The loss of this contract will unquestionably weaken the Hydro-Turbine Division of the parent corporation. We note, however, the absence of testimony or evidence that loss of this contract would result in the cessation of manufacturing by this sole remaining domestic supplier of large hydro-turbines. The second interest is the loss of substantial employment opportunities for the York area, most notably to Local 1400, if the contract is awarded to the foreign company.
The other two interests with which we are concerned result from any delay in the performance of this procurement contract. Mr. Thor Anderson, vice president of the architectural firm that designed the Amistad project, testified that any delay in the award of performance of the hydro-turbine contract would result in a commensurate delay in the completion of the entire project. Mr. William Robson, general manager of STEC/MEC, testified that any delay in the initial delivery of power from the hydro-turbines would have two results. First, the consumers of electrical power in the service area of STEC/MEC would be forced to pay the higher rates required by the greater costs of the non-hydroelectric power now being produced. Second, the power now supplied is generated from the combustion of gas and oil. Any delay in the completion of this project will unavoidably and unnecessarily drain this country's gas and oil reserves. In this time of a national energy emergency, we must be cognizant of such a result.
The great interest of the public generally, and of the consumers of electrical power within the relevant area of Texas particularly, in the speedy and efficient award of this essential government procurement contract necessitate our following the Sea-Land, "clear illegality" test in our deliberations of Allis-Chalmers' allegations.
A question arises about the various remedies that may be at our disposal to resolve this matter in a particular way. The court in Sea-Land was very clear in its holding that a federal district court does not have the power to order a government agency to award a contract to a particular bidder. On the other hand, the Sea-Land court encouraged enjoining the performance of a contract if it was awarded as the result of a clear illegality. What options are left open to us? Obviously we cannot order the Section to award the contract at issue to Allis-Chalmers. Similarly, we do not believe that we have the power to order the Section to refrain from awarding the contract to Hitachi. We have little guidance, however, on whether we can specifically order the Section to reconsider the bids or to have the parties re-bid the contract. We believe we cannot. It appears to us that the only possible action that would not impermissibly infringe upon the discretion of the Section would be to enjoin the performance of the present contract. We would leave the further decision about how to proceed with the contract to the Section's sound discretion.
As we indicated previously, Allis-Chalmers is disputing two decisions of the Section in evaluating the bids for the Amistad project. First, Allis-Chalmers insists it should receive the benefit of the twelve percent differential because it will incur a majority of the costs of the project in certified labor surplus areas. Second, Allis-Chalmers argues that the differential should be applied to the total bid of Hitachi for the turbines, including the installation and on-site engineering costs. If Allis-Chalmers is unsuccessful in convincing us that either of the two decisions is clearly illegal, its case must fall. A six percent differential applied to the entire bid price of Hitachi or a twelve percent differential applied to the bid price without items 17 and 18 would be insufficient to make Allis-Chalmers' evaluated bid lower than Hitachi's.
Neither counsel for Plaintiffs nor counsel for Defendants have referred us to any federal court decisions regarding either of these issues. Our own research has similarly failed to uncover any precedent on point. Our analysis of these matters, therefore, is that of a case of first impression for the federal judiciary. We will examine the issue of the labor surplus area first and then review the application of the differential to the bid prices.
IV. LABOR SURPLUS AREA CONCERN
Executive Order 10582, section 3(c) provides a basis for extending special consideration under the Buy American Act to American concerns that conduct their business in areas of substantial unemployment. This policy is more fully implemented by the FPR. Section 1-6.104-4(b) provides, in relevant part: "(A) 12 percent factor Shall be used instead of the 6 percent factor if the firm submitting the low acceptable domestic bid is a . . . labor surplus area concern . . .." (Emphasis added.) Sections 1-1.801(a) & (c) define labor surplus area concern as a concern that, together with its first-tier subcontractors, will perform substantially in a geographical area identified by the Department of Labor as an area of concentrated unemployment or underemployment or an area of labor surplus.
