UNCLASSIFIED DEFENSE ARTICLES SHALL BE MADE TO THE GOVERNMENT OF ANY ECONOMICALLY DEVELOPED NATION UNDER PROVISIONS OF THIS SECTION UNLESS SUCH ARTICLES ARE NOT GENERALLY AVAILABLE FOR PURCHASE BY SUCH NATIONS FROM COMMERCIAL SOURCES IN THE UNITED STATES: PROVIDED, HOWEVER, THAT THE SECRETARY OF DEFENSE MAY WAIVE THE PROVISIONS OF THIS SENTENCE WHEN HE DETERMINES THE WAIVER OF SUCH PROVISIONS IS IN THE NATIONAL INTEREST."

THE FOREIGN MILITARY SALES ACT SUBSTITUTED THE PRESIDENT FOR THE SECRETARY OF DEFENSE AS THE AUTHORITY TO WAIVE THE PROVISIONS OF THE STATUTE. ACT OF OCTOBER 22, 1968, PUB. L. 90-629, CH. 1, SEC. 22, 82 STAT. 1324.

THIS WAS THE LAW WHICH WAS IN EFFECT AT THE TIME THE UNITED STATES CONTRACTED WITH THE GOVERNMENT OF IRAN TO SUPPLY IT WITH THE RADIO SETS. HOWEVER, BEFORE THE INSTANT SOLICITATION WAS ISSUED, THE FOREIGN MILITARY SALES ACT HAD BEEN AMENDED BY THE FOREIGN ASSISTANCE ACT OF 1973, PUB. L. 93-189, DECEMBER 17, 1973. SECTION 25(1) OF PUB. L. 93 189, 87 STAT. 729, CONTAINS THE FOLLOWING GENERAL POLICY STATEMENT:

"IN ORDER TO REDUCE THE ROLE OF THE UNITED STATES GOVERNMENT IN THE FURNISHING OF DEFENSE ARTICLES AND DEFENSE SERVICES TO FOREIGN COUNTRIES AND INTERNATIONAL ORGANIZATIONS, AND RETURN SUCH TRANSACTIONS TO COMMERCIAL CHANNELS, THE UNITED STATES GOVERNMENT SHALL REDUCE ITS SALES, CREDIT SALES, AND GUARANTEES OF SUCH ARTICLES AND DEFENSE SERVICES AS SOON AS, AND TO THE MAXIMUM EXTENT PRACTICABLE."

ADDITIONALLY, SECTION 25(3) OF THE 1973 ACT, 87 STAT. 730, AMENDED SECTION 22 OF THE FOREIGN MILITARY SALES ACT, INSOFAR AS IT IS PERTINENT HERE, TO DELETE THE ABOVE-QUOTED PROVISO CONTAINED IN THE 1962 AND 1968 ACTS. SECTION 22 OF THE FOREIGN MILITARY SALES ACT NOW STATES IN ITS ENTIRETY:

"SEC. 22. PROCUREMENT FOR CASH SALES:-

(A) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE PRESIDENT MAY, WITHOUT REQUIREMENT FOR CHARGE TO ANY APPROPRIATION OR CONTRACT AUTHORIZATION OTHERWISE PROVIDED, ENTER INTO CONTRACTS FOR THE PROCUREMENT OF DEFENSE ARTICLES OR DEFENSE SERVICES FOR SALE FOR UNITED STATES DOLLARS TO ANY FOREIGN COUNTRY OR INTERNATIONAL ORGANIZATION IF SUCH COUNTRY OR INTERNATIONAL ORGANIZATION PROVIDES THE UNITED STATES GOVERNMENT WITH A DEPENDABLE UNDERTAKING (1) TO PAY THE FULL AMOUNT OF SUCH CONTRACT WHICH WILL INSURE THE UNITED STATES GOVERNMENT AGAINST ANY LOSS ON THE CONTRACT, AND (2) TO MAKE FUNDS AVAILABLE IN SUCH AMOUNTS AND AT SUCH TIMES AS MAY BE REQUIRED TO MEET THE PAYMENTS REQUIRED BY THE CONTRACT, AND ANY DAMAGES AND COSTS THAT MAY ACCRUE FROM THE CANCELLATION OF SUCH CONTRACT, IN ADVANCE OF THE TIME SUCH PAYMENTS, DAMAGES, OR COSTS ARE DUE.

