B-161325, JULY 12, 1967, 47 COMP. GEN. 21

B-161325, JULY 12, 1967, 47 COMP. GEN. 21

CONTRACTS - BUY AMERICAN ACT - FOREIGN PRODUCTS - COMPONENT V END PRODUCT WHERE THE COST OF FOREIGN BATTERIES REQUIRED IN MODIFICATION KITS AS PART OF DIESEL ELECTRIC UNITS REPRESENTS APPROXIMATELY 1 PERCENT OF ALL THE COMPONENTS OF THE UNIT, THE BATTERY IS NOT CONSIDERED AN "END PRODUCT" SUBJECT TO THE RESTRICTIONS OF THE BUY AMERICAN ACT (41 U.S.C. 10A-D), BUT A "COMPONENT" OF THE UNIT. TO EXCLUDE THE BATTERIES FROM THE DEFINITION OF COMPONENT IN THE BUY AMERICAN ACT CLAUSE INCLUDED IN THE CONTRACT PURSUANT TO PARAGRAPH 6-104.5 OF THE ARMED SERVICES PROCUREMENT REGULATION ON THE BASIS THE BATTERIES ARE NOT DIRECTLY INCORPORATED IN THE DIESEL ELECTRIC UNITS AND THEREFORE DO NOT LOSE THEIR IDENTITY OR ARE NOT SUBSTANTIALLY CHANGED IN FORM WOULD BE TOO NARROW A DEFINITION OF COMPONENT. THEREFORE, THE USE OF FOREIGN BATTERIES IN THE DIESEL UNITS IS NOT CONSIDERED A VIOLATION OF THE BUY AMERICAN CLAUSE OF THE CONTRACT. BIDS - BUY AMERICAN ACT - FOREIGN PRODUCT DETERMINATION - COMPONENT V END PRODUCT THE ESTABLISHMENT OF CRITERIA BY WHICH CONTRACTING OFFICERS AS WELL AS CONTRACTORS MAY HAVE GUIDANCE AS TO WHAT IS A "COMPONENT" AND WHAT IS AN "END PRODUCT" WITHIN THE MEANING OF THE STANDARD "BUY AMERICAN ACT" CLAUSE INCORPORATED IN CONTRACTS PURSUANT TO PARAGRAPH 6-104.5 OF THE ARMED SERVICES PROCUREMENT REGULATION IS NOT WITHIN THE PROVINCE OF THE UNITED STATES GENERAL ACCOUNTING OFFICE, EXCEPT TO THE EXTENT THE APPLICATION OF THE TERMS TO THE FACTS OF A PARTICULAR CASE MAY SERVE SUCH PURPOSE.

TO COVINGTON AND BURLING, JULY 12, 1967:

FURTHER REFERENCE IS MADE TO YOUR LETTERS OF APRIL 20 AND JUNE 13, 1967, ON BEHALF OF NIFE INCORPORATED, CONCERNING APPLICABILITY OF THE BUY AMERICAN ACT, 41 U.S.C. 10A-D, TO CLASS 2 ALKALINE NICKEL CADMIUM HIGH RATE DISCHARGE INDUSTRIAL STORAGE BATTERIES, WHICH ARE AMONG THE ITEMS BEING PROCURED FROM ALLIS-CHALMERS MANUFACTURING COMPANY BY THE CORPS OF ENGINEERS UNDER CONTRACT NO. DACA 13-67-C-0002.

THE SUBJECT CONTRACT WAS AWARDED ON JULY 19, 1966, PURSUANT TO INVITATION FOR BIDS NO. ENG-04-548-66-8, AND CALLS FOR FURNISHING WING III, IV, AND V MODIFICATION KITS CONTAINING EQUIPMENT NECESSARY FOR MODIFYING THE STANDBY POWER FACILITIES AT VARIOUS MINUTEMAN ICBM LAUNCHING SITES. THE BATTERIES ARE REQUIRED IN THE WING IV MODIFICATION KITS AS PART OF THE DIESEL ELECTRIC UNIT. SINCE THE BATTERIES ARE MANUFACTURED IN ITALY, ALTHOUGH THEY ARE BEING PURCHASED FROM A UNITED STATES FIRM BY THE CONTRACTOR, YOU CONTEND THE BUY AMERICAN ACT IS APPLICABLE TO THEIR PROCUREMENT.