Our problem in this issue resulted from the failure of the Section to solicit, and of Allis-Chalmers to provide, sufficient information on which to base a meaningful decision about whether Allis-Chalmers is a labor surplus area concern. We agree with the Section that when the twelve percent differential was reduced to six percent, the Section had not acted arbitrarily, maliciously, or improperly. We also agree with Allis-Chalmers that it appears from the pleadings, documents, and testimony before us that Allis-Chalmers is a labor surplus area concern. At the very least, Allis-Chalmers is entitled to a review of whether the twelve or six percent differential should be applied.
Allis-Chalmers' position is essentially that the Section abused its discretion by not responding to Allis-Chalmers' telegram of July 16, 1979 with any requests for more information. The telegram stated that Allis-Chalmers intended to perform a substantial portion of the contract work in labor surplus areas in the city of York and on the jobsite in Texas. The Section responds that it did not contact Allis-Chalmers for further information because the question was academic, i. e., whichever differential were applied to the bifurcated bid price, Hitachi would remain the lowest bidder. Thus, it is clear that the Section made no decision about the eligibility of Allis-Chalmers to have the twelve percent differential applied.
The Comptroller General has ruled that information about a bidder's qualification as a labor surplus area concern may be submitted after the bids have been opened when the solicitation for bids fails, as here, to request the necessary information. Decision B-148720 (May 7, 1962) (letter to Secretary of the Navy); Decision B-146258, 41 Comp.Gen. 160 (August 28, 1961) (letter to Secretary of the Army).
In light of the above decisions of the Comptroller General and the mandate and policy of section 1-6.104-4(b), we agree with Allis-Chalmers that the Section abused its discretion by not initiating requests for additional information from Allis-Chalmers before awarding the contract to Hitachi. Whether the matter was academic (as the Section maintains) or not, it is the Section's responsibility to comply with the FPR. At the same time it is our "obligation to insure agency compliance with statutory and regulatory law." Sea-Land Service, Inc. v. Brown, supra, 600 F.2d 429, 434 (3d Cir. 1979).
The FPR requires that the twelve percent differential Shall be applied when the low domestic bidder is a labor surplus area concern. The Section clearly has an implied duty to determine whether the low domestic bidder is a labor surplus area concern especially when its attention is called to a colorable allegation of an incorrect application of the six percent differential. In the latter circumstance, the Section must make some reasonable effort to gather sufficient information to substantiate its decision. Upon receiving Allis- Chalmers' telegram, the Section made no effort whatsoever to determine the validity of the allegations contained therein and thus arbitrarily refused to fulfill its regulatory duties.
This is not an instance in which we are improperly substituting our judgment for that of an agency as proscribed by Sea-Land Service, Inc. v. Brown, supra, 600 F.2d 429, 435 (3d Cir. 1979). Rather, it is a matter of the agency refusing to make a judgment it is obligated by regulation to make. We hold therefore that the Section's conduct in refusing to review the allegations of Allis-Chalmers regarding its status as a labor surplus area concern constituted a clear illegality.
Were this the only issue facing us at this time, we would certainly enjoin the performance of the contract by Hitachi pending a proper evaluation of the labor surplus area status of Allis-Chalmers. We are dealing, however, with the further question about application of the differential to various parts of the lump sum bid. If we find that the differential, whether six or twelve percent, was properly applied to Hitachi's bid price less items 17 and 18, we need not decide how to resolve the labor surplus area issue.
V. APPLICATION OF THE BUY-AMERICAN DIFFERENTIAL
As much as we would prefer to see an American concern performing a government contract, we are constrained to act within the statutory and regulatory framework through which the government may award procurement contracts. Our power is limited to reviewing the application of statutes and regulations promulgated by the other branches of federal government. The review simply determines whether such an application comports with the governing language. Arguments that particular interpretations of the law would lead to undesirable results may be made but are not persuasive in the face of the language of the Act, the Executive Order, and the FPR.