(B) THE PRESIDENT MAY, WHEN HE DETERMINES IT TO BE IN THE NATIONAL INTEREST, ACCEPT A DEPENDABLE UNDERTAKING OF A FOREIGN COUNTRY OR INTERNATIONAL ORGANIZATION WITH RESPECT TO ANY SUCH SALE, TO MAKE FULL PAYMENT WITHIN 120 DAYS AFTER DELIVERY OF THE DEFENSE ARTICLES OR THE RENDERING OF THE DEFENSE SERVICES. APPROPRIATIONS AVAILABLE TO THE DEPARTMENT OF DEFENSE MAY BE USED TO MEET THE PAYMENTS REQUIRED BY THE CONTRACTS FOR THE PROCUREMENT OF DEFENSE ARTICLES AND DEFENSE SERVICES AND SHALL BE REIMBURSED BY THE AMOUNTS SUBSEQUENTLY RECEIVED FROM THE COUNTRY OR INTERNATIONAL ORGANIZATION TO WHOM ARTICLES OR SERVICES ARE SOLD."

THEREFORE, WHEN THE INSTANT IFB WAS ISSUED, THERE WAS A GENERAL CONGRESSIONAL POLICY FAVORING THE REDUCTION OF FOREIGN MILITARY SALES BY THE UNITED STATES GOVERNMENT. HOWEVER, THERE WAS NO LONGER A SPECIFIC STATUTORY PROHIBITION AGAINST THE SALE OF UNCLASSIFIED, COMMERCIALLY AVAILABLE DEFENSE ARTICLES TO ECONOMICALLY DEVELOPED NATIONS.

SENTINEL ARGUES THAT THE INSTANT PROCUREMENT IS ILLEGAL BECAUSE TWO PRECEDENT CONDITIONS SET FORTH IN THE PRESENT SECTION 22 HAVE NOT BEEN SATISFIED. FIRST, SENTINEL CLAIMS THAT "THE STATUTE CONFERS AUTHORITY TO EFFECT THIS PROCUREMENT ON THE PRESIDENT OF THE UNITED STATES AND ON THAT INDIVIDUAL ONLY *** AND IT IS THE CASE THAT THIS AUTHORITY HAS, IN FACT, NOT BEEN DELEGATED." HOWEVER, BY EXECUTIVE ORDER NO. 11501, SECTION 1 (C), 34 F.R. 20169 (DECEMBER 22, 1969), AS AMENDED BY EXECUTIVE ORDER 11685, 37 F.R. 20155 (SEPTEMBER 27, 1972), THE PRESIDENT DELEGATED HIS FUNCTIONS UNDER SECTION 22 TO THE SECRETARY OF DEFENSE.

SENTINEL ALSO ALLEGES THAT THERE HAS BEEN NO "DEPENDABLE UNDERTAKING" BY THE GOVERNMENT OF IRAN AS REQUIRED BY SECTION 22. THIS CONTENTION IS NOT SUPPORTED BY THE RECORD. THE ADMINISTRATIVE REPORT FURNISHED OUR OFFICE BY THE ARMY IN RESPONSE TO THIS PROTEST INCLUDES A COPY OF A DEPARTMENT OF DEFENSE FORM 1513 (OFFER AND ACCEPTANCE) EXECUTED BY THE UNITED STATES AND IRANIAN GOVERNMENTS. THE DD 1513 CONSTITUTES A CONTRACT WHEREBY THE UNITED STATES AGREED TO SUPPLY CERTAIN DEFENSE ARTICLES TO IRAN IN EXCHANGE FOR THE LATTER'S DEPENDABLE UNDERTAKING THAT IT WOULD MAKE A SPECIFIED DEPOSIT AND PERIODIC PAYMENTS.

THEREFORE, THE PROCUREMENT VIOLATES NO SPECIFIC EXISTING STATUTORY PROVISIONS.

REGULATIONS

DEPARTMENT OF DEFENSE POLICY GOVERNING FOREIGN MILITARY SALES IS EXPRESSED IN REGULATIONS WHICH WERE PROMULGATED BEFORE THE AMENDMENT OF SECTION 22 IN DECEMBER 1973. THESE REGULATIONS THEREFORE SPECIFICALLY PROHIBIT THE MILITARY DEPARTMENTS FROM SELLING UNCLASSIFIED, COMMERCIALLY AVAILABLE DEFENSE ARTICLES TO ECONOMICALLY DEVELOPED NATIONS ABSENT A DETERMINATION THAT THE SALE IS NECESSARY IN THE NATIONAL INTEREST. THE RETENTION OF THIS RESTRICTION IS NO LONGER REQUIRED BY STATUTE. HOWEVER, WE DO NOT DEEM THE RESTRICTION AS IMPROPER SINCE, NOT ONLY DOES IT NOT APPEAR TO CONFLICT WITH THE CURRENT STATUTE, BUT TO THE EXTENT THAT IT PRECLUDES GOVERNMENTAL FOREIGN MILITARY SALES, IT FURTHERS THE CONGRESSIONAL POLICY OF DIRECTING SUCH SALES INTO COMMERCIAL CHANNELS.

