BNUMBER:  B-278648 
DATE:  February 23, 1998
TITLE: Baldt Inc., B-278648, February 23, 1998
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Matter of:Baldt Inc.

File:     B-278648

Date:February 23, 1998

Glenn Suplee for the protester.
Michael P. Chiffolo, Esq., Defense Logistics Agency, for the agency.
Susan K. McAuliffe, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest of alleged violation of statutory requirement (at section 8016 
of the Department of Defense Appropriations Act, 1998) for domestic 
manufacture of anchor chain is denied where record shows that award 
complies with statutory requirements for domestic manufacture of the 
chain (the studs and links will be welded, and the stud link chain 
will be produced, in the United States), and for the components of 
that chain to be substantially manufactured in the United States (only 
one component (the studs) will be manufactured outside of the United 
States, the aggregate cost of which is substantially less than the 
aggregate cost of the components manufactured in the United States).

DECISION

Baldt Inc. protests the award of a contract to Lister Chain & Forge 
Inc. under request for quotations (RFQ) No. SPO490-97-Q-1043, issued 
by the Defense Logistics Agency for flash butt welded, stud link 
(1-3/8-inch) anchor chain, National Stock No. 4010-00-149-5609.[1]  
Baldt contends that the agency improperly failed to evaluate Lister's 
compliance with the domestic manufacturing requirements at section 
8016 of the Department of Defense (DOD) Appropriations Act, 1998, Pub. 
L. No. 105-56, 111 Stat. 1203, 1224 (1997).

We deny the protest.

BACKGROUND

Lister submitted the lowest-priced quotation, with a unit price of 
$6,098 and an extended price of $60,980; Baldt submitted the 
highest-priced quotation, with a unit price of $7,125 and an extended 
price of $71,250.  In its quotation, Lister identified its address as 
a domestic one--in Blaine, Washington--and stated that the same 
address applied to the place of inspection and shipping.  An award was 
made to Lister on October 31, 1997.  Baldt learned of the award on 
November 6, and filed its protest with our Office on November 14.

On November 21, the agency and Lister entered into a bilateral 
modification agreement incorporating the terms of Defense Federal 
Acquisition Regulation Supplement (DFARS)  sec.  252.225-7019, Restriction 
on Acquisition of Foreign Anchor and Mooring Chain, into the award 
documentation; the provision had been inadvertently omitted from the 
RFQ.[2]  This DFARS provision implements (and adopts the language of) 
section 8016 of the DOD Appropriations Act, 1998 (the Act), supra, 
which provides, in pertinent part, as follows:

     None of the funds in this Act may be available for the purchase 
     by [DOD] (and its departments and agencies) of welded shipboard 
     anchor and mooring chain 4 inches in diameter and under unless 
     the anchor and mooring chain are manufactured in the United 
     States from components which are substantially manufactured in 
     the United States:  Provided, That for the purpose of this 
     section manufactured will include cutting, heat treating, quality 
     control, testing of chain and welding (including the forging and 
     shot blasting process):  Provided further, That for the purpose 
     of this section substantially all of the components of anchor and 
     mooring chain shall be considered to be produced or manufactured 
     in the United States if the aggregate cost of the components 
     produced or manufactured in the United States exceeds the 
     aggregate cost of the components produced or manufactured outside 
     the United States . . . .

On November 24, Lister submitted a letter with additional information 
to the agency, regarding its manufacturing process, in which Lister 
stated, on page 1, as follows:

     All manufacturing of large diameter chain (3/4" to 3") is 
     conducted on the premises of Lister Chain & Forge, Division of 
     Columbus McKinnon Corporation located at 3810 Loomis Trail Road, 
     Blaine, Washington. . . .  The only component[s] not manufactured 
     at the Blaine facility are the studs, which are produced at 
     Lister Bolt & Chain [Canada], utilizing U.S. manufactured steel 
     provided by Lister Chain & Forge.  The cost of the studs 
     represent less than 3 percent of the final price of the chain, 
     this would be even less if you subtract the money paid by Lister 
     Bolt to Lister Chain & Forge for the material.

