B-139912, OCTOBER 26, 1959, 39 COMP. GEN. 309

B-139912, OCTOBER 26, 1959, 39 COMP. GEN. 309

CONTRACTS - BUY AMERICAN ACT - UNREASONABLE COSTS - DETERMINATION AN AWARD TO A FOREIGN BIDDER RATHER THAN TO THE LOW AMERICAN BIDDER WHOSE BID PRICE WAS 42.8 PERCENT HIGHER BASED ON A COMPARISON OF THE FOREIGN AND DOMESTIC BID PRICES RATHER THAN ON CONSIDERATION OF THE REASONABLENESS OF THE COSTS AND PROFITS OF THE AMERICAN BIDDER, INCLUDING SUCH FACTORS AS THE DIFFERENCES IN THE WAGE SCALES AND THE ECONOMIC ADVANTAGE FOREIGN MANUFACTURERS GAIN THROUGH DEVALUATION OF CURRENCIES, IS PROPER UNDER THE BUY AMERICAN ACT, 41 U.S.C. 10A, ET SEQ., WHICH MERELY PROVIDES THAT THE HEAD OF THE PROCURING AGENCY SHALL DETERMINE THAT THE COST OF THE DOMESTIC PRODUCT IS UNREASONABLE. IN THE EVALUATION OF AMERICAN AND FOREIGN BIDS UNDER THE BUY AMERICAN ACT, 41 U.S.C. 10A, ET Q., WHICH PROVIDES FOR THE PURCHASE OF AMERICAN GOODS UNLESS THE HEAD OF THE PROCURING AGENCY DETERMINES THAT THE COST IS UNREASONABLE, A DETERMINATION THAT THE DOMESTIC BID IS REASONABLE BASED ON DOMESTIC COSTS AND PROFITS ALONE WOULD NOT BE PROPER, BUT AN EVALUATION BASED ON A COMPARISON OF THE FOREIGN AND DOMESTIC BID PRICES TO DETERMINE WHETHER THE DOMESTIC BID PRICE IS UNREASONABLE WOULD BE PROPER. IN THE ABSENCE OF A PROVISION IN THE BUY AMERICAN ACT U.S.C. 10A, ET SEQ., WHICH SPECIFIES HOW UNREASONABLE COSTS OF DOMESTIC GOODS SHALL BE DETERMINED, THE DIFFERENTIAL PERCENTAGES ESTABLISHED IN EXECUTIVE ORDER NO. 10582 TO GIVE PREFERENCE TO DOMESTIC BIDS MAY NOT BE REGARDED IN CONTRAVENTION OF THE BUY AMERICAN ACT.

TO THE BALDWIN-1LIMA-1HAMILTON CORPORATION, OCTOBER 26, 1959:

REFERENCE IS MADE TO YOUR LETTERS OF JUNE 22, AUGUST 18, AND OCTOBER 8, 1959, WITH ENCLOSURES, PROTESTING AGAINST THE AWARD OF A CONTRACT TO ENGLISH ELECTRIC EXPORT TRADING COMPANY, LTD., UNDER INVITATION FOR BIDS NO. CIVENG-25-066-59-98, ISSUED BY THE DEPARTMENT OF THE ARMY, CORPS OF ENGINEERS, FOR HYDRAULIC TURBINES TO BE INSTALLED AT THE BIG BEND PROJECT IN SOUTH DAKOTA.

IT IS YOUR CONTENTION, IN SUBSTANCE, THAT EXISTING ADMINISTRATIVE REGULATIONS AND PROCEDURES, AND MORE PARTICULARLY THE PROVISIONS OF EXECUTIVE ORDER NO. 10582, ARE AT VARIANCE WITH THE PURPOSE AND INTENT OF THE BUY AMERICAN ACT OF 1933, 41 U.S.C. 10A, ET SEQ. SPECIFICALLY, YOU STATE THAT ,IT IS IMPROPER, ILLEGAL, AND UNCONSTITUTIONAL FOR THE EXECUTIVE BRANCH TO EMASCULATE AND BUTCHER THE LAW THROUGH ADMINISTRATIVE REGULATIONS, POLICIES, AND PRACTICES AND ABUSIVE EXPANSION OF THE PURPOSE OF SUBORDINATE CLAUSES IN THE STATUTE.' AND, YOU CONCLUDE THAT "THE ORDER SHOULD NOT APPLY TO THIS PROCUREMENT, OR, IF IT DOES, THEN SECTION 5 OF THE ORDER SHOULD BE EMPLOYED TO DETERMINE REASONABLENESS OF COST OF THE BALDWIN-1LIMA-1HAMILTON CORPORATION BID AND NOT UNDER THE UNREALISTIC, ARBITRARY 6 PERCENT DIFFERENTIAL.' YOUR LETTERS OF AUGUST 18, AND OCTOBER 8, 1959, AMPLIFY THE LATTER CONTENTION.

