B-150306, JANUARY 28, 1963, 42 COMP. GEN. 401

B-150306, JANUARY 28, 1963, 42 COMP. GEN. 401

CONTRACTS - BUY AMERICAN ACT - FOREIGN PRODUCTS - APPROVAL AFTER USE - PRICE ADJUSTMENT UNDER A CONSTRUCTION CONTRACT REQUIRING THE USE OF DOMESTIC MATERIALS WITH THE EXCEPTION OF ASBESTOS WHICH IS NOT PRODUCED IN THE UNITED STATES, THE INSTALLATION UNDERGROUND OF FOREIGN-MANUFACTURED ASBESTOS-CEMENT PIPE THAT IS AVAILABLE IN THE UNITED STATES, WHERE BECAUSE THE BID SHOWED NO SUCH INTENT, THE APPROVAL FOR THE USE OF THE NONDOMESTIC PRODUCT WHICH IS REQUIRED BY SECTION 633 OF THE ACT OF OCTOBER 29, 1949, AMENDING THE BUY AMERICAN ACT, 41 U.S.C. 10A-10D, WAS NOT OBTAINED, CONSTITUTED A VIOLATION OF THE ACT, BUT IN THE ABSENCE OF CULPABILITY BY THE CONTRACTOR, THE DEBARMENT PENALTY NEED NOT BE IMPOSED; HOWEVER, IN VIEW OF THE FACT THAT REMOVAL AND REPLACEMENT OF THE INSTALLED PIPE WOULD BE UNDULY HARSH TO THE CONTRACTOR AND RESULTANT DELAY POSSIBLY DETRIMENTAL TO THE INTEREST OF THE GOVERNMENT, THE FOREIGN-MANUFACTURED PIPE MAY BE ACCEPTED CONDITIONED UPON AN APPROPRIATE ADJUSTMENT IN THE CONTRACT PRICE, TO BE MEASURED BY THE EXCESS COST, IF ANY, OF DOMESTIC PIPE OF THE QUALITY AND QUANTITY REQUIRED OVER THE COST OF THE PIPE ACCEPTED.

TO HAROLD P. DANZ, DEPARTMENT OF THE INTERIOR, JANUARY 28, 1963:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 9, 1962, REQUESTING A DECISION AS TO THE PROPER ACTION TO BE TAKEN WITH RESPECT TO THE PAYMENT VOUCHER, ENCLOSED THEREWITH, IN THE AMOUNT OF $21,619.35, COVERING THE CLAIM OF J. R. ARMSTRONG CONSTRUCTION CO., INC., PRIME CONTRACTOR, FOR ASBESTOS-CEMENT PIPE FURNISHED AND INSTALLED UNDER ITS CONTRACT NO. 14-10- 0444-723 FOR THE CONSTRUCTION OF ROADS, WATER AND SEWER SYSTEMS IN YOSEMITE NATIONAL PARK.

IT APPEARS FROM YOUR LETTER AND ACCOMPANYING PAPERS THAT PURSUANT TO THE BUY AMERICAN ACT, 47 STAT. 1520, AS AMENDED, 41 U.S.C. 10A-D, AND IMPLEMENTING REGULATIONS, GENERALLY REQUIRING THAT ONLY DOMESTIC MATERIAL BE USED IN THE PERFORMANCE OF GOVERNMENT CONTRACTS IN THE UNITED STATES, THE CITED CONSTRUCTION CONTRACT CONTAINED THE PRESCRIBED BUY AMERICAN PROVISION, CLAUSE 19, STANDARD FORM 23-A, AS FOLLOWS:

19. BUY AMERICAN

(A) AGREEMENT. IN ACCORDANCE WITH THE BUY AMERICAN ACT (41 U.S.C. 10A- 10D) AND EXECUTIVE ORDER 10582, DECEMBER 17, 1954 (3 CFR SUPP.), THE CONTRACTOR AGREES THAT ONLY DOMESTIC CONSTRUCTION MATERIAL WILL BE USED (BY THE CONTRACTOR, SUBCONTRACTORS, MATERIALMEN, AND SUPPLIERS) IN THE PERFORMANCE OF THIS CONTRACT, EXCEPT FOR NONDOMESTIC MATERIAL LISTED IN THE CONTRACT.

