B-182688, MAR 24, 1975, 54 COMP GEN 791

B-182688, MAR 24, 1975, 54 COMP GEN 791

BUY AMERICAN ACT - APPLICABILITY - RURAL ELECTRIC COOPERATIVES RURAL ELECTRIC COOPERATIVES, ACTING PURSUANT TO LOAN GUARANTEED BY RURAL ELECTRIFICATION ADMINISTRATION (REA), ARE NOT FEDERAL INSTRUMENTALITIES AND THEREFORE ARE NOT SUBJECT TO THE BUY AMERICAN ACT AND IMPLEMENTING DIRECTIVES WHICH REQUIRE APPLICATION OF 12 PERCENT DIFFERENTIAL TO PRICE OFFERED BY FOREIGN FIRM UNDER CERTAIN CIRCUMSTANCES. APPLICABLE LAW IS RURAL ELECTRIFICATION ACT OF 1938, AS IMPLEMENTED BY REA, WHICH REQUIRES APPLICATION OF ONLY 6 PERCENT DIFFERENTIAL. CONTRACTS - NEGOTIATION - OFFERS OR PROPOSALS - REVISIONS - EVALUATION RURAL ELECTRIC COOPERATIVES, ACTING PURSUANT TO "INFORMAL COMPETITIVE BIDDING" PROCEDURES APPROVED BY RURAL ELECTRIFICATION ADMINISTRATION, WERE NOT OBLIGATED TO EVALUATE REVISED PROPOSAL SUBMITTED BY HIGHER OF TWO OFFERORS AFTER COOPERATIVES INQUIRED ABOUT POSSIBLE REDUCTION IN PRICE. MOREOVER, IT APPEARS THAT EVEN HAD REVISED PROPOSAL BEEN EVALUATED, SELECTION OF CONTRACTOR WOULD NOT HAVE BEEN AFFECTED.

IN THE MATTER OF GENERAL ELECTRIC COMPANY, MARCH 24, 1975:

THIS PROTEST PRIMARILY CONCERNS THE PROPER APPLICATION OF THE BUY AMERICAN ACT OF MARCH 3, 1933, AS AMENDED, 41 U.S.C. SEC. 10A-10D, AND VARIOUS IMPLEMENTING DIRECTIVES, TO A PROCUREMENT CONDUCTED BY PRIVATE ELECTRICAL POWER COOPERATIVE ASSOCIATIONS WITH FUNDS FURNISHED PURSUANT TO A LOAN GUARANTEE AGREEMENT OF THE RURAL ELECTRIFICATION ADMINISTRATION (REA), U.S. DEPARTMENT OF AGRICULTURE (USDA), UNDER THE PROVISIONS OF SECTION 306 OF THE RURAL ELECTRIFICATION ACT OF 1936, AS AMENDED, 7 U.S.C. 936 (1970), AS ADDED BY PUBLIC LAW 93-32, APPROVED MAY 11, 1973, 87 STAT. 69.

PROPOSALS TO FURNISH AND INSTALL EQUIPMENT AND MATERIALS FOR ELECTRICAL FACILITIES AS PART OF A SYSTEM KNOWN AS THE CU PROJECT WERE SOLICITED BY THE COOPERATIVE POWER ASSOCIATION AND UNITED POWER ASSOCIATION (CPA/UPA), BOTH PRIVATE COOPERATIVE CORPORATIONS ORGANIZED UNDER THE LAWS OF MINNESOTA. REA FORM 200, "CONSTRUCTION CONTRACT GENERATING, NOTICE AND INSTRUCTIONS TO BIDDERS," WAS INCLUDED IN THE SOLICITATION AND AWARD OF A CONTRACT WAS PREDICATED ON RECEIPT OF REA GUARANTEED LOANS FROM THE FEDERAL FINANCING BANK AND UPON APPROVAL OF THE CONTRACT BY THE REA ADMINISTRATOR. PROPOSALS WERE RECEIVED FROM THE GENERAL ELECTRIC COMPANY (GE) AND FROM ASEA, INC., A SWEDISH COMPANY. THE PROPOSALS WERE EVALUATED AND ASEA WAS DETERMINED TO BE THE LOW OFFEROR. A LETTER OF INTENT TO AWARD WAS THEN FURNISHED TO ASEA, AND GE PROTESTED.

