BNUMBER:  B-278422 
DATE:  January 28, 1998
TITLE: Baldt Inc., B-278422, January 28, 1998
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Matter of:Baldt Inc.

File:     B-278422

Date:January 28, 1998

Glenn Suplee for the protester.
Michael J. Stobbart for Lister Chain & Forge Inc., the intervenor.
Talbot J. Nicholas II, Esq., United States Coast Guard, for the 
agency.
John L. Formica, Esq., and James A. Spangenberg, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Agency properly determined that the awardee would provide buoy chain 
of domestic manufacture and the award would therefore comply with 14 
U.S.C.A.  sec.  97 (West Supp. 1997), which prohibits the procurement of 
buoy chain not manufactured in the United States, where the awardee's 
proposal stated that the chain would be manufactured in the United 
States; the proposal's reference to Canadian subcontractors that would 
be available to perform certain tests has no bearing on the 
determination as to whether the buoy chain will be manufactured in the 
United States because the tests are not part of the manufacturing 
process.

DECISION

Baldt Inc. protests the award of a contract to Lister Chain & Forge 
Inc. under request for proposals (RFP) No. DTCG40-97-R-70029, issued 
by the United States Coast Guard for buoy chain.  Baldt contends that 
the buoy chain offered by Lister is not manufactured in the United 
States, and its proposal should therefore have been rejected by the 
agency in accordance with the terms of the solicitation and a 
provision in the Coast Guard Authorization Act of 1996, Pub. L. No. 
104-324, 110 Stat. 3901, 3984 (1996) (codified at 14 U.S.C.A.  sec.  97(a) 
(West Supp. 1997)), which prohibit the Coast Guard from procuring buoy 
chain that is not manufactured in the United States. 

We deny the protest.

The RFP provided for the award of a firm, fixed-price contract for 
buoy chain.  The RFP stated that award would be made to the offeror 
submitting the proposal representing the best value to the government, 
price and other factors considered.  The solicitation listed the 
following evaluation factors in descending order of importance:  
technical, price, and past performance.  The RFP also informed 
offerors of the applicability of 14 U.S.C.A.  sec.  97(a) to this 
procurement and paraphrased the restriction contained in that 
provision.  Specifically, 14 U.S.C.A.  sec.  97 provides as follows:

     Procurement of buoy chain
     (a)  Except as provided in subsection (b), the Coast Guard may 
     not procure buoy chain--
        (1) that is not manufactured in the United States; or
        (2) substantially all of the components of which are not 
        produced or manufactured in the United States.

     (b) The Coast Guard may procure buoy chain that is not 
     manufactured in the United States if the Secretary [of 
     Transportation] determines that--
        (1) the price of buoy chain manufactured in the United States 
        is unreasonable; or
        (2) emergency circumstances exist.[1]
     
The agency received proposals from five firms, including Baldt and 
Lister, by the RFP's closing date.  Lister's proposal stated that it 
was "based on all the quoted products manufactured in our plant in 
Blaine, Washington," specifying that the chain would be "100 [percent] 
made in the U.S.A. including all components."  Lister also submitted 
an alternate proposal which was based upon subcontracting "a portion 
of the chain . . . to our sister company in Canada," for which Lister 
explained that "[t]he U.S. made components of this proposal make up 83 
[percent] of the total bid."

The agency evaluated the proposals, and rejected three of the 
proposals because the buoy chain to be supplied would be of foreign 
manufacture.  Discussions were held, and best and final offers (BAFO) 
were requested and received.  After receipt of BAFOs, the agency 
rejected Lister's alternate proposal based on its determination that 
the proposal's inclusion of buoy chain manufactured in Canada rendered 
the proposal noncompliant with 14 U.S.C.A.  sec.  97(a).

Lister's primary proposal expressly stated that the contract would be 
performed in Blaine, Washington.  The only indication in this proposal 
that any work would be performed outside of the United States was the 
proposal's identification of subcontractors located in Canada that 
would be available to perform certain testing (if necessary).[2]  This 
proposal was rated at 101.50 out of 125 points for technical merit and 
past performance at a price of $1,823,839.  Baldt's BAFO was rated at 
83.75 points at a price of $5,993,636.  The agency determined that 
Lister's proposal represented the best value to the government, and 
made award to that firm.[3]