Allis-Chalmers advances the argument that bifurcation of a bid before application of the differential would invite unbalanced bidding. Because it alleges no such unbalanced bidding by Hitachi or the other foreign bidders, we presume that Allis-Chalmers is speculating about potential future abuse of the bidding process. We believe, however, that any government agency must reject materially unbalanced bidding as fraudulent. See In re Allis-Chalmers Corporation, supra, B-195311, p. 9 (Dec. 7, 1979); Edward B. Friel, Inc., 55 Comp.Gen. 231 (1975). We also have faith in the ability of the responsible members of an agency to detect materially unbalanced bids by comparing all of the submitted bids and its own estimates.
We also agree with the Comptroller General that the unique size of hydro-turbines should not alter the application of the differentials. Allis-Chalmers insists that because the turbines cannot physically be totally manufactured and transported to the delivery point of Del Rio, Texas, the final assembly of the parts is not merely installation, but is actual manufacturing. As part of the manufacturing process, Plaintiff argues, the work done at damsite should have the differential applied to it. The important consideration, however, is the delivery to Del Rio, Texas. The sub-assemblies delivered there are the end products to which the differential must be applied. See In re Allis-Chalmers Corporation, supra, B-195311, pp. 8-9 (Dec. 7, 1979). The unique size of the turbines necessitates that particular interpretation of the regulations.
We must be primarily concerned, of course, with the accurate interpretation of the Buy-American language, both statutory and regulatory. Allis-Chalmers ascribes particular significance to the clause in the Executive Order 10582 that defines bid or offered price of materials of a foreign corporation as "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." Executive Order 10582 § 1(c). (Emphasis by Allis-Chalmers.) Allis-Chalmers looks at the emphasized phrase as requiring that the differential be applied to the entire bid. We disagree.
Allis-Chalmers ignores the first part of the definition defining the bid or price as that of the materials "delivered at the place specified in the invitation". Considering the entire clause, plus the requirement of applying a differential to all foreign bids, we interpret it as requiring application of the differential to all costs incurred in manufacturing and presenting the materials to the point of delivery. As mentioned above, the point of delivery is Del Rio, Texas, and the Section properly limited the application of the differential to the bid price of Hitachi for delivering the turbines to Del Rio. Items 17 and 18 are bid prices for services and installation After delivery of the turbines and the differential may not be applied to them.
We may also point to a section of the FPR supporting the Section's approach to application of the differential. Section 1-6.104-4(b) provides:
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. (Emphasis added.)
The line items to which the invitation for bids clearly provided for application of the differential are items 1 through 16. General Conditions 3.2 and 3.3 in the invitation for bids indicate specifically that the differential was to be applied to the parts of the turbine delivered to Del Rio, Texas. The bid amounts for Service and Erecting Engineers after delivery are expressly exempted from the Buy American Act differential by the GC-3.3. Allis-Chalmers' claim that it was unaware of the full meaning of that General Condition is both unfortunate and immaterial. By an analysis of the FPR and the General Conditions, it is clear to us that the Section was virtually required to deduct items 17 and 18 from Hitachi's lump sum bid before applying the differential.
Although the preceding discussion indicates our preliminary opinion regarding the ultimate propriety of the Section's application of the differential, we need make no final determination. The standard of review with which we must approach this case is the Sea-Land "clear illegality" test. We may grant a preliminary injunction halting the performance of this procurement contract only if the Section's application of the differential was clearly illegal. Allis-Chalmers unquestionably fails to satisfy this burden. It may very well be that Hitachi would have had a claim of clear illegality had the Section applied the differential to the entire bid. See In re Fairbanks, Morse & Company, 41 Comp.Gen. 70 (1961) (letter of transmittal). We hold, therefore, that the elimination of Items 17 and 18 from the Hitachi bid before application of the Buy-American differential is not clearly illegal.