THE INVITATION AND CONTRACT INCLUDE THE BUY AMERICAN ACT CLAUSE REQUIRED BY ARMED SERVICES PROCUREMENT REGULATION (ASPR) 6-104.5, WHICH PROVIDES, IN PERTINENT PART, AS FOLLOWS:

(A) IN ACQUIRING END PRODUCTS, THE BUY AMERICAN ACT (41 U.S.C. 10A D) PROVIDES THAT THE GOVERNMENT GIVE PREFERENCE TO DOMESTIC SOURCE END PRODUCTS. FOR THE PURPOSE OF THIS CLAUSE:

(I) "COMPONENTS" MEANS THOSE ARTICLES, MATERIALS, AND SUPPLIES, WHICH ARE DIRECTLY INCORPORATED IN THE END PRODUCTS;

(II) "END PRODUCTS" MEANS THOSE ARTICLES, MATERIALS, AND SUPPLIES, WHICH ARE TO BE ACQUIRED UNDER THIS CONTRACT FOR PUBLIC USE; AND

(III) A "DOMESTIC SOURCE END PRODUCT" MEANS (A) AN UNMANUFACTURED END PRODUCT WHICH HAS BEEN MINED OR PRODUCED IN THE UNITED STATES AND(B) AN END PRODUCT MANUFACTURED IN THE UNITED STATES IF THE COST OF THE COMPONENTS THEREOF WHICH ARE MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES OR CANADA EXCEEDS 50 PERCENT OF THE COST OF ALL ITS COMPONENTS. FOR THE PURPOSES OF THIS (A) (III) (B), COMPONENTS OF FOREIGN ORIGIN OF THE SAME TYPE OR KIND AS THE PRODUCTS REFERRED IN (B) (II) OR (III) OF THE CLAUSE SHALL BE TREATED AS COMPONENTS MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES.

(B) THE CONTRACTOR AGREES THAT THERE WILL BE DELIVERED UNDER THIS CONTRACT ONLY DOMESTIC SOURCE END PRODUCTS * * *.

IT IS THE ADMINISTRATIVE POSITION THAT THE WING IV MODIFICATION KITS CONSISTS OF TWO ITEMS, ITS DIESEL ELECTRIC UNIT AND THE AUTOMATIC SWITCHING UNIT, WHICH ARE THE "END PRODUCTS" BEING PROCURED UNDER THE CONTRACT AND THAT EACH UNIT IS COMPRISED OF SEVERAL "COMPONENTS.' AMONG THE SO-CALLED ,COMPONENTS" MAKING UP THE DIESEL ELECTRIC UNIT ARE AN ENGINE, RADIATOR, GENERATOR, EXCITER, GENERATOR CONTROL PANEL, ENGINE CRANKING PANEL, MONITOR AND ALARM PANEL, BATTERY CHARGER PANEL, ENGINE AUXILIARY AND SAFETY DEVICES, LUBRICATING OIL LEVEL CONTROL AND AN ETHYLENE GLYCOL SOLUTION FOR THE ENGINE AND RADIATOR COOLING SYSTEM. SINCE THE COST OF THE BATTERY REPRESENTS APPROXIMATELY 1 PERCENT OF THE COST OF ALL OF THESE "COMPONENTS," THE AGENCY CONTENDS THAT THE DIESEL ELECTRIC UNIT IS A "DOMESTIC SOURCE END PRODUCT" WITHIN THE MEANING OF THE ABOVE-QUOTED CONTRACT CLAUSE AND APPLICABLE STATUTE AND REGULATIONS.

