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