GE'S MAIN CONTENTION IS THAT THE BUY AMERICAN ACT, AS IMPLEMENTED, IS APPLICABLE TO THE PROCUREMENT AND THAT THE IMPLEMENTING DIRECTIVES, EXECUTIVE ORDER 10582 DATED DECEMBER 17, 1954, AND FPR 1-6.104-4 (1964 ED.), REQUIRE APPLICATION OF A 12 PERCENT FACTOR (6 PERCENT BECAUSE OF THE FOREIGN BID, AND AN ADDITIONAL 6 PERCENT BECAUSE GE IS A LABOR SURPLUS AREA CONCERN) TO ASEA'S PRICE. GE CLAIMS THAT THE ADDITION OF A 12 PERCENT FACTOR TO ASEA'S PRICE WOULD MAKE GE THE LOW OFFEROR. USDA, ON THE OTHER HAND, ASSERTS THAT THIS PROCUREMENT IS NOT SUBJECT TO THE BUY AMERICAN ACT, BUT ONLY TO THE RURAL ELECTRIFICATION ACT OF 1938, 52 STAT. 813, 818, 7 U.S.C. 903 NOTE, AND REA BULLETIN 43-9, PURSUANT TO WHICH ONLY A 6 PERCENT FACTOR WAS ADDED TO ASEA'S PRICE. MOREOVER, USDA ASSERTS THAT EVEN IF A 12 PERCENT FACTOR IS ADDED, THE GE PRICE WOULD STILL BE HIGHER.

AT THE OUTSET, IT SHOULD BE NOTED THAT NOTWITHSTANDING GE'S CONTENTION TO THE CONTRARY, THE PROCUREMENT IN QUESTION IS NOT A DIRECT FEDERAL PROCUREMENT AND THEREFORE IS NOT SUBJECT TO THE STATUTORY AND REGULATORY REQUIREMENTS APPLICABLE TO SUCH PROCUREMENTS. ON THE OTHER HAND, PROCUREMENTS WHICH ARE EFFECTED WITH BORROWED FEDERAL FUNDS OR WITH FEDERALLY GUARANTEED FUNDS UNDER REA PROGRAMS ARE SUBJECT TO CERTAIN STATUTORY AND REGULATORY PROVISIONS AS WELL AS THE TERMS AND CONDITIONS OF THE LOAN AND/OR GUARANTEE AGREEMENTS.

THE BUY AMERICAN ACT PROVIDES THAT:

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 *** SHALL BE ACQUIRED FOR PUBLIC USE. *** 41 U.S.C. 10A.

THE RURAL ELECTRIFICATION ACT OF 1938, SUPRA, PROVIDES:

IN MAKING LOANS PURSUANT TO THIS TITLE *** THE ADMINISTRATOR OF THE RURAL ELECTRIFICATION ADMINISTRATION SHALL REQUIRE THAT, TO THE EXTENT PRACTICABLE AND THE COST OF WHICH IS NOT UNREASONABLE, THE BORROWER AGREE TO USE IN CONNECTION WITH THE EXPENDITURE OF SUCH FUNDS *** ONLY SUCH MANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MANUFACTURED IN THE UNITED STATES ***.

EXECUTIVE ORDER 10582 PROVIDES THAT "THE BID OR OFFERED PRICE OF MATERIALS OF DOMESTIC ORIGIN SHALL BE DEEMED TO BE UNREASONABLE" IF IT EXCEEDS BY EITHER 6 PERCENT OR 10 PERCENT (THE AGENCY CONCERNED SELECTS THE DIFFERENTIAL TO APPLY) THE OFFERED PRICE OF FOREIGN MATERIALS. THE ORDER FURTHER PROVIDES THAT, NOTWITHSTANDING THE ABOVE PROVISION, AN AGENCY MAY REJECT A FOREIGN BID IF A DOMESTIC SUPPLIER WILL PRODUCE THE MATERIALS IN AREAS OF SUBSTANTIAL UNEMPLOYMENT. FPR 1-6.104-4 STATES THAT FOREIGN BIDS "SHALL BE ADJUSTED FOR PURPOSES OF EVALUATION BY ADDING TO THE FOREIGN BID *** A FACTOR OF 6 PERCENT OF THE BID, EXCEPT THAT A 12 PERCENT FACTOR SHALL BE USED INSTEAD OF THE 6 PERCENT FACTOR IF THE FIRM SUBMITTING THE LOW ACCEPTABLE DOMESTIC BID IS A SMALL BUSINESS CONCERN OR A LABOR SURPLUS AREA CONCERN ***."

GE CONTENDS THAT EXECUTIVE ORDER 10582 AND FPR 1-6.104-4 ARE APPLICABLE TO THIS PROCUREMENT AS AN IMPLEMENTATION OF EITHER THE BUY AMERICAN ACT OR REA'S OWN 1938 ACT. HOWEVER, WE THINK IT IS CLEAR THAT NEITHER THE BUY AMERICAN ACT, THE EXECUTIVE ORDER, NOR THE CITED FPR SECTION ARE RELEVANT TO THIS PROCUREMENT.