THE PROCURING ACTIVITY CONCEDES YOUR ARGUMENT THAT THE BATTERY, AND FOR THAT MATTER, ANY OTHER ITEM LISTED ABOVE DOES NOT LOSE ITS SEPARATE IDENTITY WHEN MADE A PART OF THE DIESEL ELECTRIC UNIT, AND WOULD QUALIFY AS AN END PRODUCT IF PROCURED SEPARATELY. HOWEVER, THEY ARE QUICK TO POINT OUT THEIR INTEREST IN PROCURING A DIESEL ELECTRIC UNIT, NOT THE VARIOUS PARTS WHICH COMPRISE IT; AND THAT THEY REQUIRE DELIVERY OF A COMPLETE UNIT, TESTED FOR SEVERE SHOCK ENDURANCE, VIBRATION, RELIABILITY, AND MEETING SPECIFIED PERFORMANCE REQUIREMENTS FOR THE UNIT AS A WHOLE.

IT IS YOUR CONTENTION THAT THE BATTERIES TO BE SUPPLIED WITH THE DIESEL ELECTRIC UNITS ARE "END PRODUCTS" WITHIN THE MEANING OF THE BUY AMERICAN ACT AND SUBJECT TO THE RESTRICTIONS THEREOF. ALTHOUGH YOU URGE OUR RULING TO THIS EFFECT, YOU DO NOT ASK THAT THE SANCTIONS OF SUCH A RULING BE APPLIED TO THE SUBJECT PROCUREMENT AT THIS LATE DATE. IN ADDITION TO THE SPECIFIC RULING WITH RESPECT TO THESE BATTERIES, YOU ASK FOR A GENERAL HOLDING ESTABLISHING "MEANINGFUL CRITERIA BY WHICH CONTRACTING OFFICERS AS WELL AS CONTRACTORS MAY RECEIVE GUIDANCE WITH RESPECT TO THE QUESTION OF WHAT IS A "COMPONENT" AND WHAT IS AN "END PRODUCT" WITHIN THE MEANING OF THE STANDARD ,BUY AMERICAN ACT" CLAUSE. IT IS YOUR POSITION THAT, WITHOUT SUCH GUIDANCE, APPLIABILITY OF THE ACT DEPENDS ON THE "FORTUITOUS CIRCUMSTANCE OF HOW BROADLY A PROCURING ACTIVITY HAPPENED TO DESCRIBE WHAT IT WAS PURCHASING," WHICH IS PRECISELY WHAT YOU BELIEVE THE PROCURING ACTIVITY HAS ATTEMPTED IN THE INSTANT CASE.

TURNING FIRST TO THE STATUS OF THE BATTERIES IN THIS PROCUREMENT, YOU ATTEMPT TO EXCLUDE THEM FROM THE BUY AMERICAN CLAUSE DEFINITION OF "COMPONENT" SINCE THEY ARE NOT DIRECTLY INCORPORATED IN THE DIESEL ELECTRIC UNITS IN THE SENSE THAT THEY LOSE THEIR SEPARATE IDENTITY OR ARE SUBSTANTIALLY CHANGED IN FORM. THIS IS THE DEFINITION YOU HAVE URGED WE ESTABLISH AS CRITERION TO GUIDE AGENCIES AND CONTRACTORS AND THE DEFINITION YOU ASCRIBE TO OUR DECISION OF APRIL 27, 1966, 45 COMP. GEN. 658.

WE BELIEVE THIS IS TOO NARROW A DEFINITION; WE CAN ENVISION SITUATIONS WHERE AN ARTICLE MAY REASONABLY BE CONSIDERED A COMPONENT AND YET NOT LOSE ITS SEPARATE IDENTITY OR BE SUBSTANTIALLY CHANGED IN FORM. FOR EXAMPLE, THE SCREWS SECURING A LEG TO A TABLE RETAIN THEIR IDENTITY AND FORM BUT ARE CERTAINLY A COMPONENT OF THE TABLE. SIMILARLY, THE SPARK PLUG IN AN AUTOMOBILE ENGINE IS A COMPONENT. WHILE THE DECISION CITED BY YOU DID INVOLVE AN ARTICLE WHICH LOST ITS IDENTITY AND WAS SUBSTANTIALLY CHANGED IN FORM, THE DECISION DID NOT EITHER DIRECTLY OR BY IMPLICATION SO LIMIT THE DEFINITION OF "COMPONENT.' WHETHER A PARTICULAR ARTICLE IS A "COMPONENT" OR "END PRODUCT" MAY ALSO BE DEFINED IN TERMS OF USE OR FUNCTION INTENDED.