Baldt protests that Lister's proposal should have been rejected by the 
agency because Lister will not, in Baldt's view, manufacture the chain 
in the United States.  Baldt, while recognizing that 14 U.S.C.A.  sec.  97 
does not define the term "manufacture," argues that the legislative 
history of 14 U.S.C.A.  sec.  97(a) indicates that it was intended to be 
similar to the restrictions applicable to the procurement of anchor 
and mooring chain by the Department of Defense (DoD).  In this regard, 
Defense Federal Acquisition Regulation Supplement (DFARS)  sec.  225.7012-1 
provides, in pertinent part, that:

     DoD appropriations for fiscal years 1991 and after may not be 
     used to acquire welded shipboard anchor and mooring chain, four 
     inches in diameter and under, unless--

        (1)  It is manufactured in the United States, including 
        cutting, heat treating, quality control, testing, and welding 
        (both forging and shot blasting process); and
        (2)  The cost of the components manufactured in the United 
        States exceeds 50 percent of the total cost of components. 

[Emphasis added].  Baldt concludes that the DFARS definition of 
"manufacture," which, as quoted above, includes testing, should be 
applicable here.

As indicated, the requirement that the Coast Guard procure buoy chain 
of domestic manufacture was included in the Coast Guard Authorization 
Act of 1996.  The House version of the bill contained a requirement 
regarding the procurement of buoy chain of domestic manufacture 
identical to that subsequently included in the Authorization Act as 
passed into law and codified at 14 U.S.C.A.  sec.  97(a).  H.R. 1361, 104th 
Cong., 141 Cong. Rec. H4559, 4582 (1995).  The House version also 
specified (consistent with DFARS  sec.  225.7012-1) that "the term 
'manufacture' includes cutting, heat treating, quality control, 
welding (including the forging and shot blasting process), and 
testing."  Id.  As pointed out by the protester, during general debate 
of H.R. 1361, Congressman Goodling of Pennsylvania remarked that the 
above quoted provisions:

     would subject the Coast Guard to the same procurement policies as 
     [DoD], therefore restricting the purchase of chain not 
     manufactured in the United States.  In addition, all of the 
     components of the buoy chain must be procured or manufactured in 
     the United States.  

141 Cong. Rec. H4587 (1995).  The Senate version of the bill (S. 
1004), which was ultimately enacted, did not contain any provision 
regarding the procurement of buoy chain.  Rather, the provision that 
was ultimately passed into law, and codified at 14 U.S.C.A.  sec.  97, was 
added to the Senate version of the bill in conference.  However, as 
indicated, it was added without the definition of the term 
"manufacture" as set forth in H.R. 1361.  The Conference Report does 
not provide any explanation for the deletion of the provision defining 
manufacture, noting only that "[t]he Senate bill does not contain a 
comparable provision," and that the "Conference substitute adopts the 
House provision with an amendment."  H.R. Conf. Rep. No. 104-854, at 
137 (1996), reprinted in 1996 U.S.C.C.A.N. 4292, 4332.

Because the definition of the term "manufacture" set forth in H.R. 
1361 was deleted in conference, we disagree with the protester that 
the legislative history of the Act--specifically, the deleted 
definition of "manufacture" and Representative Goodling's 
remarks--indicates that the term "manufacture" should be defined in 
accordance with the DFARS provision.  Although it is unclear from the 
legislative history why the definition of "manufacture" included in 
H.R. 1361 was deleted in conference, the fact remains that it was, and 
we therefore have no basis to infer that the nearly identical DFARS 
definition is applicable here.  Accordingly, we conclude that neither 
the language nor the legislative history of 14 U.S.C.A.  sec.  97 provides 
any specific guidance as to the definition of the term "manufacture" 
or the stages in the production processes that should be considered 
part of manufacturing. 