THE BUY AMERICAN ACT ITSELF IS APPLICABLE ONLY TO MATERIALS OR SUPPLIES INTENDED FOR "PUBLIC USE" AND TO A "PUBLIC BUILDING" AND "PUBLIC WORK." PUBLIC USE IS DEFINED BY THE ACT AS "USE BY *** THE UNITED STATES," AND PUBLIC BUILDING AND PUBLIC WORK REFER TO A "PUBLIC BUILDING OF, AND PUBLIC WORK OF, THE UNITED STATES." 41 U.S.C. 10CB). SEE 46 COMP. GEN. 784 (1967). GE ASSERTS THAT THE ACT IS APPLICABLE HERE BECAUSE THE ELECTRICAL COOPERATIVES ARE INSTRUMENTALITIES OF THE UNITED STATES, AND CITES ALABAMA POWER CO. V. ALABAMA ELEC. COOP., INC., 394 F.2D 672 (5TH CIR. 1968), REH DENIED 397 F.2D 809, CERT. DENIED 393 U.S. 1000, TO SUPPORT THAT A HIGHER PRICED AND SLIGHTLY HIGHER SCORED OFFEROR, RATHER THAN TO A LOWER PROPOSITION. IN THAT CASE IT WAS HELD THAT FOR PURPOSES OF THE ANTI-TRUST LAWS (SHERMAN ANTI TRUST ACT, 15 U.S.C. 14), 1, 2; CLAYTON ACT, 15 U.S.C. 14), RURAL ELECTRIC COOPERATIVES WERE INSTRUMENTALITIES OF THE UNITED STATES AND THEREFORE WERE NOT SUBJECT TO ANTI-TRUST RESTRAINTS. IN SO HOLDING, THE COURT EXPRESSED ITS AGREEMENT WITH A FEDERAL POWER COMMISSION (FPC) DECISION IN DAIRYLAND POWER COOPERATIVE, 37 F.P.C. 12 (1967). HOWEVER, WE NOTE THAT THE FPC'S POSITION ON THE STATUS OF RURAL ELECTRIC COOPERATIVES WAS REVERSED IN CITY OF PARIS, KENTUCKY V. FEDERAL POWER COMMISSION, 399 F.2D 983 (D.C. CIR. 1968). THERE THE COURT RECOGNIZED THAT "WHILE AN ENTITY MAY BE CONSIDERED A GOVERNMENT INSTRUMENTALITY FOR CERTAIN PURPOSES, IT NEED NOT BE SO CONSIDERED FOR ALL PURPOSES." 399 F.2D AT 986. IN HOLDING THAT THE COOPERATIVES WERE NOT GOVERNMENT INSTRUMENTALITIES FOR PURPOSES OF SECTION 210(F) OF THE FEDERAL POWER ACT, 16 U.S.C. 824(F), THE COURT STATED:

THE COOPERATIVES DO NOT PERFORM AN INHERENT GOVERNMENTAL FUNCTION, NOR HAVE THEY BECOME SO ASSIMILATED OR INCORPORATED INTO GOVERNMENT AS TO BECOME ONE OF ITS CONSTITUENT PARTS. THE FUNDS ADVANCED TO THE COOPERATIVES ARE NOT SPENT OR USED ON BEHALF OF GOVERNMENT OR IN THE PERFORMANCE OF ANY GOVERNMENTAL FUNCTION. THE BENEFITS OF THE LOAN INURE PRIMARILY TO THE COOPERATIVES' CONSTITUENT MEMBERS. THAT THE PUBLIC INTEREST IN RURAL ELECTRIFICATION IS ALSO SERVED THEREBY IS NOT ENOUGH TO MAKE COOPERATIVES THEMSELVES INSTRUMENTALITIES. 399 F.2D AT 986.

WHILE THE COOPERATIVES MAY BE FEDERAL INSTRUMENTALITIES FOR SOME PURPOSES, IT IS OUR VIEW THAT THE COOPERATIVES ARE NOT FEDERAL INSTRUMENTALITIES FOR PURPOSES OF PROCUREMENTS CONDUCTED BY THEM WITH FUNDS BORROWED FROM OR GUARANTEED BY REA. SEE B-163492, OCTOBER 11, 1968. THEREFORE, WE BELIEVE THE PROVISIONS OF THE BUY AMERICAN ACT ARE NOT DIRECTLY APPLICABLE TO SUCH PROCUREMENTS.

