TITLE: City Chemical LLC, B-296135.2; B-296230.2, June 17, 2005
BNUMBER: B-296135.2; B-296230.2
DATE: June 17, 2005
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DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective
Order. This redacted version has been approved for public release.
Decision
Matter of: City Chemical LLC
File: B-296135.2; B-296230.2
Date: June 17, 2005
Gary Marcus, Esq., Goldberg & Connolly, for the protester.
Charles H. Carpenter, Esq., and Michael L. Hordell, Esq., Pepper Hamilton
LLP, for Nation Ford Chemical Company, an intervenor.
Jeffrey I. Kessler, Esq., U.S. Army Materiel Command, and Sandra L.
Biermann, Esq., U.S. Army Field Support Command, for the agency.
Jennifer D. Westfall-McGrail, Esq., and Christine S. Melody, Esq., Office
of the General Counsel, GAO, participated in the preparation of the
decision.
DIGEST
Agency properly evaluated dye that protester proposed to furnish as a
foreign end product where imported "raw" dye accounted for more than 50
percent of the cost of all components making up the dye.
DECISION
City Chemical LLC protests the award of contracts to Nation Ford Chemical
Company under two solicitations issued by the U.S. Army Operations Support
Command, request for proposals (RFP) No. DAAA09-03-R-3017 for solvent
yellow dye 33 and RFP No. DAAA09-03-R-3019 for solvent green dye 3. With
regard to both RFPs, City Chemical contends that the agency erroneously
determined that it intended to furnish a foreign source end item and, as a
consequence, improperly added a Buy American Act (BAA) differential to its
price.
We deny the protests.
BACKGROUND
Each of the solicitations contemplated the award of a fixed-price
requirements contract to the offeror submitting the lowest-priced,
technically acceptable proposal at a fair and reasonable price. Both
advised that offers would be evaluated by giving preference to domestic
end products and qualifying country end products over nonqualifying
country end products; to permit this evaluation, offerors were asked to
certify as to the status of their end products. Elsewhere in both RFPs,
offerors were asked to certify that their article was manufactured in the
United States and that the cost of domestic components exceeded 50 percent
of the cost of all components.
Both the protester and Nation Ford responded to both RFPs. In both its
offers, City Chemical represented that its end product was a qualifying
country end product (as opposed to a domestic end product); in both cases,
it then--inconsistently---identified "USA" as the country of origin for
the end item. In its proposal for the green dye, the protester completed
the second of the above certifications by writing "yes" next to "the
article is manufactured in the United States," crossing out the language
providing that the cost of domestic components exceeds 50 percent of the
cost of all components, and signing the certification. The protester did
not complete the second certification in its offer for the yellow dye;
elsewhere in that proposal, next to a clause pertaining to transportation
of supplies by sea, however, it inscribed "Raw Material Comes from
[deleted]."
The contracting officer sought clarifying information from the protester
regarding the foreign content of its end product under the yellow dye
solicitation. The protester responded by letter as follows:
On a cost basis our material does not meet the Buy American Act, since the
crude material being purchased from [deleted] is [deleted]. . . .
We thought that by processing the crude material to a more refined
material & then in turn packaging the material that meets [the
specification], qualifies that material as a domestic end item, regardless
of the percentage of Domestic costs/expenditures.
Obviously, our interpretation was wrong & we respectfully request the
opportunity to correct our proposal.
Letter from Protester to Contracting Officer, Sept. 3, 2003. With regard
to the green dye solicitation, the protester noted, in an e-mail response
to the contracting officer's request for an extension of its offer, that
its price was based on buying the crude material from [deleted], but that
it might instead purchase the crude material from [deleted], which would
affect its offered price.
Subsequent to these communications, the agency amended both solicitations
for reasons unrelated to the subject matter of this protest and requested
revised proposals. On the cover page of its revised proposal for the
yellow dye, City Chemical wrote, "Purchased from a domestic mfg. Please
disregard any previous correspondence." Similarly, on the cover page of
its revised proposal for the green dye, the protester inscribed, "All raw
materials are purchased from a domestic mfg. Please disregard previous
correspondence."
Shortly after receipt of City Chemical's revised proposals, the
contracting officer notified the protester that she required additional
information to proceed with evaluation of its offer for the green dye.
Specifically, she asked the protester to furnish a percentage breakout, by
manufacturing process step, of the cost of manufacturing the dye and to
identify the steps completed in the U.S.; in addition, she asked the
protester to identify the percentage of the total cost of components
represented by domestic components.
The protester responded that "the end product will be manufactured here in
the United States (drying, grinding, blending, sifting, packing and
labeling)." In addition, the protester furnished the following cost
breakdown:
Material cost [deleted]
Manufacturing cost [deleted]
Letter from Protester to Contracting Officer, June 25, 2004.