YOU ALSO TAKE ISSUE WITH THE ADMINISTRATIVE ARGUMENTS THAT THE TESTING AND PERFORMANCE REQUIREMENTS OF THE UNIT AS A WHOLE INDICATE THE BATTERY IS A COMPONENT, AND THAT CALLING THE VARIOUS ITEMS COMPRISING THE DIESEL ELECTRIC UNIT "COMPONENTS" IN THE SPECIFICATIONS IS EVIDENCE THAT THEY ARE IN FACT "COMPONENTS.' WE MIGHT AGREE THAT THE LATTER ARGUMENT HAS LITTLE PROBATIVE VALUE. HOWEVER, WE BELIEVE THE FORMER ARGUMENT IS DETERMINATIVE OF THE QUESTION YOU RAISE WITH REGARD TO THE STATUS OF THE BATTERIES IN THE INSTANT PROCUREMENT.

UNDER THE TERMS OF THE CONTRACT THE CONTRACTOR AGREES THAT ONLY "DOMESTIC SOURCE END PRODUCTS" WILL BE DELIVERED. THIS REQUIREMENT IS IN COMPLIANCE WITH THE BUY AMERICAN ACT, 41 U.S.C. 10A, WHICH PROVIDES THAT ONLY SUCH MANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MANUFACTURED IN THE UNITED STATES SUBSTANTIALLY ALL FROM ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED IN THE UNITED STATES, SHALL BE ACQUIRED FOR PUBLIC USE. TO ASSIST IN ADMINISTRATION OF THE ACT, EXECUTIVE ORDER NO. 10582, DECEMBER 17, 1954, PROVIDES AS FOLLOWS:

SEC. 2 (A) FOR THE PURPOSES OF THIS ORDER MATERIALS SHALL BE CONSIDERED TO BE OF FOREIGN ORIGIN IF THE COST OF THE FOREIGN PRODUCTS USED IN SUCH MATERIALS CONSTITUTES FIFTY PERCENTUM OR MORE OF THE COST OF ALL THE PRODUCTS USED IN SUCH MATERIALS.

SINCE 1954 THE 50-PERCENT RULE HAS BEEN ACCEPTED AS THE TEST WHETHER A MANUFACTURED ARTICLE HAS BEEN MANUFACTURED "SUBSTANTIALLY ALL" FROM DOMESTIC ARTICLES, MATERIALS OR SUPPLIES WITHIN THE MEANING OF THE STATUTE. HOWEVER, THE QUESTION WHETHER ASSEMBLY OF THE VARIOUS COMPONENTS PRODUCED A PRODUCT WHICH WAS "MANUFACTURED" IN THE UNITED STATES, AND THEREFORE QUALIFIED AS A ,DOMESTIC SOURCE END PRODUCT" UNDER THE 50- PERCENT RULE WAS UNSETTLED UNTIL RECENTLY.

