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ALLIS-CHALMERS CORP. v. FRIEDKIN

January 3, 1980

ALLIS-CHALMERS CORPORATION, Hydro-Turbine Division, Plaintiff,
v.
Commissioner Joseph F. FRIEDKIN et al., Defendants.



The opinion of the court was delivered by: HERMAN

MEMORANDUM

I. INTRODUCTION

 A. Buy-American Act

 In 1933 the United States Congress enacted the Buy American Act to protect American interests in contracts for the procurement of government supplies and construction. Buy American Act of March 3, 1933, P.L. 428, Tit. III, As amended, 41 U.S.C. §§ 10a-10d. The concerns expressed by the Congressmen who supported the Act through its passage were uniformly related to the protection of both American industry and American labor. *fn1" Congress feared, especially during the Depression, that foreign businesses could use their cheap sources of labor to badly undercut the bids of American concerns. *fn2" The fear was that the higher standard of living for American laborers resulting from higher wages would backfire and lead to a loss of jobs if American businesses lost contracts and were forced to shut down.

 B. The Statutory and Regulatory Framework

 Sections 10a and 10b(a) provide the principal language of the Act. In 1949, however, Congress attempted to clarify the intent with which it passed both of the above sections. Act of October 29, 1949, C. 787, Tit. VI, § 633, 41 U.S.C. § 10d. This clarification of the "original intent" of Congress in 1933 states that sections 10a and 10b(a)

 
require the purchase, for public use within the United States of articles, materials, or supplies manufactured in the United States in sufficient and reasonably commercial quantities and of a satisfactory quality, unless the head of the department or independent establishment concerned shall determine their purchase to be inconsistent with the public interest or their cost to be unreasonable.

 The Executive Order promulgated by President Eisenhower was designed to ensure uniform application of the general requirements of the Buy American Act. In re Fairbanks, Morse & Company, 41 Comp.Gen. 70 (1961). The Order effectively declared that the amount of an American bid was "unreasonable" if it was more than six percent greater than a foreign bid. The relevant portions of the amended Executive Order No. 10582 are as follows:

 
Section 1. As used in this order, (a) the term "materials" includes articles and supplies, (b) the term "executive agency" includes executive department, independent establishment, and other instrumentality of the executive branch of the Government, and (c) the term "bid or offered price of materials of foreign origin" means the bid or offered price of such materials delivered at the place specified in the invitation to bid including applicable duty and all costs incurred after arrival in the United States.
 
Sec. 2. (a) For the purposes of this order materials shall be considered to be of foreign origin if the cost of the foreign products used in such materials constitutes fifty per centum or more of the cost of all the products used in such materials.
 
(b) For the purposes of the said act of March 3, 1933 (sections 10a-10c of this title), and the other laws referred to in the first paragraph of the preamble of this order, the bid or offered price of materials of domestic origin shall be deemed to be unreasonable, or the purchase of such materials shall be deemed to be inconsistent with the public interest, if the bid or offered price thereof exceeds the sum of the bid or offered price of like materials of foreign origin and a differential computed as provided in subsection (c) of this section.
 
(c) The executive agency concerned shall in each instance determine the amount of the differential referred to in subsection (b) of this section on the basis of one of the following described formulas, subject to the terms thereof:
 
(1) The sum determined by computing six per centum of the bid or offered price of materials of foreign origin.

 The final set of guidelines for awarding government procurement contracts is found in the FPR. These regulations provide the most detailed requirements concerning the application of the Buy American Act to government contracts. The section primarily applicable to the matter under our consideration is section 1-6.104-4(a) and (b):

 
§ 1-6.104-4 Evaluation of bids and proposals.
 
(a) Unless otherwise determined by the head of the agency in accordance with the Buy American Act, where the procedures in this § 1-6.104-4 result in the acquisition of foreign end products, the acquisition of domestic source end products would be (1) unreasonable in cost or (2) inconsistent with the public interest (see § 1-6.103-3).
 
