[Protest of VA Contract Award for Tracheal Suction Sets]

B-238942: Jul 20, 1990

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A firm protested a Department of Veterans Affairs (VA) contract award for tracheal suction sets, contending that VA improperly rejected its bid because it did not offer a domestic product. GAO held that, while the protester's product was packaged in Mexico, it was manufactured in the United States. Accordingly, the protest was sustained, and GAO recommended that VA: (1) terminate the contract and make award to the protester, if appropriate; and (2) reimburse the protester for its protest costs.

B-238942, Jul 20, 1990, 90-2 CPD 55

PROCUREMENT - Socio-Economic Policies - Preferred products - Services - Domestic products - Interpretation Protest is sustained where agency improperly rejected protester's low bid for offering foreign end items on the basis that operation consisting of placing components in an envelope and sealing it performed abroad-- which did not substantially transform the completely domestic components of a tracheal suction set-- constituted "manufacturing" within the meaning of the Buy American Act and the Trade Agreements Act of 1979.

Attorneys

Becton Dickinson AcuteCare:

Becton Dickinson AcuteCare protests the award of a contract to Superior Healthcare Group, Inc., under invitation for bids (IFB) No. M1 49-90, issued by the Department of Veterans Affairs (VA) for among other items, tracheal suction sets. The protester alleges that its low bid was improperly rejected because the agency erred in determining that the suction sets it offered were not domestically manufactured.

We sustain the protest.

This matter involves the VA's application of an IFB clause which limited bidders to offering domestic end products or items originating in certain countries designated under the Trade Agreements Act of 1979 (TAA). Becton Dickinson bid $587,520 for the items in question while Superior bid $692,820.

The protester certified in its bid that the suction sets it proposed to furnish were "domestic end products." In appropriate places provided in the IFB, the protester also listed its facilities in New Jersey and Texas as places of manufacture, a facility in Tennessee as the point where its sets would be sterilized, a facility in New York where biological testing would be performed, and three domestic facilities in Indiana, California and New Jersey, where material would be packed and prepared for shipment. Also, under the IFB heading of "PACKAGING," Becton Dickinson listed a facility in Chihuahua, Mexico, as the place "where the immediate containers will be filled and labeled." Finally, in this regard, the protester submitted bid samples, as required by the IFB, which were marked "Made in U.S.A." with the approval of the United States Customs Service.

On January 8, 1990, in response to a request for clearance of the protester's suction sets by the Food and Drug Administration (FDA), the contracting officer spoke to a representative of that agency who raised an unspecified question concerning the place of performance in New Jersey as indicated in the bid. On the same day, the contracting officer called Becton Dickinson and was informed that the suction sets were "assembled" in Chihuahua, Mexico. As soon as this information was related to the contracting officer, it appears that she cancelled her request for FDA clearance since, in her view, the protester was offering an excluded foreign end product insofar as Mexico was not a designated country under the TAA. By letter dated February 8 to the contracting officer, the protester confirmed that "[t!he place of assembly of our ... Suction Set is ... Chihuahua, Mexico."

By letter dated February 16, the agency informed Becton Dickinson that its bid samples had been evaluated as acceptable, but that its bid had been rejected because the suction sets it was proposing to furnish were assembled in a non-designated country under the TAA. The record before us in the protest shows that the suction sets bid by the protester consist of: a catheter; a cup; a pair of gloves; and an innerwrap and envelope which are made of paper. No party disputes that all of these items including the wrapper and envelope, are manufactured in the United States. All of these items are then shipped to Chihuahua, Mexico, where the catheter, cup and gloves are placed on the paper innerwrap, the wrap is manually folded around them, and then everything is placed in the paper envelope which is, in turn, sealed. The packaged sets are then shipped back to the United States, duty free, where they are sterilized in their packages by means of radiation, and are finally shipped to domestic distribution centers to fill customer orders.

