B-165293, MAR. 24, 1969

B-165293, MAR. 24, 1969

TO MR. SECRETARY:

REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 24, 1969, REQUESTING OUR ADVICE ON THE FOLLOWING QUESTIONS:

"1. IN VIEW OF THE FACT THAT THE BUY AMERICAN ACT ITSELF DOES NOT APPLY TO GUAM, AND THE REQUIREMENTS ARE BEING APPLIED TO THE GUAM HOUSING AND REDEVELOPMENT AUTHORITY BY CONTRACT BECAUSE OF THE PROVISIONS OF 42 U.S.C. 1406C, MAY THIS DEPARTMENT OMIT THE REQUIREMENT FROM CONTRACTS WITH THE GUAM AUTHORITY?

"2. IF YOUR ANSWER TO QUESTION 1 IS IN THE NEGATIVE, MAY THIS DEPARTMENT ISSUE A BLANKET WAIVER TO THE GUAM AUTHORITY FOR EACH PROJECT ON THE BASIS THAT APPLICATION OF DOMESTIC MATERIALS REQUIREMENTS TO GUAM AS PROVIDED IN THE BUY AMERICAN ACT IS IMPRACTICAL?

WITH REGARD TO THE FIRST QUESTION, IT IS STATED THAT AN AFFIRMATIVE ANSWER WOULD BRING THE PROVISIONS OF SECTION 6 (C) OF THE UNITED STATES HOUSING ACT OF 1937, 42 U.S.C. 1406 (C), INTO HARMONY WITH THE PROVISIONS OF THE BUY AMERICAN ACT, 41 U.S.C. 10A, IN THAT IT WOULD ELIMINATE THE INCONSISTENCY OF APPLYING THE BUY AMERICAN REQUIREMENTS TO THE CONSTRUCTION OF LOW-RENT HOUSING IN GUAM WHEN THEY DO NOT APPLY TO DIRECT FEDERAL CONTRACTING OR OTHER FEDERALLY ASSISTED CONSTRUCTION PROJECTS IN GUAM.

CONCERNING THE SECOND QUESTION, IT IS STATED THAT THE LOCATION AND MARKET CONDITIONS OF GUAM ARE SUCH THAT THE COST DIFFERENTIAL FOR CONSTRUCTION MATERIALS WOULD SATISFY THE REQUIREMENTS OF THE BUY AMERICAN ACT IMPLEMENTATION PROVISIONS OF EXECUTIVE ORDER NO. 10582 FOR MOST, IF NOT ALL, OF THE MATERIALS REQUIRED FOR CONSTRUCTION, AND THAT IT IS NOT PRACTICAL TO CONDUCT MARKET RESEARCH OR COMPETITIVE BIDDING FOR EACH INDIVIDUAL ELEMENT OF THE HOUSING PROJECT IN ORDER TO ASCERTAIN THE MINORITY OF MATERIALS WHICH MIGHT REMAIN SUBJECT TO BUY AMERICAN ACT REQUIREMENTS. IT IS STATED THAT THE COST DIFFERENTIALS BETWEEN DOMESTIC AND FOREIGN MATERIALS ON GUAM DEMONSTRATE THE IMPRACTICABILITY OF APPLICATION OF DOMESTIC MATERIAL REQUIREMENTS ON GUAM.

IT IS SUGGESTED, AS PART OF THE BIDDING PROCESS, THAT BIDS FOR CONSTRUCTION PROJECTS BE SOLICITED ON THE BASIS OF PERMITTING BIDDERS TO QUOTE ALTERNATE DOMESTIC AND FOREIGN PRICES FOR 30 OR MORE CONSTRUCTION MATERIALS INVOLVED. IT IS STATED THAT SUCH ALTERNATE BIDDING MIGHT BE DISCOURAGING TO BOTH BIDDERS AND BID EVALUATORS ALIKE. IT IS THEREFORE REQUESTED, IF OUR ANSWERS TO BOTH QUESTIONS ARE IN THE NEGATIVE, THAT OUR OFFICE PROVIDE GUIDANCE AS TO HOW THE COST DIFFERENTIALS OF THE EXECUTIVE ORDER MAY BE SATISFIED WITHIN THE FRAMEWORK OF A COMPETITIVELY BID CONSTRUCTION CONTRACT.