DISCUSSION

Baldt contends that, in view of the Act's requirement that certain 
manufacturing occur in the United States, the award here is improper, 
because, first, Lister's quotation did not provide sufficient 
information to establish with certainty that the manufacture of the 
chain would comply with the Act, and, second, had the contracting 
officer properly evaluated Lister's intended manufacturing process, he 
could not have concluded that Lister's proposal complied with the Act.

Our review of the record and the cited statutory requirements provides 
no support for the protester's contentions.  The RFQ did not contain a 
request for information, or any certification requirements, regarding 
compliance with the Act.  (The protester, in its own quotation, also 
did not specifically certify its compliance with the Act or expressly 
demonstrate that every manufacturing process listed in the Act would 
be performed in the United States--such showing simply was not 
required.)  However, it is clear that Lister, in its quotation, did 
not make any affirmative statement that its manufacture of the chain 
would be other than in the United States, or other than in compliance 
with the Act.  The awarded purchase order, the terms of which govern 
the awardee's performance, in fact specifies the "plant location" for 
performance of the contract as Lister's Blaine, Washington facility.  
Under the circumstances, contrary to Baldt's contentions, we cannot 
conclude that Lister's quotation provides evidence of a material flaw 
in the award of the contract.

Baldt next contends that, if the contracting officer had properly 
evaluated the Lister manufacturing process, he would have found that 
award to Lister violates the Act, since, according to Baldt, Lister 
admits that it will "manufacture" in Canada.  Specifically, in its 
December 26 comments on the agency report, Baldt contends that the 
above-quoted language from Lister's November 24 letter shows that 
Lister's "stud link" will be manufactured (including required 
"forging") at Lister Bolt & Chain in Canada.[3]  Baldt comments at 6.  
Baldt contends that, in accordance with section 8016 of the Act, the 
forging of the stud links must be performed in the United States, 
since the Act specifically includes the process of forging in defining 
the term "manufactured."

We have reviewed the allegation in light of Baldt's contention that, 
due to this alleged admission by Lister, the award of the contract 
cannot stand.  As discussed below, however, we find that the 
protester's challenge is flawed by a critical factual inaccuracy 
regarding Lister's intended manufacturing in Canada, as well as an 
unreasonable interpretation of the statutory language.

The factual inaccuracy on which Baldt's position is based becomes 
evident by comparing the above-quoted portion of Lister's November 24 
letter explaining the firm's intended manufacture of "studs" in 
Canada, to Baldt's comments that the Lister "stud links" (which are 
links with welded studs, joined to make the stud link chain) will be 
manufactured in Canada.  In fact, Lister's November 24 submission, 
complete with detailed attachments explaining the intended 
manufacturing process and available equipment, demonstrates that only 
the studs, and not the stud links, will be manufactured in Canada.  
This documentation shows that the stud links to be used by Lister in 
the manufacture of the anchor chain will be manufactured in the United 
States--that is, at Lister's Blaine, Washington facility, the 
Canadian-manufactured studs will be welded to 
domestically-manufactured links to produce the stud links and, 
subsequently, the stud link anchor chain.

The issue thus is whether the Act requires that the studs be 
manufactured in the United States.  By its terms, the Act imposes an 
absolute domestic restriction only on the manufacture of the chain 
itself; the chain's components need only be "substantially 
manufactured" in the United States, so that the aggregate cost of the 
components manufactured in the United States exceeds the aggregate 
cost of the components manufactured (including those that are forged) 
outside the United States.[4]  Accordingly, determining whether Lister 
may provide studs manufactured in Canada depends on whether the studs 
properly may be characterized as components of the chain.

The agency states that the two components in the manufacture of the 
stud link chain to be procured here are the stud and the link, which, 
when welded together and joined in a series, become the anchor chain 
product procured.  As discussed below, we believe the agency 
reasonably views the stud here as a component meeting the statutory 
requirements.