IN A DECISION DATED MAY 22, 1967, 46 COMP. GEN. 813, WE HAD OCCASION TO DEFINE THE TERM ,MANUFACTURED" AS USED IN THE BUY AMERICAN ACT AT 41 U.S.C. 10B, WHICH RELATES TO CONSTRUCTION CONTRACTS. WHILE IN THAT CASE, THE DEFINITION OF "DOMESTIC CONSTRUCTION MATERIAL" WAS INVOLVED, THE STATUTORY, REGULATORY AND CONTRACTUAL BUY AMERICAN PROVISIONS ARE SUFFICIENTLY SIMILAR TO REQUIRE A SIMILAR CONCLUSION HERE. THAT CONTRACT CALLED FOR DELIVERY OF CLOSE COUPLED CIRCULATING PUMP UNITS HAVING A PUMP AND MOTOR MOUNTED ON THE SAME BASE AND PHYSICALLY ATTACHED. THE PUMPS WERE AMERICAN-MADE AND THE MOTORS ENGLISH-MADE, AND THE PUMPS AND MOTORS WERE MOUNTED, ATTACHED AND ALIGNED BY THE AMERICAN PUMP MANUFACTURER. RESOLVING THE QUESTION WHETHER THE ASSEMBLY CONSTITUTED A "DOMESTIC CONSTRUCTION MATERIAL" WE STATED THE FOLLOWING:

WE HAVE BEEN UNABLE TO FIND ANY HOLDINGS BY THE COURTS, OR IN PREVIOUS DECISIONS OF OUR OFFICE, WHICH ARE CONTROLLING, OR EVEN MATERIALLY HELPFUL, TO US HERE. SINCE THE BUY AMERICAN ACT DOES NOT DEFINE THE TERM "MANUFACTURED" AS USED THEREIN, WE HAVE REVIEWED THE LEGISLATIVE HISTORY OF THE ACT. ON FEBRUARY 3, 1933, PAGE 3267 OF THE 76TH CONGRESSIONAL RECORD, THE SENATE CONSIDERED A PROPOSED AMENDMENT WHICH WOULD HAVE OMITTED THE PROVISION SPONSORED BY SENATOR HIRAM W. JOHNSON TO REQUIRE THE ACQUISITION OF ONLY SUCH ARTICLES AS HAVE BEEN MANUFACTURED IN THE UNITED STATES ,SUBSTANTIALLY ALL FROM ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES.' WHEN ASKED TO COMMENT ON THE PROPOSED AMENDMENT, SENATOR JOHNSON MADE THE FOLLOWING STATEMENT:

"MR. PRESIDENT, THE SENATOR FROM WISCONSIN STRIKES OUT, AS I RECALL, LINES 7 TO 12 OF SECTION 2 OF THE BILL. HE INSERTS IN LIEU THEREOF:

"-ARTICLES OF THE GROWTH, PRODUCTION, AND/OR MANUFACTURE OF THE UNITED STATES.-

"FROM MY STANDPOINT, THE VICE OF HIS AMENDMENT IS THAT FROM OUTSIDE, FROM A FOREIGN COUNTRY, COULD BE BROUGHT INTO THIS COUNTRY THE MATERIAL WHICH COULD BE MANUFACTURED AS SEEN FIT, AND THEN IT WOULD NOT BE WITHIN THE PROHIBITION OF THE LAW.

"FOR INSTANCE, AS I HAVE REPEATEDLY STATED UPON THE FLOOR, THE IMPELLING CAUSE OF THIS MEASURE WAS THE SITUATION AT THE BOULDER DAM, WHERE IT WAS EXPECTED THAT THE LOWEST BID WOULD BE FROM GERMANY FOR THE TURBINES OR GENERATING MACHINERY AND THE LIKE--- A TRANSACTION INVOLVING ABOUT $6,000,000. NOW, ASSUME THAT THEY BROUGHT OVER FROM GERMANY PART OF THE MACHINERY, AND ASSUME THAT THEY BROUGHT OVER THEN IN ANOTHER SHIP ANOTHER PART OF IT, AND IN ANOTHER SHIP ANOTHER PART OF IT, AND THEN, IN SOME FACTORY IN THIS COUNTRY IT WAS ASSEMBLED AND MANUFACTURED. THEN, THERE WOULD BE NO PROHIBITION UPON IT SUCH AS I DESIRE TO PUT IN THIS BILL UPON BIDS OF THAT SORT.' (ITALIC SUPPLIED.)