FURTHER, IT IS REQUESTED THAT OUR DECISION B-165293, JANUARY 23, 1969, 48 COMP. GEN. ------, BE RECONSIDERED. IN THAT DECISION WE HELD THAT YOUR DEPARTMENT IS NOT AUTHORIZED TO DETERMINE IN ADVANCE OF COMPETITIVE BIDDING THAT THE COST OF DOMESTIC MATERIALS IS UNREASONABLE AND TO WAIVE THE BUY AMERICAN REQUIREMENTS ON THAT BASIS. IN THAT REGARD,YOU REFER TO THAT PART OF THE BUY AMERICAN ACT WHICH PROVIDES:

"* * * 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 *

YOU ALSO REFER TO THE STATEMENT MADE BY THE SPONSOR OF THE BUY AMERICAN ACT THAT IN CONTRACTING FOR A PARTICULAR ARTICLE "AN EXCEPTION SHALL BE NOTED IN THE SPECIFICATIONS AS TO THE REQUIREMENTS TO PURCHASE GOODS OF DOMESTIC ORIGIN IN THE EVENT IT WOULD UNREASONABLY INCREASE THE COST.' IS SUGGESTED THAT THE FOREGOING EVIDENCE AN INTENT THAT SUCH EXCEPTIONS SHOULD BE MADE PRIOR TO ADVERTISING FOR BIDS AND THAT THE EXECUTIVE ORDER MAY BE INTERPRETED IN HARMONY WITH THAT INTENT. FPR SUBPART 1-6.2 (NOW FPR SUBPART 1-18.6), WHICH IMPLEMENTS THE BUY AMERICAN ACT AND THE POLICIES SET FORTH IN THE EXECUTIVE ORDER, IS CITED AS SUPPORTING THE VIEW THAT DETERMINATIONS AS TO THE UNREASONABLENESS OF DOMESTIC PRICES MAY BE MADE IN ADVANCE OF SOLICITING BIDS.

SECTION 2 (B) OF EXECUTIVE ORDER NO. 10582 PROVIDES THAT, FOR THE PURPOSES OF THE BUY AMERICAN ACT, THE BID OR OFFERED PRICE OF MATERIALS OF DOMESTIC ORIGIN SHALL BE DEEMED TO BE UNREASONABLE IF IT EXCEEDS THE SUM OF THE BID OR OFFERED PRICE OF LIKE MATERIALS OF FOREIGN ORIGIN AND AN ADDED DIFFERENTIAL. THE EXECUTIVE ORDER, WHICH WAS PROMULGATED FOR THE PURPOSE OF ESTABLISHING UNIFORM PROCEDURES, PROVIDES NO BASIS FOR DETERMINING UNREASONABLE COST OTHER THAN BY THE COMPARISON OF DOMESTIC AND FOREIGN BID OR OFFER METHOD. THE PROCEDURE PRESCRIBED IN THE EXECUTIVE ORDER TO DETERMINE THE UNREASONABLENESS OF DOMESTIC COST THEREFORE EXCLUDES ANY OTHER BASES FOR SUCH DETERMINATIONS. WE BELIEVE THAT THE EXECUTIVE ORDER MUST BE SO CONSTRUED. IN FACT, SHORTLY AFTER THE ENACTMENT OF THE BUY AMERICAN ACT AND BEFORE THE ISSUANCE OF THE EXECUTIVE ORDER, OUR OFFICE HELD THAT THE QUESTION WHETHER FOREIGN ARTICLES MAY BE ACCEPTED ON THE BASIS THAT THE COST OF DOMESTIC ARTICLES IS UNREASONABLE IS TO BE DETERMINED AFTER BIDS HAVE BEEN RECEIVED. SEE A-48328, APRIL 28, 1933, CITED IN THE JANUARY 23 DECISION.

THE STATEMENT BY THE SPONSOR OF THE LEGISLATION WHICH WAS ENACTED AS THE BUY AMERICAN ACT TO WHICH YOU REFER WAS, AS NOTED BY YOU, REFERRED TO IN 39 COMP. GEN. 309. IN OUR JANUARY 23 DECISION, IT WAS POINTED OUT THAT IN THE 39 COMP. GEN. DECISION IT WAS STATED THAT "IT IS OBVIOUS FROM A REVIEW OF THE LEGISLATIVE HISTORY OF THE BUY AMERICAN ACT THAT THE UNREASONABLENESS OF DOMESTIC BID PRICES WAS TO BE DETERMINED BY A COMPARISON WITH FOREIGN BID PRICES.' MOREOVER, IN 42 COMP. GEN. 467, AT PAGE 475, THE LANGUAGE YOU QUOTE FROM THE BUY AMERICAN ACT WAS CONSIDERED AND IT WAS STATED:

"* * * WHILE SECTION 3A, 41 U.S.C. 10 (B) (A), REQUIRES THAT THE EXCEPTIONS SO AUTHORIZED SHALL BE NOTED IN THE SPECIFICATIONS, WE DO NOT AGREE, AS APPARENTLY URGED ON YOUR BEHALF, THAT THEY MUST BE NOTED IN THE SPECIFICATIONS OF THE INVITATION. * * *"