(b) Except as provided in paragraph (d) of this section, bids and proposals shall be evaluated as provided in this section so as to give preference to domestic bids. Each foreign bid shall be adjusted for purposes of evaluation by adding to the foreign bid (inclusive of duty) a factor of 6 percent of that bid, except that a 12 percent factor shall be used instead of the 6 percent factor if the firm submitting the low acceptable domestic bid is a small business concern or a labor surplus area concern (as defined in §§ 1-1.701 and 1-1.801, respectively), or both. However, if an award for more than $ 100,000 would be made to a domestic concern if the 12 percent factor is applied, but would not be made if the 6 percent factor is applied, the case shall be submitted to the head of the agency for decision as to whether the award to the small business concern or labor surplus area concern would involve unreasonable cost or inconsistency with the public interest (see § 1-6.103-3). If the foregoing procedure results in a tie between a foreign bid as evaluated and a domestic bid, award shall be made on the domestic bid. When more than one line item is offered in response to an invitation for bids or request for proposals, the appropriate factor shall be applied on an item-by-item basis, except that the factor may be applied to any group of items as to which the invitation for bids or request for proposals specifically provides that award is to be made on a particular group of items.

 II. FACTUAL BACKGROUND

 A. The Project

 We need resolve no material differences in factual matters in the present controversy. All parties agree to the principal facts in evidence. We need only state the facts and apply the statutory and regulatory requirements to them.

 The United States and Mexico entered a treaty on February 3, 1944 that authorized construction of two multi-purpose storage dams and hydro-electric power plants on the Rio Grande River. The Defendant United States Section of the International Boundary and Water Commission (hereafter referred to as "the Section") subsequently built the Falcon and Amistad Dams and constructed a hydro-electric power plant at the Falcon damsite. The matter presently before us concerns a contract for the construction of a hydro-electric plant at the Amistad damsite.

 The congressional authorization for the construction of the Amistad power plant requires that it be self-liquidating. 22 U.S.C. §§ 277d-13 to 277d-16. Although the United States will build, operate and maintain the facility, the purchaser of the generated power must agree to reimburse the government for all construction costs, interest, and operating and maintenance expenses. 22 U.S.C. § 277d-14.

 On August 9, 1977 the Bureau of Reclamation of the Department of the Interior entered into a contract with the South Texas Electric Cooperative, Inc. and Medina Electric Cooperative, Inc. (hereafter referred to together as "STEC/MEC"), for the sale and purchase of the United States' share of the electrical power generated from the Amistad plant. The terms of the contract provide that STEC/MEC will pay the construction and operational costs of the project to ensure that it is self-liquidating.

 For construction of the power plant at Amistad, the Section entered into an agreement with the Army Corps of Engineers (hereafter referred to as "the Corps") on August 22, 1977. The Corps agreed to act as the Section's engineer-representative in supervising the development of the technical design, plans, and specifications for the plant.

 The Corps' Southwest Division (hereafter referred to as "the Division") undertook the responsibilities of engineer-representative to recommend the award of manufacturing and construction contracts and to supervise the construction of the plant. The Division subsequently directed its Fort Worth District (hereafter referred to as "the District") to solicit bids for all procurements involved. This task required drafting all of the required bids, advertising the bid solicitations, receiving, opening, and evaluating the bids, and recommending the awards be made to specific bidders. The initial procurement, about which the entire project revolved, was for the massive hydro-turbines. The solicitation and evaluation of the bids for supplying this material are the subject of the present litigation.

 B. The Bid Solicitation

 In preparing the draft solicitation for bids for the Amistad turbines, the District used the format employed by the Seattle District of the Corps when that District awarded a contract for hydro-turbines in the Libby Dam project. The successful bidder in the Libby construction was the original Plaintiff in this action, the Allis-Chalmers Corporation (hereafter referred to as "Allis-Chalmers"). Adhering exactly to the Seattle format, the District used the documentary materials drafted by the Corps' North Pacific Division. The North Pacific Division was suited for such an advisory position because of its recent experience in the Northwest with hydro-electric projects. In assembling the numerous technical and non-technical contractual provisions, the North Pacific Division followed the Corps' standard guide specifications, including CE 1101.01 for Nontechnical Contract Provisions. CE 1101.01 contained a standard General Condition Three which was properly incorporated into the ...


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