IT DOES NOT APPEAR FROM HIS USE OF THE TERMS "ASSEMBLED" AND "MANUFACTURED" THAT SENATOR JOHNSON INTENDED ANY SPECIAL DISTINCTION BETWEEN THOSE TERMS IN THE APPLICATION OF THE PROPOSED LEGISLATION, NOR DOES HIS ILLUSTRATION INDICATE THAT THE REFERENCED TURBINES OR GENERATING MACHINERY WERE NOT TO BE CONSIDERED AS "MANUFACTURED" IN THE UNITED STATES UPON ASSEMBLY THEREIN OF THEIR FOREIGN-MANUFACTURED COMPONENTS.

IN VIEW OF THE FOREGOING, WE FIND NO COMPELLING REASON FOR NARROWING THE MEANING OF THE TERM ,MANUFACTURED" AS USED IN THE BUY AMERICAN ACT TO EXCLUDE WHAT THE SCHWARTZ COMPANY, THROUGH DEMING, DID IN THE INSTANT CASE. ACCORDINGLY, EACH COMPLETE PUMP UNIT DELIVERED BY THAT COMPANY TO THE CONSTRUCTION SITE SHOULD BE REGARDED AS CONSTITUTING A MANUFACTURED CONSTRUCTION MATERIAL, WHICH HAD BEEN MANUFACTURED AT DEMING'S FACTORY IN THE UNITED STATES, AND THEREFORE AS BEING WITHIN THE DEFINITION OF A "DOMESTIC CONSTRUCTION MATERIAL," SINCE ITS U.S. MANUFACTURED COMPONENTS EXCEEDED 50 PERCENT OF THE COST OF ALL ITS COMPONENTS.

NEITHER 41 U.S.C. 10A DEALING WITH CONTRACTS FOR SUPPLIES NOR 41 U.S.C. 10B DEALING WITH CONSTRUCTION CONTRACTS USES THE TERMS "END ITEMS" OR "COMPONENTS.' HOWEVER, THE CLAUSE PRESCRIBED AT ASPR 6 104.5 WHICH WAS INCORPORATED IN THE INSTANT CONTRACT REQUIRES DELIVERY OF "DOMESTIC SOURCE END PRODUCTS" AND DISTINGUISHES BETWEEN AND DEFINES "COMPONENTS" AND "END PRODUCTS.' THE CLAUSE INCLUDED IN THE CONTRACT CONSIDERED IN B-161061, SUPRA, IS PRESCRIBED AT FPR 1-6.205, AND IN GENERAL REQUIRES THAT ONLY "DOMESTIC CONSTRUCTION MATERIAL" BE DELIVERED AND DISTINGUISHES BETWEEN AND DEFINES "CONSTRUCTION MATERIAL" AND "COMPONENT.' EXCEPT FOR THE USE OF THE TERM "END PRODUCT" IN THE FORMER AND "CONSTRUCTION MATERIAL" IN THE LATTER, THE TWO CLAUSES ARE, IN EFFECT, THE SAME. IN BOTH CASES, LONGSTANDING ADMINISTRATIVE INTERPRETATION TENDS TO ESTABLISH THE CLAUSES AS PROPERLY WITHIN THE LANGUAGE AND INTENT OF THE STATUTORY PROVISIONS.

IN VIEW OF THE FOREGOING, WE BELIEVE THAT THE REASONING APPLIED IN THE EARLIER CASE IS EQUALLY APPLICABLE TO THE INSTANT PROCUREMENT AND, THEREFORE, USE OF THE FOREIGN BATTERIES IN THE DIESEL ELECTRIC UNITS IS NOT A VIOLATION OF THE BUY AMERICAN CLAUSE OF THE CONTRACT. THE ESTABLISHMENT OF CRITERIA FOR DETERMINING WHAT IS A "COMPONENT" AND WHAT IS AN "END DUCT," WHICH YOU HAVE SUGGESTED OUR OFFICE UNDERTAKE, IS NOT WITHIN OUR PROVINCE, EXCEPT TO THE EXTENT THAT OUR APPLICATION OF THESE TERMS TO THE FACTS OF A PARTICULAR CASE MAY SERVE SUCH PURPOSE.