(B) DOMESTIC CONSTRUCTION MATERIAL. "CONSTRUCTION MATERIAL" MEANS ANY ARTICLE, MATERIAL, OR SUPPLY BROUGHT TO THE CONSTRUCTION SITE FOR INCORPORATION IN THE BUILDING OR WORK. AN UNMANUFACTURED CONSTRUCTION MATERIAL IS A "DOMESTIC CONSTRUCTION MATERIAL" IF IT HAS BEEN MINED OR PRODUCED IN THE UNITED STATES. A MANUFACTURED CONSTRUCTION MATERIAL IS A "DOMESTIC CONSTRUCTION MATERIAL" IF IT HAS BEEN MANUFACTURED IN THE UNITED STATES AND IF THE COST OF ITS COMPONENTS WHICH HAVE BEEN MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES EXCEEDS 50 PERCENT OF THE COST OF ALL ITS COMPONENTS. "COMPONENT" MEANS ANY ARTICLE, MATERIAL, OR SUPPLY DIRECTLY INCORPORATED IN A CONSTRUCTION MATERIAL.

(C) DOMESTIC COMPONENT. A COMPONENT SHALL BE CONSIDERED TO HAVE BEEN "MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES" (REGARDLESS OF ITS SOURCE IN FACT) IF THE ARTICLE, MATERIAL, OR SUPPLY IN WHICH IT IS INCORPORATED WAS MANUFACTURED IN THE UNITED STATES AND THE COMPONENT IS OF A CLASS OR KIND DETERMINED BY THE GOVERNMENT TO BE NOT MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF A SATISFACTORY QUALITY.

THE NONDOMESTIC MATERIAL LISTED BOTH IN THE INVITATION FOR BIDS AND IN THE CONTRACT, AS EXCEPTED FROM THE STATUTORY REQUIREMENT, INCLUDED, AMONG OTHER ITEMS, ASBESTOS, A MATERIAL WHICH IS NOT COMMERCIALLY PRODUCED IN THE UNITED STATES.

THE RECORD SHOWS THAT IN THE PERFORMANCE OF THE CONTRACT WORK THE CONTRACTOR'S SUPPLIER, PACIFIC PIPE COMPANY, FURNISHED ASBESTOS-CEMENT PIPE WHICH WAS ENTIRELY MANUFACTURED IN BELGIUM AND THAT THIS FOREIGN MANUFACTURED PIPE, FOR WHICH PAYMENT AT THE CONTRACT PRICE IS CLAIMED, HAS BEEN INSTALLED UNDERGROUND AND LARGELY COVERED BY PAVING. WHILE THE RECORD SHOWS THAT ASBESTOS-CEMENT PIPE IS MANUFACTURED IN THE UNITED STATES, BOTH THE CONTRACTOR AND ITS SUPPLIER CONTEND THAT THE EXCEPTION OF ASBESTOS--- AN INDISPENSABLE INGREDIENT OF ASBESTOS CEMENT PIPE--- FROM THE STATUTORY REQUIREMENTS THAT ONLY DOMESTIC CONSTRUCTION MATERIAL BE USED IN THE PERFORMANCE OF THE CONTRACT NECESSARILY ENCOMPASSED THE PIPE MANUFACTURED THEREFROM. IN SUPPORT OF THIS CONTENTION, THE FILE INCLUDES A COPY OF UNDATED OPINION OF THE OFFICE OF THE ATTORNEY GENERAL, STATE OF CALIFORNIA, NO. 60/263, HOLDING THAT THE PROVISIONS OF THE CALIFORNIA BUY AMERICAN ACT DO NOT APPLY TO THE PURCHASE OF FOREIGN-MANUFACTURED ASBESTOS -CEMENT PIPE SINCE THE ESSENTIAL INGREDIENT THEREOF, ASBESTOS, IS NOT PRODUCED IN THE UNITED STATES. ALSO, IN FURTHER SUPPORT OF THEIR POSITION, THE CONTRACTOR AND THE SUPPLIER ALLEGE THAT THE SAME FOREIGN- MANUFACTURED PIPE HAS BEEN FURNISHED AND ACCEPTED BY THE GOVERNMENT UNDER DESIGNATED PRIOR CONTRACTS WITH THE DEPARTMENT OF THE NAVY AND THE DEPARTMENT OF THE AIR FORCE.

IN THE LIGHT OF THE FOREGOING AND OF THE ENCLOSED LEGAL OPINION, DATED NOVEMBER 1, 1962, OF YOUR DEPARTMENT'S FIELD SOLICITOR, SAN FRANCISCO, CALIFORNIA, THAT THE CONTRACTOR, IN FURNISHING FOREIGN MANUFACTURED PIPE, HAS VIOLATED THE BUY AMERICAN ACT, YOU SPECIFICALLY REQUEST OUR DECISION ON THE FOLLOWING QUESTIONS:

1. MAY THE ATTACHED VOUCHER COVERING THE FOREIGN MADE PIPE BE CERTIFIED FOR PAYMENT? THIS VOUCHER COVERS THE ACTUAL QUANTITY OF PIPE INSTALLED IN A SATISFACTORY MANNER AND, HAD NOT THE QUESTION OF FOREIGN ORIGIN ARISEN, WOULD HAVE BEEN APPROVED FOR PAYMENT.