IT IS TRUE THAT EXECUTIVE ORDER 10582 IS NOT LIMITED TO IMPLEMENTING THE BUY AMERICAN ACT ONLY. THE INTRODUCTORY PORTION OF THE ORDER REFERS TO "THE BUY-AMERICAN ACT, AND OTHER LAWS REQUIRING THE APPLICATION OF THE BUY -AMERICAN ACT." HOWEVER, IT DOES NOT FOLLOW THAT THE EXECUTIVE ORDER IS APPLICABLE HERE. THE RURAL ELECTRIFICATION ACT OF 1938, SUPRA, SAYS NOTHING ABOUT THE APPLICABILITY OF THE BUY AMERICAN ACT TO LOANS OR LOAN GUARANTEES FURNISHED BY REA. INSTEAD, THAT ACT CONTAINS ITS OWN SPECIFIC LANGUAGE WHICH IS SIMILAR BUT NOT IDENTICAL TO THE LANGUAGE OF THE BUY AMERICAN ACT. THIS IS IN CONTRAST TO ANOTHER STATUTE, THE UNITED STATES HOUSING ACT OF 1937, AS AMENDED 42 U.S.C. 1401, 1406(C), WHICH SPECIFICALLY MAKES THE PROVISIONS OF THE BUY AMERICAN ACT APPLICABLE TO LOW-RENT HOUSING PROJECTS RECEIVING FEDERAL FINANCIAL ASSISTANCE. SEE B- 153408, MARCH 16, 1964, AND 48 COMP. GEN. 487 (1969). SINCE THE RURAL ELECTRIFICATION ACT OF 1938 DOES NOT REQUIRE APPLICATION OF THE BUY AMERICAN ACT, BUT INSTEAD IMPOSES ITS OWN BUY AMERICAN RESTRICTION, WE DO NOT REGARD THE EXECUTIVE ORDER BY ITS OWN TERMS AS AN IMPLEMENTATION OF THE 1938 ACT.

IT FOLLOWS THAT IF NEITHER THE BUY AMERICAN ACT NOR EXECUTIVE ORDER 10582 IS APPLICABLE TO THIS PROCUREMENT, THE FPR PROVISIONS WHICH IMPLEMENT THE ACT AND THE ORDER, SEE FPR 1-6.100, ALSO ARE NOT APPLICABLE IN THE ABSENCE OF SOME OTHER PROVISION MAKING THIS PROCUREMENT SUBJECT TO THE FPR REQUIREMENTS. GE CONTENDS THAT A USDA PROCUREMENT REGULATION, 41 C.F.R. SEC. 4-1.050, WHICH STATES IN PART THAT "MATERIAL PUBLISHED IN THE FPR HAVING GOVERNMENT-WIDE APPLICABILITY BECOMES EFFECTIVE THROUGHOUT THE DEPARTMENT OF AGRICULTURE UPON THE EFFECTIVE DATE OF THE PARTICULAR FPR MATERIAL," IS SUCH A PROVISION. HOWEVER, WHEN READ IN CONTEXT, IT IS CLEAR THAT THIS PROVISION MEANS ONLY THAT FPR PROVISIONS BECOME APPLICABLE TO USDA PROCUREMENT ACTIONS ON THE EFFECTIVE DATE OF THE PROVISIONS WITHOUT THE NEED FOR ISSUANCE OF USDA PROCUREMENT REGULATIONS. IT DOES NOT MEAN THAT PROCUREMENTS CONDUCTED BY NON-FEDERAL ENTITIES, TO WHICH FPR REQUIREMENTS DO NOT APPLY, SEE FPR 1-1.004, ARE TO BE SUBJECT TO SUCH REQUIREMENTS MERELY BECAUSE A USDA PROGRAM IS INVOLVED.

GE FURTHER ASSERTS THE APPLICABILITY OF THESE REGULATIONS BY VIRTUE OF A STATEMENT ON REA FORM 200 THAT THE OFFEROR "UNDERSTANDS THAT THE OBLIGATIONS OF THE PARTIES HEREUNDER ARE SUBJECT TO THE APPLICABLE REGULATIONS AND ORDERS OF GOVERNMENTAL AGENCIES HAVING JURISDICTION IN THE PREMISES." GE CLAIMS THAT A FAILURE TO TREAT FPR PROVISIONS AND USDA REGULATIONS AS APPLICABLE TO PROCUREMENTS CONDUCTED BY RURAL ELECTRIC COOPERATIVES WITH FEDERAL FUNDS WOULD RENDER THIS STATEMENT ON REA FORM 200 MEANINGLESS AND WOULD, CONTRARY TO THE INTENT OF CONGRESS, LEAVE "SIZABLE EXPENDITURES AND COMMITMENTS OF GOVERNMENT FUNDS AS ARE INVOLVED IN THIS PROJECT *** SUBJECT TO NO GOVERNMENTAL REGULATION EXCEPT FOR SUCH REGULATIONS AS THE REA ADMINISTRATOR MAY ELECT TO IMPOSE, AND IF HE SHOULD ELECT, TO NO REGULATION WHATSOEVER." WE DO NOT AGREE.