THE ARMY AND SENTINEL APPEAR TO AGREE THAT THE INSTANT PROCUREMENT IS OF AN UNCLASSIFIED, COMMERCIALLY AVAILABLE DEFENSE ARTICLE FOR SALE TO AN ECONOMICALLY DEVELOPED NATION, AND THUS WOULD BE PROHIBITED UNDER THE DOD REGULATIONS IN THE ABSENCE OF A DETERMINATION THAT THE SALE WAS NECESSITATED BY THE NATIONAL INTEREST. SENTINEL'S ARGUMENTS, DIRECTED PRIMARILY TOWARD THE EXTENT TO WHICH THE AUTHORITY TO MAKE SUCH DETERMINATIONS HAS BEEN DELEGATED, ARE SIMILAR TO THOSE WHICH WE CONSIDERED IN B-160870, JULY 27, 1967.

IN A MEMORANDUM DATED AUGUST 6, 1970, ENTITLED "SALE OF COMMERCIALLY AVAILABLE ITEMS BY THE DEPARTMENT OF DEFENSE", THE SECRETARY OF DEFENSE ESTABLISHED GUIDELINES FOR THE SALE OF THOSE ITEMS AND STATED:

"4. RESPONSIBILITY FOR DETERMINING WHETHER, WITHIN THE CONTEXT OF THIS DIRECTIVE, AN ITEM IS TO BE OFFERED FOR SALE BY DOD RESTS WITH THE U.S. MILITARY DEPARTMENT PROCESSING THE FOREIGN COUNTRY'S PURCHASE REQUEST.

"7. SPECIAL PROVISIONS:

"B. PROVIDED CERTAIN RESTRICTIONS NOT HERE RELEVANT ARE MET, NOTHING IN THIS DIRECTIVE WILL BE CONSTRUED AS PRECLUDING DOD FROM MAKING ANY SALE IN ANY OF THE FOLLOWING CATEGORIES.

"(7) SALES MADE PURSUANT TO SPECIFIC GOVERNMENT-TO-GOVERNMENT AGREEMENTS APPROVED BY THE DEPUTY ASSISTANT SECRETARY OF DEFENSE, ISA (MA & S) OR HIGHER AUTHORITY."

THE ARMY'S POSITION IS THAT ITS SALE OF THE RADIOS TO IRAN IS PURSUANT TO A CONFIDENTIAL AGREEMENT BETWEEN THE UNITED STATES AND THAT COUNTRY (A COPY OF WHICH AGREEMENT WAS PROVIDED US). THEREFORE, THE ARMY HAS DETERMINED THAT THE SALE REPRESENTS AN EXCEPTION, WHICH IS IN THE NATIONAL INTEREST, TO THE GENERAL REGULATORY PROHIBITION AGAINST MILITARY DEPARTMENT SALES OF UNCLASSIFIED, COMMERCIALLY AVAILABLE DEFENSE ARTICLES TO ECONOMICALLY DEVELOPED COUNTRIES.

WE BELIEVE THAT PARAGRAPH 4 OF THE AUGUST 6, 1970, MEMORANDUM DELEGATED TO THE MILITARY DEPARTMENTS AND AGENCIES THE TASK OF DETERMINING, WITHIN CERTAIN GUIDELINES, WHEN THE NATIONAL INTEREST REQUIRED THE GOVERNMENTAL SALE OF ITEMS WHICH NORMALLY WOULD BE COMMERCIALLY AVAILABLE. AS WE INDICATED IN OUR DECISION B-160870, SUPRA, WHICH DEALT WITH AN EARLIER MEMORANDUM, WE REGARD THE MILITARY DEPARTMENTS AND AGENCIES AS HAVING CONSIDERABLE DISCRETION IN THE MAKING OF THESE DETERMINATIONS.