By letter dated July 20, the contracting officer notified the protester
that she considered its dye a foreign end product, subject to application
of an evaluation factor in accordance with Department of Defense Federal
Acquisition Regulation Supplement (DFARS) Section 225-502.[1] The
contracting officer explained that the BAA provided a preference for
domestic end products and that to qualify as a domestic end product, the
end item had to be manufactured in the U.S., and the cost of the U.S. and
qualifying country components had to exceed 50 percent of the cost of all
components. The contracting officer noted that while it appeared from the
protester's letter that its offer met the first prong of the test, the
information furnished did not demonstrate compliance with the second prong
in that more than 50 percent of the cost of materials was for materials
from [deleted]. On July 27, City Chemical filed an agency-level protest
taking issue with this determination.[2]
By letters dated October 5, the contracting officer informed the protester
that negotiations pertaining to both solicitations were closed and that
final revised proposals were requested. The letters further advised that
due to the many issues raised during discussions regarding application of
the BAA, the agency would perform preaward surveys to determine whether
offerors' end products were manufactured in the U.S. and whether the cost
of U.S. and qualifying country components exceeded 50 percent of the cost
of all components, and that the contracting officer would not make any
final determinations regarding an offeror's status under the BAA until its
preaward survey had been completed. In an additional letter to the
protester dated October 14, the contracting officer clarified that the
foregoing letters served to withdraw her previous determination regarding
its BAA status.
City Chemical submitted the lowest-priced technically acceptable proposal
in response to both requests. The contracting officer sought additional
information from the protester to determine the BAA status of its
products. With respect to the yellow dye, the protester responded that
its total cost was [deleted] per pound, of which [deleted] was for raw
material from [deleted] and [deleted] was for "mostly Domestic labor &
other Domestic overhead costs." E-mail from Protester to Contracting
Officer, Nov. 22, 2004. With respect to the green dye, the protester
responded that its total cost was [deleted] per pound, of which [deleted]
was for raw material from [deleted], [deleted] was for domestic material
and other costs, and [deleted] was for domestic labor costs.
The contracting officer determined that in both cases, City Chemical was
offering a foreign end item; as a consequence, she added a 50 percent BAA
evaluation factor to its price for both dyes. Once the evaluation factor
was added to City Chemical's price, Nation Ford was determined to be the
lowest-priced technically acceptable offeror.
By notices dated March 16, 2005 (the yellow dye solicitation) and March
31, 2005 (the green dye solicitation), the agency notified the protester
that the successful offeror under both solicitations was Nation Ford. The
protester submitted timely requests for debriefing with regard to both
RFPs and, following receipt of debriefing information from the agency,
protested both awards to our Office.[3]
By letters dated April 11, the contracting officer notified City Chemical
that she was revoking her BAA determination with regard to both
solicitations and that the agency would be conducting a site visit to the
protester's place of production for each dye to review the specific
processes involved in its production. The contracting officer stated that
based on the site visit, she would make a new determination as to the
status of the protester's proposed products under the BAA. Upon receipt
of the contracting officer's letters, the protester withdrew both
protests.
Agency representatives conducted a site visit on April 25 and furnished
the contracting officer with a written report summarizing the protester's
manufacturing process. After reviewing the information contained in the
report, the contracting officer determined that her prior position that
City Chemical was offering a foreign end product under both RFPs was
correct. By letter dated May 4, the contracting officer notified City
Chemical of the above determination and informed it that the awards to
Nation Ford under both RFPs would be reinstated. On May 11, City Chemical
protested to our Office.
ANALYSIS
The Buy American Act, 41 U.S.C. Section 10a-10d (2000 and Supp. I 2001),
provides for the acquisition of American materials and goods for public
use, except to the extent that it is inconsistent with the public interest
or the cost is unreasonable. If there is a domestic offer that is not the
low offer, and the restrictions of the Buy American Act apply to the low
offer, the contracting officer must determine the reasonableness of the
cost of the domestic offer by adding an evaluation factor (of either 6 or
12 percent for civilian agency procurements, Federal Acquisition
Regulation (FAR) Section 25.105(a), or 50 percent for Department of
Defense procurements, DFARS Section 225.105) to the low offer. The price
of the domestic offer is reasonable if it does not exceed the evaluated
price of the low offer after addition of the evaluation factor. FAR
Section 25.105(c).
For manufactured end products, the FAR uses a two-part test to define a
domestic end product: (1) the article must be manufactured in the United
States, and (2) the cost of domestic components (i.e., components mined,
produced, or manufactured in the U.S.) must exceed 50 percent of the cost
of all components. FAR Sections 25.003 and 25.101; see also DFARS Section
225.101. The FAR defines "component" as an article, material, or supply
incorporated directly into an end product. FAR Section 25.003.