THE RECORD BEFORE US DISCLOSES THAT THE TURBINES PROPOSED BY THE BALDIWN- 1LIMA-1HAMILTON CORPORATION WOULD BE MANUFACTURED AT EDDYSTONE, PENNSYLVANIA, AN AREA CLASSIFIED AS ONE OF SUBSTANTIAL LABOR SURPLUS. PARAGRAPH 6-104.4 OF THE ARMED SERVICES PROCUREMENT REGULATION PROVIDES THAT BIDS SHALL BE EVALUATED SO AT TO GIVE PREFERENCE TO DOMESTIC BIDS FOR THE PURPOSE OF EVALUATION, A FACTOR OF 6 PERCENT OF EACH FOREIGN BID IS REQUIRED TO BE ADDED TO SUCH BID EXCEPT THAT A FACTOR OF 12 PERCENT IS TO BE ADDED WHERE THE FIRM SUBMITTING THE LOW ACCEPTABLE DOMESTIC BID IS A LABOR SURPLUS AREA CONCERN. YOUR OFFICER EXCEEDED THAT OF A FOREIGN BIDDER BY $2,789,502, OR 42.8 PERCENT, WHICH IS MATERIALLY IN EXCESS OF THE COST DIFFERENTIAL ESTABLISHED TO IMPLEMENT THE BUY AMERICAN ACT, SUPRA. IT IS FURTHER REPORTED THAT A DECISION BY THE OFFICE OF CIVIL AND DEFENSE MOBILIZATION HELD THAT IMPORTS OF HEAVY ELECTRICAL GENERATING EQUIPMENT ARE NOT THREATENING TO IMPAIR THE NATIONAL SECURITY.

THE SUBJECT STATUTE 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 ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES, SHALL BE ACQUIRED FOR PUBLIC USE.' IT MUST BE DEEMED SIGNIFICANT THAT THE ACT DOES NOT SPECIFY HOW, OR TO WHAT EXTENT, A CONTEMPLATED PURCHASE SHALL BE DETERMINED TO BE INCONSISTENT WITH THE PUBLIC INTEREST, OR THE COST BE CONSIDERED UNREASONABLE.

THE STATED PURPOSE OF EXECUTIVE ORDER NO. 10582, DATED DECEMBER 17, 1954, WAS TO AFFORD UNIFORM TREATMENT OF THE SUBJECT STATUTE THROUGHOUT THE GOVERNMENT WITH SPECIFIC LIMITATIONS IN ITS APPLICATION. WITH CERTAIN EXCEPTIONS NOT MATERIAL HERE, AND THOSE PURCHASES SPECIFICALLY EXEMPT UNDER SECTION 5 OF THE ORDER, THE SAID ACT APPLIES TO ALL FOREIGN PROCUREMENTS. THE RIGHT TO EXEMPT FROM THE FIXED LIMITATIONS A PARTICULAR PURCHASE UNDER SECTION 5 IS VESTED IN THE HEAD OF THE DEPARTMENT OR AGENCY CONCERNED, AND FAILURE TO EXERCISE THAT AUTHORITY, AS IN THIS CASE, IS NOT SUBJECT TO REVIEW BY THE ACCOUNTING OFFICERS OF THE GOVERNMENT. FURTHERMORE, SINCE THE ACT ITSELF DOES NOT SPECIFY WHAT EXCESS OF DOMESTIC OVER FOREIGN COST SHALL BE CONSIDERED UNREASONABLE, WE CANNOT SAY THAT THE PERCENTAGE ESTABLISHED BY THE EXECUTIVE ORDER VIOLATES THE STATUTE. CERTAINLY, WE DO NOT BELIEVE WE WOULD BE JUSTIFIED IN HOLDING IN THE PRESENT CASE THAT A PRICE DIFFERENTIAL OF 42.8 PERCENT IS INSUFFICIENT TO MAKE THE DOMESTIC PRICE "UNREASONABLE.' IN THIS CONNECTION, 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 COMPARISON WITH FOREIGN BID PRICES, NOT, AS YOU SEEM TO CONTEND, BY INQUIRY INTO DOMESTIC COSTS AND PROFITS ALONE. HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS, HOUSE OF REPRESENTATIVES, 72D CONGRESS, ON FEBRUARY 15, 1932, ON THE BILLS H.R. 6744, H.R. 8017, H.R. 8909, H.R. 9308, ETC.; PROVISIONS IN EARLIER APPROPRIATION ACTS, SUCH AS THE ACT OF MARCH 8, 1932, P.L. 53, 72D CONGRESS 47 STAT. 62, SECTION 4 OF THE ACT OF JUNE 30, 1932, P.L. 228, 72D CONGRESS, 47 STAT. 473; STATEMENT BY CONGRESSMAN GRANFIELD, 76TH CONGRESSIONAL RECORD, 1892-6.