THE STATEMENT ON REA FORM 200 DOES NOT PURPORT TO MAKE ANY REGULATORY PROVISION (FPR OR USDA) APPLICABLE TO THE CONTRACT. IT MERELY INDICATES THAT THE CONTRACT IS SUBJECT TO ANY REGULATIONS WHICH, BY THEIR TERMS, ARE APPLICABLE TO THE PROCUREMENT. FURTHERMORE, THE FACT THAT THE FPRS OR USDA PROCUREMENT REGULATIONS ARE INAPPLICABLE HERE DOES NOT MEAN THAT THERE ARE NO APPLICABLE REGULATIONS AT ALL. IN THIS REGARD, WE NOTE THAT REA HAS PROMULGATED VARIOUS BULLETINS AND SUPPLEMENTS THERETO WHICH SET FORTH POLICIES AND PROCEDURES WHICH ARE APPLICABLE TO THE TYPE OF PROCUREMENT INVOLVED IN THIS CASE. SINCE IT IS THE REA ADMINISTRATOR WHO HAS THE STATUTORY RESPONSIBILITY FOR THE RURAL ELECTRIFICATION LOAN AND GUARANTEE PROGRAMS, SEE 7 U.S.C. 901 ET SEQ., WE DO NOT AGREE WITH GE'S ASSERTION THAT CONGRESS HAS ENVISIONED REGULATORY REQUIREMENTS IN THIS AREA OTHER THAN THOSE WHICH MIGHT BE IMPOSED BY THE REA ADMINISTRATOR. FACT, WE NOTE THAT IN IMPOSING THE BUY AMERICAN TYPE OF REQUIREMENT IN THE RURAL ELECTRIFICATION ACT OF 1938, CONGRESS SPECIFICALLY DIRECTED THAT BORROWERS OF REA FUNDS BE REQUIRED BY THE REA ADMINISTRATOR TO COMPLY WITH THE REQUIREMENT.

GE NEXT CONTENDS THAT EVEN IF THE BUY AMERICAN ACT AND IMPLEMENTING DIRECTIVES ARE NOT APPLICABLE HERE, THE REQUIREMENTS OF THE RURAL ELECTRIFICATION ACT OF 1938 WERE NOT COMPLIED WITH IN THAT THE ADMINISTRATOR DID NOT DETERMINE IN THIS CASE WHETHER ACCEPTANCE OF GE'S PROPOSAL WOULD RESULT IN AN UNREASONABLE COST. USDA, HOWEVER, STATES THAT THE STATUTORY REQUIREMENT WAS SATISFIED BY ADOPTION OF THE PERCENTAGE DIFFERENTIAL IN REA BULLETIN 43-9, DATED JULY 28, 1955.

