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.