WE FIND NOTHING IN THE LEGISLATIVE HISTORY OF THE ACT TO SUPPORT YOUR CONTENTION THAT "IN DETERMINING REASONABLENESS OF COST OF AMERICAN BIDS UNDER THE ACT, THE WIDE DIFFERENCE BETWEEN AMERICAN WAGES AND EUROPEAN AND ASIATIC WAGES MUST BE TAKEN INTO ACCOUNT," AND THAT "THE ADDED ECONOMIC ADVANTAGE WHICH FOREIGN PRODUCERS GAIN THROUGH DEVALUATION OF THEIR COUNTRIES CURRENCIES MUST ALSO BE TAKEN INTO ACCOUNT.' SO FAR AS CONCERNS THIS PROCUREMENT THE ACT MERELY PROVIDES THAT UNLESS THE HEAD OF THE DEPARTMENT SHALL DETERMINE "THE COST TO BE UNREASONABLE," ONLY DOMESTIC GOODS SHALL BE ACQUIRED FOR PUBLIC USE. IN RECOMMENDING FAVORABLE CONSIDERATION OF THE PROPOSED LEGISLATION, THE PRESIDENT OF THE UNITED STATES, IN LETTER OF JANUARY 26, 1932, TO THE SPEAKER OF THE HOUSE OF REPRESENTATIVES, SUGGESTED THAT THE ACT PROVIDE THAT DOMESTIC ARTICLES BE PURCHASED UNLESS THE HEADS OF DEPARTMENTS SHALL DETERMINE THAT "IN THEIR JUDGMENT THE EXCESS OF COST IS NOT UNREASONABLE.' ( ITALICS SUPPLIED.) SENATOR HIRAM W. JOHNSON, SPONSOR OF THE BILL, IN HIS STATEMENTS BEFORE THE SENATE, MADE REFERENCE TO THE COST ASPECTS OF DOMESTIC AND FOREIGN GOODS. HE STATED THAT IN CONTRACTING FOR A PARTICULAR ARTICLE, AN EXCEPTION SHALL BE NOTED IN THE SPECIFICATIONS AS TO THE REQUIREMENT TO PURCHASE GOODS OF DOMESTIC ORIGIN IN THE EVENT IT WOULD ,UNREASONABLY INCREASE THE COST.' ( ITALICS SUPPLIED.) 76TH CONGRESSIONAL RECORD, 3175.

THE REFERRED-TO APPROPRIATION ACTS, WHICH WERE IN EFFECT AT THE TIME THE BUY AMERICAN ACT WAS BEING CONSIDERED BY THE CONGRESS, PROVIDED FOR THE PURCHASE OF DOMESTIC ARTICLES AT PRICES HIGHER THAN THE FOREIGN MARKET ONLY "IF SUCH EXCESS OF COSTS BE NOT UNREASONABLE.' 47 STAT. 62 AND 473. IN VIEW OF THE FOREGOING IT IS OUR CONSIDERED OPINION THAT THERE IS NO LEGAL BASIS FOR THE EXERCISE OF AN ADMINISTRATIVE DETERMINATION AS TO THE REASONABLENESS OF COST ALONE OF A DOMESTIC BID SUBJECT TO THE BUY AMERICAN ACT, BUT THAT SUCH BID MUST BE EVALUATED AGAINST A BID OFFERING FOREIGN GOODS TO DETERMINE WHETHER, BY COMPARISON, THE COST OF THE DOMESTIC PRODUCT IS UNREASONABLE.

THE EVALUATION OF THE BIDS IN THE PRESENT CASE WAS MADE BY THE DEPARTMENT OF THE ARMY IN ACCORDANCE WITH ITS CITED REGULATIONS AND THE EXECUTIVE ORDER INVOLVED AND DOES NOT, IN OUR OPINION, VIOLATE THE STATED PROVISIONS OR INTENT OF THE BUY AMERICAN ACT.

IN VIEW OF THE FOREGOING, AND SINCE WE FIND NO LEGAL BASIS FOR QUESTIONING THE PROPRIETY OF EXECUTIVE ORDER NO. 10582, THE ACTION TAKEN BY THE ADMINISTRATIVE OFFICE WILL NOT BE DISTURBED.