PRIOR TO ISSUANCE OF THAT BULLETIN, THE REA ADMINISTRATOR APPARENTLY MADE INDIVIDUAL DETERMINATIONS AS TO UNREASONABLE COST IN MOST CASES, SINCE BORROWERS WERE REQUIRED TO OBTAIN SPECIAL AUTHORIZATION FROM REA FOR PURCHASING FOREIGN MATERIALS AND SUPPLIES. HOWEVER, THE BULLETIN, WHICH STATED THAT IT WAS APPLYING EXECUTIVE ORDER 10582 "AS PROVIDED HEREIN" TO THE BUY AMERICAN PROVISION OF THE RURAL ELECTRIFICATION ACT, ADOPTED THE 6 PERCENT DIFFERENTIAL OF THE EXECUTIVE ORDER, STATING THAT "PURCHASES OF SUCH MATERIALS OF FOREIGN ORIGIN ARE DEEMED TO BE IN COMPLIANCE WITH THE 'BUY AMERICAN' REQUIREMENT" WHEN THE COST OF DOMESTIC MATERIALS EXCEEDS BY MORE THAN 6 PERCENT THE COST OF THE FOREIGN MATERIALS. A NOTICE ACCOMPANYING THE BULLETIN ANNOUNCED THAT REA BORROWERS NO LONGER HAD TO OBTAIN SPECIAL AUTHORIZATION TO PURCHASE FOREIGN ARTICLES IF THE 6 PERCENT DIFFERENTIAL EXISTED. NOTWITHSTANDING THIS, GE CLAIMS THAT "CONGRESS DID NOT INTEND THAT A BULLETIN ISSUED 20 YEARS AGO *** WOULD SERVE TO BE DETERMINATIVE AS TO THE PRACTICABILITY AND REASONABLENESS OF COST OF A PROCUREMENT *** IN THESE DAYS OF BALANCE OF PAYMENT DEFICITS, CHRONIC UNEMPLOYMENT, AND THE COUNTLESS OTHER SOCIAL AND ECONOMIC PROBLEMS DEALT WITH BY CONGRESS SINCE 1955," AND THAT WHAT MAY HAVE BEEN CONSIDERED REASONABLE IN 1955 "COULD NOT CONCEIVABLY HAVE REMAINED SO DURING THE ENTIRE INTERVENING PERIOD OF 20 YEARS." IN GE'S VIEW, THE STATUTORY REQUIREMENT "CANNOT BE DELEGATED TO OR MET BY A BULLETIN ISSUED BY ANOTHER ADMINISTRATOR 20 YEARS AGO" AND THEREFORE EACH PROCUREMENT "UNDER THIS STATUTE, PARTICULARLY ONE OF THE MAGNITUDE OF THIS PROJECT, SHOULD BE DETERMINED EXPRESSLY BY THE ADMINISTRATOR AT THE TIME OF THE PROCUREMENT." GE ALSO ASSERTS, BY IMPLICATION, THAT THE PROVISIONS OF REA BULLETIN 43-9 DO NOT REPRESENT A PROPER DETERMINATION REGARDING THE REASONABLENESS OF A DOMESTIC BID BECAUSE NO CONSIDERATION IS GIVEN TO APPLYING ANYTHING OTHER THAN THE 6 PERCENT DIFFERENTIAL WHEN BIDS ARE RECEIVED FROM DOMESTIC LABOR SURPLUS AREA CONCERNS.

WE HAVE HELD THAT UNDER THE BUY AMERICAN ACT AND EXECUTIVE ORDER 10582, A DETERMINATION AS TO THE REASONABLENESS OF A DOMESTIC BID CANNOT BE MADE IN ADVANCE OF SOLICITING BIDS, BUT MUST BE MADE ON THE BASIS OF COMPARISON OF THE DOMESTIC BID WITH A BID OFFERING FOREIGN GOODS. 39 COMP. GEN. 309 (1959); 48 ID. 487 (1969); B-165293, MARCH 24, 1969. WE ALSO RECOGNIZED, IN THOSE SAME CASES, THAT THE COMPARISON IS TO BE MADE IN ACCORDANCE WITH THE DIFFERENTIALS SPECIFIED IN THE EXECUTIVE ORDER, AND THAT DETERMINATIONS BASED ON THAT COMPARISON DO NOT VIOLATE "THE STATED PROVISIONS OR INTENT OF THE BUY AMERICAN ACT." 39 COMP. GEN. 309, SUPRA, AT 312. SIMILARLY, WE BELIEVE THAT, CONSISTENT WITH THE DIFFERENTIAL SPECIFIED IN THE EXECUTIVE ORDER AND THE CURRENT IMPLEMENTING REGULATIONS APPLICABLE TO DIRECT FEDERAL PROCUREMENTS, SEE FPR 1-6.104-4 AND ASPR 6- 104.4 (1974 ED.), REA BULLETIN 43-9 DOES REPRESENT A DETERMINATION AS TO THE REASONABLENESS OF A DOMESTIC BID AND IS A PROPER IMPLEMENTATION OF THE RURAL ELECTRIFICATION ACT OF 1938, SO THAT A SEPARATE CASE BY CASE DETERMINATION IS NOT REQUIRED. FURTHERMORE, WITH REGARD TO REA'S FAILURE TO REQUIRE APPLICATION OF A HIGHER DIFFERENTIAL WHEN BIDS ARE RECEIVED FROM LABOR SURPLUS AREA CONCERNS, IT IS CLEAR THAT IT IS NOT REQUIRED TO DO SO BY THE RURAL ELECTRIFICATION ACT OF 1938. THAT REQUIREMENT IS DERIVED SOLELY FROM EXECUTIVE ORDER 10582 WHICH, AS POINTED OUT ABOVE, IS NOT SPECIFICALLY APPLICABLE TO REA LOAN PROCUREMENTS. HOWEVER, IN THIS CONNECTION WE NOTE THAT REA HAD INDICATED ITS INTENTION TO REVIEW ITS BUY AMERICAN POLICY TO DETERMINE IF "CHANGES SHOULD BE CONSIDERED" WITH RESPECT TO LABOR SURPLUS AREA CONCERNS. ANY SUCH CHANGES, OF COURSE, WOULD NOT BE APPLICABLE TO THIS PROCUREMENT.