The Act does not identify the "components" of the stud link anchor 
chain or define at what stage of the process the grouping of materials 
becomes the "manufacture" of "the chain" separate from any manufacture 
of components.  Nor is there any explanatory legislative history as to 
the intended definition of the chain components.  Under these 
circumstances, in considering the reasonableness of the agency's 
interpretation, we review the matter by analogy to other instances 
where we have interpreted the concept of manufacturing for compliance 
with domestic content requirements.  In cases involving the Buy 
American Act, 41 U.S.C.  sec.  10a-10d (1994), for example, we have 
focused on the completion of the article in the form required for use 
by the government in defining manufacturing for purposes of meeting 
the domestic manufacturing restrictions in that statute; the term 
"components," on the other hand, has been defined as "those articles, 
materials and supplies directly incorporated into end products."  
DFARS  sec.  252.225-7001(a)(1); STD Research Corp., 72 Comp. Gen. 211, 213 
(1993), 93-1 CPD  para.  406 at 3; A&D Mach. Co., B-242546, B-242547, May 
16, 1991, 91-1 CPD  para.  473 at 3.

Applying these concepts here, we agree with the agency that the stud 
(separate from the link or any other component) is reasonably 
characterized as a component of the stud link anchor chain.  The studs 
are not the end products here--the agency is buying anchor chains, not 
studs.  Instead, the studs are one of the items directly incorporated 
into the end product; the chain is produced by welding together the 
studs and the links, and joining the resulting stud links in a series 
to form the chain.  Given this description of the chain manufacturing 
process, we think it clearly was reasonable for the agency to treat 
the studs as components of the chain.  
In light of this conclusion, foreign manufacture of the studs is not 
prohibited by the Act as long as the stated cost parameters are met.  
The record shows that at least 97 percent of the cost of the 
components used in the manufacture of the Lister stud link anchor 
chain in Blaine, Washington, relates to domestically-manufactured
components and, accordingly, that Lister was reasonably found to be in 
compliance with the domestic manufacturing requirements of the Act.[5]

The protest is denied.

Comptroller General
of the United States 

1. This type of chain involves a stud crossing the center of the link.

2. Baldt does not challenge the propriety of the modification.

3. Applicable military specifications require a forging process in the 
manufacture of the studs. 

4. Baldt contends that the Act's inclusion of forging in the 
provision's definition of "manufactured" means that all forging 
(including the forging involved in the manufacture of the studs) must 
be done in the United States.  The Act, however, clearly does not 
impose such a requirement since, as stated above, some manufacturing 
of components is expressly allowed, as long as it complies with the 
stated cost parameters.

5. Baldt cites a close association of Lister to Lister Bolt & Chain in 
Canada (in terms of shared brochures, and individuals from the 
Canadian affiliate serving as directors of Lister, among other 
things), in an attempt to raise an appearance of impropriety in the 
award.  We have reviewed the allegations, as well as evidence 
presented by Baldt in its effort to show that, under prior unrelated 
contracts, Lister Bolt & Chain in Canada did a substantial amount of 
work for Lister.  This information, however, relates to separate 
procurements at different contracting installations, and there is no 
indication that the contracting officer here should have known the 
information, or that such information required the contracting officer 
here to question Lister's compliance with the Act.  As stated above, 
the awardee here is obliged to perform in accordance with the Act.  
Whether the awardee in fact complies with that requirement is a matter 
of contract administration not for our review.  4 C.F.R.  sec.  21.5(a) 
(1997).  The protester also argues that, since the companies may have 
some shared indirect or other management costs, cost accounting 
principles require consideration of those costs in determining foreign 
manufacturing costs under the contract.  Our Office recently denied 
this contention in another protest filed by Baldt against a separate 
award to Lister, and we see no reason to revisit the matter here.  See 
Baldt Inc., B-278422, Jan. 28, 1998, 98-1 CPD  para.  36 at 5-6.