2. IF THE ANSWER TO 1 ABOVE IS NEGATIVE, DOES THE CONTRACTING OFFICER HAVE THE AUTHORITY TO PAY THE CONTRACTOR AN AMOUNT ADJUSTED TO TAKE INTO ACCOUNT ANY DIFFERENTIAL THAT MAY EXIST BETWEEN THE PRICE OF THE FOREIGN MADE PIPE AND DOMESTIC PIPE OF A CORRESPONDING QUALITY? IN THIS CONNECTION, IT SHOULD BE NOTED THAT THE PIPE WAS INSTALLED AS PART OF A CAMPGROUND CONSTRUCTION PROJECT AND THAT A LARGE PORTION OF THE PIPE HAS SINCE BEEN COVERED BY PAVING. WE BELIEVE IT WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT TO LEAVE THE PIPE IN THE GROUND REGARDLESS OF WHETHER THERE IS A VIOLATION OF THE BUY AMERICAN ACT.

3. WE WOULD ALSO LIKE AN OPINION ON WHETHER THERE HAS BEEN A VIOLATION OF THE BUY AMERICAN ACT. IT IS RECOGNIZED THAT AT THE TIME OF SUBMISSION OF BIDS NO INDICATION WAS GIVEN OF AN INTENTION TO USE FOREIGN MATERIALS. IS OUR UNDERSTANDING, HOWEVER, THAT THE SPECIFIC TYPE AND QUALITY OF PIPE NEEDED ON THIS JOB REQUIRED A LONG FIBER ASBESTOS THAT IS NOT AVAILABLE IN THE UNITED STATES. IF THIS IS DETERMINED TO BE THE CASE, COULD THE DECISION IN 28 CG 591 BE APPLIED HERE?

CONCERNING THE PROVISION IN THE INVITATION FOR BIDS AND IN THE RESULTANT CONTRACT EXCEPTING ,ASBESTOS" FROM THE STATUTORY REQUIREMENTS, IT IS STATED IN YOUR FIELD SOLICITOR'S OPINION THAT ,THIS EXCEPTION APPLIES ONLY TO RAW OR UNMANUFACTURED ASBESTOS AND IS NOT APPLICABLE TO A MANUFACTURED PRODUCT WHICH UTILIZES ASBESTOS AS AN INGREDIENT EVEN WHERE THAT INGREDIENT COMPRISES A MAJOR PART OF THE END PRODUCT.' WE ARE IN COMPLETE ACCORD WITH THAT VIEW. IN THAT CONNECTION, FOR THE SPECIFIC PURPOSE OF CLARIFYING THE INTENT OF THE CONGRESS AS TO THE TREATMENT OF MANUFACTURED ARTICLES UNDER THE BUY AMERICAN ACT AND TO PROHIBIT THE PURCHASE OF ARTICLES MANUFACTURED ABROAD UNDER CIRCUMSTANCES SUCH AS THOSE CONSIDERED AND AUTHORIZED IN OUR DECISION OF APRIL 19, 1949, B-84306, 28 COMP. GEN. 591, THE BUY AMERICAN ACT WAS AMENDED BY SECTION 633 OF THE NATIONAL MILITARY ESTABLISHMENT APPROPRIATION ACT, 1950, APPROVED OCTOBER 29, 1949, 63 STAT. 987, 1024 (41 U.S.C. 10D), AS FOLLOWS:

SEC. 633. IN ORDER TO CLARIFY THE ORIGINAL INTENT OF CONGRESS, HEREAFTER, SECTION 2 AND THAT PART OF SECTION 3 (A) PRECEDING THE WORDS "PROVIDED, HOWEVER," OF TITLE III OF THE ACT OF MARCH 3, 1933 (47 STAT. 1520), SHALL BE REGARDED AS REQUIRING THE PURCHASE, FOR PUBLIC USE WITHIN THE UNITED STATES, OF ARTICLES, MATERIALS, OR SUPPLIES MANUFACTURED IN THE UNITED STATES IN SUFFICIENT AND REASONABLY AVAILABLE COMMERCIAL QUANTITIES AND OF A SATISFACTORY QUALITY, UNLESS THE HEAD OF THE DEPARTMENT OR INDEPENDENT ESTABLISHMENT CONCERNED SHALL DETERMINE THEIR PURCHASE TO BE INCONSISTENT WITH THE PUBLIC INTEREST OR THEIR COST TO BE UNREASONABLE.