IN ADDITION TO ITS CONTENTIONS REGARDING APPLICATION OF THE BUY AMERICAN ACT AND RELATED PROVISIONS, GE CHALLENGES THE REFUSAL OF THE COOPERATIVES TO CONSIDER A SECOND PROPOSAL SUBMITTED BY GE. GE CONTENDS THAT HAD THIS SECOND PROPOSAL BEEN CONSIDERED, GE'S PRICE WOULD HAVE BEEN LOW EVEN WITH ONLY 6 PERCENT DIFFERENTIAL ADDED TO ASEA'S PRICE. USDA DISPUTES THIS CONTENTION, AND CLAIMS THAT A PROPER EVALUATION OF THE SECOND GE OFFER WOULD HAVE INDICATED THAT ASEA WAS STILL THE LOW OFFEROR REGARDLESS OF WHETHER A 6 OR 12 PERCENT DIFFERENTIAL WAS ADDED TO ASEA'S PRICE.

THE PROCUREMENT WAS CONDUCTED IN ACCORDANCE WITH A PROCEDURE KNOWN AS "INFORMAL COMPETITIVE BIDDING," WHICH IS DESCRIBED IN A MAY 23, 1973 SUPPLEMENT TO REA BULLETIN 40-6 AS "A METHOD WHEREBY COMPETITIVE SEALED BIDS ARE OBTAINED *** WHICH BIDS *** ARE NOT PUBLICLY OPENED AND READ AND WHICH ARE SUBJECT TO NEGOTIATION AT THE OPTION OF THE BORROWER. *** THE NEGOTIATING PROCEDURE MAKES POSSIBLE THE CLARIFICATION OF THE BIDS, THE ELIMINATION OF MISUNDERSTANDINGS *** AND PRICE NEGOTIATION WHERE THIS APPEARS TO BE IN ORDER." THE BULLETIN FURTHER PROVIDES THAT WHEN NEGOTIATION IS CONDUCTED, EACH BIDDER IS TO BE GIVEN "AN EQUAL OPPORTUNITY TO NEGOTIATE UNTIL ANY QUESTIONS RELATED TO THE BIDDER'S PROPOSAL HAVE BEEN CLARIFIED AND UNTIL A FINAL PRICE IS REACHED. *** UPON COMPLETION OF NEGOTIATIONS, THE NEGOTIATING COMMITTEE*** SHALL DETERMINE THE LOW RESPONSIVE BID ***." PARAGRAPH 1.25 OF THE GENERAL PROVISIONS OF THE SOLICITATION INFORMED OFFERORS THAT "SUBSEQUENT TO THE BID OPENING (THE COOPERATIVES) MAY ELECT TO CONDUCT A ROUND OF DISCUSSIONS WITH EACH BIDDER TO RESOLVE ANY QUESTIONS RELATED TO THE SUBSTANCE OF HIS PROPOSAL AND TO ARRIVE AT A FINAL PRICE."