We have discussed the meaning of the term "manufacture" in numerous 
cases in relation to the Buy American Act, 41 U.S.C.  sec.  10a-10d (1994).  
Under a restriction in the Buy American Act similar to that in 14 
U.S.C.A.  sec.  97, the term "manufacture" has been found to mean 
completion of an article in the form required for use by the 
government.[4]  See 46 Comp. Gen. 784, 791 (1967); Marbex, Inc., 
B-225799, May 4, 1987, 87-1 CPD  para.  468 at 4.  Specifically, with regard 
to testing, we have found that the costs of testing a model of the 
product prior to its manufacture, or of testing the product itself 
after manufacture to determine whether it met the relevant 
specification requirements, could not be considered manufacturing 
costs because such testing was not part of the manufacturing process.  
48 Comp. Gen. 727, 730 (1969); Patterson Pump Co.; Allison Chalmers 
Corp., B-200165, B-200165.2, Dec. 31, 1980, 80-2 CPD  para.  453 at 6.  
Absent any evidence that Congress intended a different meaning, we 
adopt the rationale from the Buy American Act cases, see A & D Mach. 
Co., B-242546, B-242547, May 16, 1991, 91-1 CPD  para.  473 at 3-4 (Buy 
American Act cases referred to in determining whether machine tools 
were manufactured in the United States in accordance with a 
restriction contained in the 1989 National Defense Authorization Act, 
10 U.S.C.  sec.  2507 (1988)); see also Marbex, Inc., supra, at 4 (Buy 
American Act cases referred to in determining where surgical gloves 
were manufactured to determine a bid's compliance with the Trade 
Agreements Act of 1979, 19 U.S.C.  sec.  2501-2581 (1994)), and conclude 
that the fact that Lister's proposal identified firms located in 
Canada that may perform certain testing either before or after the 
actual manufacture of the chain has no bearing on the determination as 
to whether the buoy chain offered will be manufactured in the United 
States, because the testing would not be part of the manufacturing 
process.[5] 

Baldt also contends that "Lister, Canada . . . serves as Lister, 
U.S.'s home office," and that because "[g]enerally accepted accounting 
principles require that general and administrative and other home 
office functions to be included in the cost of the product . . . the 
chain Lister, U.S. manufactures cannot be considered as manufactured 
in the United States."  We disagree.

The restriction on the procurement of buoy chain set forth at 14 
U.S.C.A.  sec.  97(a), in contrast with either the DFARS restriction on the 
procurement of anchor chain, or the restrictions set forth in the Buy 
American Act, does not mention costs.  Rather, it expressly requires 
that the buoy chain or substantially all of its components be produced 
or manufactured in the United States.  As such, the statute, by its 
express terms, is primarily concerned with the place of manufacture.  
Because as specified in Lister's proposal, and reiterated by Lister 
during the course of this protest, all manufacturing processes will be 
carried out at Lister's facility in Washington, we find no merit in 
the protester's contention that Lister's proposal must be rejected 
because certain of the indirect costs associated with the manufacture 
of the buoy chain may be allocable to Lister's "home office" in 
Canada.[6]

The protest is denied.

Comptroller General
of the United States

1. The Coast Guard does not contend that the exceptions contained in 
10 U.S.C.A.  sec.  97(b) apply.

2. Our discussion of the respective contents and evaluation of Baldt's 
and Lister's proposals is necessarily general because no protective 
order was issued, inasmuch as the protester did not employ legal 
counsel.

3. Baldt initially protested that the evaluation of its proposal was 
unreasonable.  Because in its report on the protest the agency 
responded in detail to this argument, and the protester did not 
respond to the agency's position in its comments on the agency report, 
we consider Baldt to have abandoned this aspect of its protest.  Ares 
Corp., B-275321, B-275321.2, Feb. 7, 1997, 97-1 CPD  para.  82 at 13 n.19.

4. The Buy American Act does not specifically define the term 
"manufacture." 

5. Baldt also argues that "[s]ection L.11 set forth the criteria that 
should have been relied upon by the Contracting Officer for making the 
determination as to whether the items would be manufactured in the 
United States."  This argument is without merit.  Section L.11 of the 
RFP was clearly identified as the "proposal submission requirements," 
and in no way purported to define the term "manufacture[]" as used in 
the section of the RFP which referenced and paraphrased 14 U.S.C.A.  sec.  
97(a).  

6. In cases involving the calculation of costs to determine whether an 
end product is domestic or foreign under the Buy American Act, we have 
found that an offeror which manufactures components "may" include in 
the costs of those components its indirect costs.  However, the 
inclusion of these costs is only appropriate because the costs of 
individual components should be calculated in a consistent manner 
insofar as possible, and the price paid for other components purchased 
in final form from, for example, a foreign firm, would also include 
indirect costs.  General Kinetics, Inc., Cryptek Secure Communications 
Div., B-243078.2, Jan. 22, 1992, 92-1 CPD  para.  95 at 5.  That is, the 
inclusion of indirect costs in Buy American Act component cost 
calculations is driven by the need to calculate the costs of 
components obtained from different sources in a consistent manner, and 
not by any requirement that indirect costs, such as those associated 
with a "home office," be considered part of manufacturing.