THE ABOVE-QUOTED AMENDMENT TO THE BUY AMERICAN ACT, WHICH REQUIRES THE PURCHASE OF ARTICLES MANUFACTURED IN THE UNITED STATES IN PREFERENCE TO ARTICLES OF FOREIGN MANUFACTURE, EVEN THOUGH THE MATERIALS USED IN THE MANUFACTURE ARE OF FOREIGN ORIGIN, HAD THE EFFECT OF OVERRULING OUR DECISION IN 28 COMP. GEN. 591. IN VIEW OF THE SHOWING IN THE RECORD THAT DOMESTICALLY MANUFACTURED ASBESTOS-CEMENT PIPE WAS AVAILABLE IN SUFFICIENT COMMERCIAL QUANTITIES AND OF A SATISFACTORY QUALITY, AND SINCE, IN THE ABSENCE OF INDICATION BY THE CONTRACTOR OF INTENT TO FURNISH FOREIGN- MANUFACTURED PIPE, THERE WAS NO DETERMINATION BY THE SECRETARY OF THE INTERIOR THAT THE PURCHASE OF SUCH DOMESTICALLY MANUFACTURED PIPE WAS INCONSISTENT WITH THE PUBLIC INTEREST OR THE COST THEREOF WAS UNREASONABLE, THERE APPEARS NO DOUBT- - REGARDLESS OF THE OPINION OF THE ATTORNEY GENERAL OF THE STATE OF CALIFORNIA, WHICH OBVIOUSLY WAS BASED ON THE SPECIFIC PROVISIONS OF THE CALIFORNIA BUY AMERICAN ACT, OR OF THE LEGAL PROPRIETY OF THE ALLEGED ACTIONS OF OTHER GOVERNMENT DEPARTMENTS IN ACCEPTING FOREIGN MANUFACTURED PIPE--- THAT INSTALLATION OF ASBESTOS- CEMENT PIPE MANUFACTURED IN BELGIUM CONSTITUTED A VIOLATION OF THE PROVISIONS OF THE BUY AMERICAN ACT AND OF THE CONTRACT.

THE STATUTORY PENALTY FOR USING PROHIBITED FOREIGN MATERIALS IN THE PERFORMANCE OF A CONSTRUCTION CONTRACT WITH THE UNITED STATES IS DEBARMENT OF THE OFFENDING CONTRACTOR FROM AWARD OF GOVERNMENT CONTRACTS FOR A PERIOD OF 3 YEARS. THE VIOLATION COULD OF COURSE BE CURED BY REMOVAL OF THE UNAUTHORIZED MATERIAL AND INSTALLATION OF MATERIAL OF DOMESTIC MANUFACTURE. WE HAVE TAKEN THE VIEW THAT THE PENALTY OF DEBARMENT IS REQUIRED ONLY WHERE THE PROHIBITED MATERIAL WAS USED IN SUCH CIRCUMSTANCES AS WOULD INDICATE SOME DEGREE OF CULPABILITY ON THE PART OF THE CONTRACTOR, AND NOT IN CASES OF BONA FIDE MISUNDERSTANDING OR INADVERTENCE. THE FACTS IN THE INSTANT CASE APPEAR TO BRING IT WITHIN THE LATTER CLASS.

AT THE SAME TIME, IT APPEARS THAT TO REQUIRE REMOVAL AND REPLACEMENT OF THE PIPE ALREADY INSTALLED WOULD BE UNDULY HARSH TO THE CONTRACTOR, AND POSSIBLY DETRIMENTAL TO THE INTEREST OF THE GOVERNMENT BY REASON OF THE DELAY INVOLVED. HOWEVER, IN FAIRNESS TO OTHER BIDDERS WHOSE BIDS, CONSISTENT WITH THE TERMS OF THE INVITATION, MUST BE PRESUMED TO HAVE BEEN BASED ON THE USE OF DOMESTICALLY MANUFACTURED PIPE AND TO PRECLUDE THE CONTRACTOR FROM DERIVING ANY EXTRA PROFIT FROM THIS VIOLATION OF THE BUY AMERICAN ACT, THE ACCEPTANCE OF THE PIPE FURNISHED AND INSTALLED BY THE CONTRACTOR SHOULD BE CONDITIONED UPON AN APPROPRIATE ADJUSTMENT IN THE CONTRACT PRICE, TO BE MEASURED BY THE EXCESS COST, IF ANY, OF DOMESTIC PIPE OF THE QUALITY AND QUANTITY REQUIRED OVER THE COST OF THE FOREIGN- MANUFACTURED PIPE.