The protester contends that it satisfies both prongs of the test and that
its end product therefore qualifies as a domestic end product. In this
regard, the protester argues that it proposes to import a raw material[4]
from [deleted] and then modify it through a series of processes (which the
protester does not define).[5] According to the protester, these
processes yield a "processed mixture," which is the only component of the
end product. It then subjects the "processed mixture" to an "end product
manufacturing process," which consists of "sifting and selecting the
contract compliant material." Protest at 7.
In cases involving an end product derived from a single component or
material, we have looked to whether the component/material has undergone
substantial changes in physical character in determining whether
manufacturing has occurred. A. Hirsh, Inc., B-237466, Feb. 28, 1990, 90-1
CPD paragraph 247 at 3; 45 Comp. Gen. 658 (1966). See also General
Kinetics, Inc., Cryptek Div., B-242052.2, May 7, 1991, 91-1 CPD paragraph
445 (where we looked at whether the "essential nature" of the core
component of the end product was altered in determining whether
manufacturing had occurred). Further, since the BAA requires both that
the end product have been manufactured in the U.S. and that the cost of
components mined, produced, or manufactured in the U.S. exceed 50 percent
of the cost of all components, where it is alleged that a foreign material
has been manufactured into a component domestically and the component in
turn manufactured into an end item domestically, we have also looked at
whether the manufacturing process consists of two distinct phases, the
first yielding a component that is distinguishable from the original
material and the second yielding an end item that is distinguishable from
the component. Davis Walker Corp., B-184672, Aug. 23, 1976, 76-2 CPD
paragraph 182 at 4-6; 45 Comp. Gen. 658. Where the original material is
of foreign origin and we have failed to find two distinct manufacturing
phases yielding two distinct products, we have found noncompliance with
the two-pronged test for defining a domestic end product. 48 Comp. Gen.
727 (1969); 46 Comp. Gen. 784 (1967).
To prevail in its protest, then, City Chemical must demonstrate not simply
that it manufactures the dye, but that it manufactures the "processed
mixture" from the "raw" dye, and then, in a second stage, manufactures the
end product dye from the "processed mixture." In our view, we need not
address the more difficult question of whether the steps that the
protester performs in transforming the "raw" dye into the "processed
mixture" are sufficient to constitute manufacturing because we are
persuaded that the processes performed by the protester in transforming
the "processed mixture" into the final product are not. In this regard,
the only processes that the protester claims to perform in the second
stage are sifting and selecting the "contract compliant" material.[6] We
do not think that sifting to select the portion of the mixture that meets
the specification's particle size standard can reasonably be regarded as
manufacturing since it involves no changes--let alone substantial
changes--to the physical character of the dye. Because there is no second
stage manufacturing process, the raw dye from [deleted], as opposed to the
"processed mixture," must be regarded as the principal component of the
protester's end product, meaning that the second prong of the domestic end
product test is not met.
The protester further argues that even to the extent that the raw material
from [deleted] may be viewed as a component of its end product, its end
product still satisfies the requirement that the cost of domestic
components exceed 50 percent of the cost of all components because
domestic labor is also a component of its end product and its labor costs
exceed the cost of the imported material. Labor is not a component of the
end product within the definition set forth at FAR Section 25.003,
however, because it is not an article, material, or supply incorporated
directly into an end product. See Consolidated Tanneries, Ltd., B-166786,
June 24, 1969; see also Glazer Constr. Co., Inc. v. United States, 50 F.
Supp. 2d 85, 98 (D. Mass. 1999).
The protests are denied.[7]
Anthony H. Gamboa
General Counsel
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[1] DFARS Section 225.502 provides for application of a 50-percent
evaluation factor to the low foreign offer (unless the low foreign offer
is exempt from application of the BAA).
[2] In the final paragraph of its protest, City Chemical observed that the
contracting officer's determination addressed the green dye solicitation
only, but that to the extent that the analysis could be deemed applicable
to the yellow dye solicitation also, it protested that solicitation as
well.
[3] City Chemical protested the award under the yellow dye RFP to our
Office on March 28 and the award under the green dye RFP on April 13.
[4] The intervenor takes issue with the protester's references to the
material that it imports as raw dye/raw material, arguing that the "raw
material" is in fact a chemical compound.
[5] While the protester does not define in its protest the processes that
it performs, the written report produced by the agency representatives who
conducted the April 25 site visit, which City Chemical attached to its
protest, does summarize them in general terms. Also, in its June 25, 2004
letter responding to the contracting officer's inquiry regarding the green
dye, the protester identified its processes as drying, grinding, blending,
sifting, packing, and labeling.
[6] Presumably, although the protester does not make this argument,
packaging is also part of the second stage. We have previously held that
packaging should not be regarded as an additional manufacturing process so
as to remove an otherwise foreign end item from the restrictions of the
BAA. 46 Comp. Gen. 784.
[7] Because we deny the protests, we need not address the intervenor's
argument that City Chemical's proposals should be determined ineligible
for award on other grounds.