THE QUESTION HAS BEEN RAISED AS TO WHETHER THE ITEMS BEING PROCURED FALL WITHIN THE SCOPE OF THE AGREEMENT WITH IRAN. WE DO NOT BELIEVE IT IS APPROPRIATE FOR OUR OFFICE TO ATTEMPT TO RESOLVE THAT QUESTION, IN VIEW OF ITS TECHNICAL NATURE AND THE CONFIDENTIALITY OF THE AGREEMENT. THE IMPLEMENTATION OF THESE AGREEMENTS IS PRIMARILY WITHIN THE DISCRETION OF DOD, AND THEREFORE WE HAVE NO BASIS TO DISPUTE THE CONCLUSION THAT THE SUBJECT PROCUREMENT FALLS WITHIN A RECOGNIZED EXCEPTION TO THE GENERAL DOD POLICY PROHIBITING GOVERNMENTAL SALES OF COMMERCIALLY AVAILABLE ITEMS TO ECONOMICALLY DEVELOPED NATIONS.

FINALLY, SENTINEL HAS ALLEGED "THAT THE INSTANT PROCUREMENT CANNOT POSSIBLY SATISFY THE NEEDS OF IRAN UNLESS PLACED ON A SOLE-SOURCE BASIS WITH THE PROTESTER." THIS ALLEGATION RESTS UPON THE THESIS THAT ANY OFFEROR OTHER THAN SENTINEL WOULD HAVE TO SUBMIT ITS PRODUCT FOR FIRST ARTICLE TESTING, THEREBY EXTENDING THE DELIVERY SCHEDULE BEYOND THAT DESIRED BY IRAN.

THE DOD 1513 AGREEMENT BETWEEN IRAN AND THE UNITED STATES STATED THAT THE ITEMS WOULD BE AVAILABLE IN 24 MONTHS, THAT IS, JUNE 1975. THE RFP PROVIDES FOR A 480-DAY DELIVERY SCHEDULE WITH FIRST ARTICLE TESTING, WHICH SCHEDULE IS REDUCED TO 300 DAYS IF THE TESTING REQUIREMENT IS WAIVED. AN AWARD WERE NOW MADE UNDER THIS SCHEDULE NO FIRM, INCLUDING SENTINEL, WOULD COMPLETE DELIVERIES BY JUNE 1975.

WE DO NOT BELIEVE THIS SITUATION COMPELS A SOLE-SOURCE AWARD TO SENTINEL. AMONG THE OBLIGATIONS UNDERTAKEN BY THE UNITED STATES IN ITS DOD 1513 CONTRACT TO SUPPLY THESE ITEMS TO IRAN, WERE "TO PROCURE THEM UNDER THE MOST ADVANTAGEOUS TERMS AND CONDITIONS AVAILABLE ***" AND TO USE ITS "BEST EFFORTS TO DELIVER ITEMS *** FOR THE AMOUNT AND AT THE TIMES QUOTED." THE DOD 1513 MAKES CLEAR THAT THE "DELIVERY PROJECTIONS QUOTED ARE ESTIMATES BASED ON CURRENT AVAILABLE DATA."

WITHOUT MINIMIZING THE UNITED STATES' OBLIGATION TO USE ITS "BEST EFFORTS", WE THINK IT SHOULD BE RECOGNIZED THAT AS A CONTRACTUAL MATTER, THE JUNE 1975 DELIVERY DATE IS BUT A PROJECTION OR ESTIMATE. FULFILLING THAT PROJECTION MUST BE CONSIDERED IN CONJUNCTION WITH THE OBLIGATION TO PROCURE ON THE MOST ADVANTAGEOUS TERMS AND CONDITIONS AVAILABLE. IN THE INSTANT CASE, THE ARMY HAS SOUGHT TO FULFILL THESE OBLIGATIONS THROUGH A COMPETITIVE, FORMALLY ADVERTISED PROCUREMENT.

IF IRAN IS OF THE BELIEF THAT THESE OBJECTIVES MAY BE BETTER SERVED THROUGH A SOLE-SOURCE PROCUREMENT FROM SENTINEL, IT HAS THE OPTION OF: (1) REQUESTING THE ARMY TO PROCURE THE ITEMS ON THAT BASIS (AS ANOTHER COUNTRY RECENTLY DID) OR; (2) CANCELING ITS ORDER WITH THE ARMY AND PROCURING THE ITEMS DIRECTLY FROM SENTINEL. HOWEVER, THERE IS NO INDICATION OF RECORD THAT IRAN HAS MOVED TOWARD SATISFYING ITS NEEDS ON A SOLE-SOURCE BASIS. IF THE COUNTRY WHOSE NEEDS ARE BEING FULFILLED BY THIS PROCUREMENT HAS NOT DONE SO, WE SEE NO BASIS FOR OUR SUGGESTING TO THE ARMY THAT IT RESORT TO A NONCOMPETITIVE PROCUREMENT.

ACCORDINGLY, THE PROTEST IS DENIED.