FOLLOWING RECEIPT OF PROPOSALS ON MARCH 18, 1974, NEGOTIATIONS WERE CONDUCTED WITH EACH OFFEROR. ACCORDING TO THE EVALUATION REPORT PREPARED BY CPA/UPA'S ENGINEERING CONSULTING FIRM, THE COOPERATIVES "HELD A NUMBER OF MEETINGS WITH EACH BIDDER TO CLARIFY EACH BID AND TO OBTAIN PRICES ON ADDITIONS TO EACH BID WHICH WOULD IMPROVE THE PROPOSED SYSTEM OPERATION AND RELIABILITY, AND ALSO PUT THE TWO BIDS ON A MORE COMPARABLE BASIS." THE RECORD SHOWS THAT DURING THESE NEGOTIATIONS GE WAS QUERIED ABOUT THE PRICE IMPACT OF A ONE STEP REDUCTION IN ITS PROPOSED BASIC INSULATION LEVEL (BIL). BY LETTER OF APRIL 15, 1974, GE INDICATED THAT "COSTS WILL VARY APPROXIMATELY 1% TO 5% FROM ONE BIL LEVEL TO THE NEXT." (GE'S ORIGINAL BASIC PROPOSED PRICE WAS $62,310,915). BY LETTER OF APRIL 18, 1974, GE STATED THAT IT DID NOT HAVE "ANY ADDITIONAL INFORMATION AT THIS TIME ON PRICE CHANGES RELATIVE TO POSSIBLE BIL REDUCTIONS *** ALTHOUGH WE FEEL THEY ARE NOT SIGNIFICANT. THEY WILL FOLLOW AT A LATER DATE." THIS WAS FOLLOWED BY AN APRIL 25, 1974 LETTER FROM GE WHICH STATED THAT A "ONE STEP REDUCTION IN CAPACITOR BIL FOR THE FILTERS AND SHUNT BANKS WILL RESULT IN A PRICE REDUCTION OF $6000," AND BY A MAY 2, 1974 LETTER IN WHICH GE RESPONDED TO THE QUERY REGARDING "THE DOLLAR IMPACT FOR A ONE STEP BIL REDUCTION IN THE DC PORTION OF THE TERMINALS." THE LETTER STATED THAT A ONE STEP REDUCTION WOULD RESULT IN "SIGNIFICANT SAVINGS *** WHILE NOT IMPAIRING IN ANY WAY THE AVAILABILITY AND PERFORMANCE OF THE STATION." GE THEN OFFERED THE EQUIPMENT WITH A REDUCED BIL AT A PRICE APPROXIMATELY $5,600,000 LOWER THAN ITS INITIAL PRICE. IT IS THIS OFFER OF MAY 2 THAT CPA/UPA REFUSED TO CONSIDER, ON THE GROUNDS THAT THE TIME OF ITS SUBMISSION "DID NOT CONFORM TO THE BIDDING PROCEDURE ESTABLISHED FOR THIS PROJECT AND WITH WHICH ALL PARTIES WERE IN AGREEMENT." IT IS THE COOPERATIVES' POSITION THAT THE SOLICITATION ALLOWED FOR ONLY ONE "ROUND" OF NEGOTIATION, THAT THIS ROUND OF NEGOTIATION WAS NOT FOR THE PURPOSE OF ALLOWING SUBMISSION OF A REVISED OFFER, BUT ONLY TO PROVIDE CLARIFICATION AND MINOR ADJUSTMENTS TO THE INITIAL PROPOSALS, THAT IN ANY EVENT THE "ROUND" WAS COMPLETED DURING APRIL, AND THAT IT WOULD THEREFORE BE IMPROPER AND UNFAIR TO ASEA TO ALLOW CONSIDERATION OF THE MAY 2ND GE PROPOSAL. USDA CONCURS IN THIS POSITION.

IT IS CLEAR THAT THE PROCEDURES UTILIZED IN THIS PROCUREMENT WERE NOT ENTIRELY CONSISTENT WITH FEDERAL COMPETITIVE BIDDING PRINCIPLES.

FOR EXAMPLE, THE COOPERATIVES CONSIDERED PROPOSED DEVIATIONS FROM THE SOLICITATION'S TERMS AND CONDITIONS, AND A DEFINITE, COMMON CUTOFF DATE FOR RECEIPT OF FINAL OFFERS WAS NOT CLEARLY ESTABLISHED, EVEN THOUGH NEGOTIATIONS WERE CONDUCTED IN WHICH REVISIONS TO PROPOSALS WERE MADE. HOWEVER, AS NOTED ABOVE, THIS IS NOT A FEDERAL PROCUREMENT, THE RULES APPLICABLE TO FEDERAL PROCUREMENT WERE NOT IMPOSED UPON THE COOPERATIVES BY THE LOAN GUARANTEE AGREEMENT, AND THE INFORMAL PROCEDURES UTILIZED HER HAD THE APPROVAL OF REA. ALTHOUGH WE THINK IT WOULD NOT HAVE BEEN UNREASONABLE FOR THE COOPERATIVES TO HAVE CONSIDERED GE'S REVISED PROPOSAL, WE CANNOT, UNDER THESE CIRCUMSTANCES, CONCLUDE THAT THEY WERE OBLIGATED TO DO SO. IN ANY EVENT, IN LIGHT OF USDA'S STATEMENT THAT AN EVALUATION OF THE REVISED PROPOSAL WOULD STILL SHOW ASEA AS THE LOW OFFEROR, IT DOES NOT APPEAR THAT THE FAILURE OF CPA/UPA TO EVALUATE GE'S SECOND PROPOSAL AFFECTED THE ULTIMATE SELECTION OF A CONTRACTOR.

FOR THE FOREGOING REASONS, THE PROTEST IS DENIED.