While the VA does not despite the above described process it takes the position that performance of the operations in Mexico constitute manufacture or assembly which makes the sets unacceptable foreign items.

Becton Dickinson characterizes the operations performed on its suction sets in Mexico as insignificant-- akin to "packaging"-- operations which do not result in a substantial transformation of concededly domestic components. Accordingly, the protester argues that no "manufacturing" occurs outside of the United States and that, therefore, the VA erred in prematurely rejecting its bid. In this regard, Becton Dickinson has submitted evidence purporting to show that its domestic component costs far exceed 50 percent of all component costs necessary to qualify as a domestic level item as defined in the solicitation.

An end product cannot be considered domestic when it is completely manufactured abroad from domestic components. Cincinnati Electronics Corp. et al., 55 Comp.Gen. 1479, (1976), 76-2 CPD Para. 286. Likewise, an end-product is considered to be foreign if its completely domestic components are assembled abroad by virtue of processes which amount to "manufacturing" within the meaning of the relevant solicitation definition. See Jamar Corp., 52 Comp.Gen. 13 (1972).stitching softball parts together in Hirsh constitutes foreign manufacture. However, the meaning and application of the terms "assembly" and "manufacture" are at best imprecise and their application to individual procurements must be considered in light of the particular facts of each case. Bell Helicopter Textrou, B-195268, Dec. 21, 1979, 79-2 CPD Para. 431.

In considering whether or not a given process constitutes "manufacturing" or not, we primarily look to see if the process results in a substantial physical change to the material being processed. See A. Hirsh, Inc., B-237466, Feb. 28, 1990, 90-1 CPD Para. 247. If no substantial alteration occurs as the result of a given process, there is no basis to conclude that the foreign or domestic origin of an item has been changed simply by virtue of the place where the process was performed. Id.

On the basis of the record presented for our review, we do not find that the operations performed by the protester's Mexican subcontractor approach the basic standard described in A. Hirsh, Inc., B-237466, supra, of making substantial changes in the physical character of the fully finished, completely domestic components which comprise the suction sets in toto. In our view, it is simply not reasonable to conclude that merely placing three separate items, each of which is manufactured domestically, in an envelope and sealing that envelope can in any meaningful way be considered manufacturing or even openingly. After packaging, the components are still separate from each other and each still has its distinct function. In fact no change at all occur in the components. The performance of relatively insignificant operations, even when required by specifications to insure complete technical conformity with a solicitation, does not itself operate to alter a product's country-of-origin. See, e.g., S.F. Durst & Co., Inc., 46 Comp.Gen. 784 (1967) domestic packaging of foreign tablets in bottles required by specifications did not make product domestic; Marbex, Inc., B-225799, supra domestic sterilization of foreign surgical gloves did not make them domestic.

Finally, the VA argues that even if the contracting officer erred in characterizing the protester's suction sets as foreign, we should deny the protest because the agency acted reasonably in performing an "investigation" of the matter and reasonably relied on Becton Dickinson's own confirmation that the items were "assembled" in Mexico.

It is true that the agency did receive imprecise information at first from protester. Nevertheless, we find, based on record before us that the agency improperly concluded that the protester's suction sets were of foreign origin within the meaning of the applicable IFB definition. We do not agree that since that erroneous determination was the result of the agency's good faith attempt to resolve the matter, we should refrain from sustaining the protest and recommending corrective action.

Consequently, we recommend that the agency rescind its determination that the packaging process performed in Mexico itself required that the bid be rejected and offering in a item from a non-designated country under the TAA. If it is determined that the protester is in line for award, the contract with Superior should be terminated and an award made to Becton Dickinson. We also find that the protester is entitled to recover the reasonable costs of filing and pursuing this protest, including attorneys' fees. See Bid Protest Regulations, 4 C.F.R. Sec. 21.6 (d)(1) (1990); A.G. Personnel Leasing, Inc., B-238289, Apr. 24, 1990, 90-1 CPD Para. 416.