Protest Alleging Failure To Apply Differential Required by Regulations

B-203021: Feb 24, 1982

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A firm protested the proposed award of a contract, contending that the agency erroneously determined that the proposed awardee offered only domestic-source end products and, therefore, failed to apply the 6-percent differential required by the Buy American Act in evaluating the proposed awardee's bid. The protester concluded that a proper bid evaluation would result in an award to itself. The protester contended that, in order to be a domestic-source end product, the proposed awardee's product must be manufactured in the United States and that the cost of its domestic components must exceed 50 percent of the costs of all of its components. Further, the protester argued that several of the bid items were manufactured by the proposed awardee in Japan, shipped to the United States, and directly incorporated into the system without further processing. The protester calculated the total price of these foreign components to be almost twice that of the proposed awardee's domestic components, making the product a foreign end product. The contracting agency explained that, in order to meet the specifications, the proposed awardee had to modify a major unit after it was shipped to the United States so that its cost was more than 50 percent of the cost of the product. Thus, the product was a domestic-source end product, and the Buy American Act differential did not apply. The proposed awardee argued that the Buy American Act should be waived pursuant to the Trade Agreements Act. GAO found that the product in question was a foreign-source end product, because the Japanese-manufactured unit was directly incorporated into the product during the manufacturing process. Because the cost of the foreign base unit was more than 50 percent of the product price, application of the Buy American differential was required. Application of the differential would make the protester the low evaluated bid. Since the agency did not have sufficient evidence to compare domestic and total component costs, GAO recommended that a more precise cost comparison be performed. The proposed awardee's contention that the Buy American Act should be waived in this procurement was viewed as an untimely counterprotest. If, after reevaluation, the agency finds that the 6-percent differential must be applied, the contract should be awarded to the protester. Accordingly, the protest was sustained.