ADDITIONALLY, CONTRARY TO YOUR STATEMENT THAT FPR SUBPART 1-18.6 INFERENTIALLY PROVIDES THAT DETERMINATIONS OF DOMESTIC COST UNREASONABLENESS MAY BE MADE IN ADVANCE OF SOLICITING BIDS, WE NOTE THAT FPR SEC. 1-18.602-1 PROVIDES THAT DOMESTIC CONSTRUCTION MATERIAL NEED NOT BE USED IN CONSTRUCTION CONTRACTS IF IT IS DETERMINED, IN ACCORDANCE WITH FPR SEC. 1-18.603-1 THAT USE OF SUCH DOMESTIC CONSTRUCTION MATERIAL WOULD UNREASONABLY INCREASE THE COST. MOREOVER, THE LATTER SECTION PROVIDES THAT THE DETERMINATION OF COST UNREASONABLENESS SHALL BE MADE AFTER APPLYING EVALUATION FACTORS TO "BID OR PROPOSAL OFFERS.'

IN VIEW OF THE FOREGOING, THE JANUARY 23 DECISION IS SUSTAINED. SECTION 1406 (C) OF TITLE 42 PROVIDES:

"THE USE OF FUNDS MADE AVAILABLE FOR THE PURPOSES OF THIS CHAPTER SHALL BE SUBJECT TO THE PROVISIONS OF SECTION 10A OF TITLE 41, AND TO MAKE SUCH PROVISIONS EFFECTIVE EVERY CONTRACT OR AGREEMENT OF ANY KIND PURSUANT TO THIS CHAPTER SHALL CONTAIN A PROVISION IDENTICAL TO THE ONE PRESCRIBED IN SECTION 10B OF TITLE 41.'

WHILE IT MAY BE THAT THE BUY AMERICAN ACT IS BEING CONSTRUED GENERALLY AS NOT APPLICABLE TO PURCHASES INVOLVING GUAM, WE BELIEVE THE STATEMENT IN THE ABOVE-QUOTED LANGUAGE THAT THE PROVISIONS OF THE ACT SHALL BE INCLUDED IN "EVERY" CONTRACT OR AGREEMENT MADE PURSUANT TO THE LOW-RENT HOUSING PROGRAM OVERRIDES ANY CONSTRUCTION TO THE CONTRARY. ACCORDINGLY, THE FIRST QUESTION IS ANSWERED IN THE NEGATIVE.

THE BASIS SUGGESTED FOR THE CONCLUSION THAT IT IS IMPRACTICABLE TO REQUIRE THE USE OF DOMESTIC MATERIALS IS THAT THE COST OF DOMESTIC MATERIALS WOULD BE UNREASONABLE EVEN IF THE COST DIFFERENTIAL STANDARDS OF THE EXECUTIVE ORDER ARE APPLIED. UNREASONABLENESS AS TO COST AND IMPRACTICABILITY OF APPLYING THE BUY AMERICAN ACT REQUIREMENTS SET OUT IN THE ACT AS ALTERNATIVE BASES AND, THEREFORE, ENVISAGE DIFFERENT SITUATIONS. AS INDICATED ABOVE, UNREASONABLENESS AS TO COST IS DETERMINED BY A COMPARISON OF BIDS OR OFFERS. IMPRACTICABILITY, ON THE OTHER HAND, SUGGESTS THE INABILITY TO OBTAIN DOMESTIC MATERIALS. YOU HAVE SUGGESTED THAT THE COST OF DOMESTIC MATERIALS MAY BE HIGHER THAN THE COST OF FOREIGN MATERIALS. HOWEVER, THERE IS NO INDICATION THAT THE DOMESTIC MATERIALS ARE UNOBTAINABLE. THEREFORE, A DETERMINATION THAT THE APPLICATION OF DOMESTIC MATERIALS REQUIREMENTS IS IMPRACTICABLE WOULD NOT BE APPROPRIATE. ACCORDINGLY, THE SECOND QUESTION ALSO IS ANSWERED IN THE NEGATIVE.

ALTHOUGH THE SOLICITATION OF BIDS ON AN ALTERNATIVE DOMESTIC AND FOREIGN BID BASIS MAY POSE ADDED BURDENS FOR BIDDERS AND BID EVALUATORS, WE DO NOT BELIEVE SUCH FACT CONSTITUTES A PROPER BASIS FOR DISREGARDING THE EXECUTIVE ORDER REQUIREMENTS. WITH RESPECT TO YOUR REQUEST FOR GUIDANCE AS TO HOW THE COST DIFFERENTIALS OF THE EXECUTIVE ORDER MAY BE SATISFIED WITHIN THE FRAMEWORK OF A COMPETITIVELY BID CONSTRUCTION CONTRACT, WE REFER YOU TO THE PROCEDURES WHICH HAVE BEEN PRESCRIBED FOR SUCH SITUATIONS IN FPR SECS. 1-18.603-1 AND 1-18.604 AND ASPR 18-509.2 AND 18-509.3.