Our opinion for much of this issue parallels the decision of the GAO to deny Allis-Chalmers' protest of this contract. See In re Allis-Chalmers Corporation, supra, B-195311, pp. 4-10 (Dec. 7, 1979). The GAO's final decision concluded:
(T)he language of the Act, the E.O. and the FPR does not prohibit the exclusion of installation costs and other services incurred or provided after delivery to the Government of the end product before application of the Buy American differential.
Allis-Chalmers, supra, pp. 6-7.
Although we are certainly not obliged to follow the GAO's decision in this or any other matter, we are entitled to accord it substantial deference in our deliberations. See, e.g., Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 106, 99 S. Ct. 1601, 1611, 60 L. Ed. 2d 66, 81 (1979); Sea-Land Service, Inc. v. Brown, supra, 600 F.2d 429, 434 (3d Cir. 1979).
The GAO opinion is further strengthened in our mind by the longevity of its controlling precedent, In re Fairbanks, Morse & Company, supra, 41 Comp.Gen. 70 (1961). It is a basic rule of construction that a long-standing interpretation of statutory or regulatory requirements by the agency charged with administering them is entitled to great weight when the statute or regulations come under judicial review. See, e.g., Red Lion Broadcasting Company v. Federal Communications Commission, 395 U.S. 367, 89 S. Ct. 1794, 23 L. Ed. 2d 371 (1969); Commissioner of Internal Revenue v. First Security Bank of Utah, N.A., 405 U.S. 394, 92 S. Ct. 1085, 31 L. Ed. 2d 318 (1972). For eighteen years the Comptroller General's opinion in Fairbanks, Morse has stood without legislative or administrative alteration of the regulations on which it was based. The Comptroller General interpreted the Buy-American requirements in Fairbanks, Morse in a dispute very similar to Allis-Chalmers' protest. He concluded that the differential should be applied only to the part of the bid of a foreign corporation to deliver some hydro-turbines to the point of delivery. The bids for engineering and installation of the turbines should not be included in the Buy-American computations. The continued and recent reaffirmation by the Comptroller General of Fairbanks, Morse in Allis-Chalmers and other opinions indicates satisfaction in both Congress and the procuring agencies with the contested interpretation of the Buy-American requirements.
In the course of our preceding analysis of the application of the Buy-American differential, we continually considered an important aspect of the underlying policy of the Act: Protection of American labor and business from cheap foreign labor. Consistent with that policy it is natural to apply the differential only to the hydro-turbine sub-assemblies delivered to Del Rio. From that point in the performance of the contract, the engineering and installation bid prices, largely labor costs, are performed by American labor. We see no basis in the policy of the Act to apply the differential to the services performed after delivery of the turbines when those services are a discreet item in the bidding and are performed entirely by American labor.
Along similar policy lines we reject the argument advanced by Allis-Chalmers in its petition to the GAO for reconsideration of the December 7, 1979 opinion. Allis-Chalmers states that the GAO decision "permits foreign bidders to control the amount of work, and thus the costs, to which the Buy American Act differential applies." This control would presumably occur by leaving some of the assembly and other costs to be performed after delivery in the United States. This work would then be done by American labor. The GAO position in this matter could conceivably lead to Greater use of American labor by foreign corporations.
We realize, of course, that this result may be effectively negated by other GAO decisions requiring, when possible, that a completed unit be delivered as the end product to which the differential is to be applied. In re Fairbanks, Morse & Company, supra, 48 Comp.Gen. 384 (1968); In re Veterans' Administration, 46 Comp.Gen. 813 (1967). But when, as here, a single, completed unit cannot be delivered as the end product, we see no conflicts with the underlying policy of the Act.
The Section incorrectly applied the six percent Buy-American differential to the Hitachi bid without sufficient background information. We do not hold that the twelve percent differential should have been applied, but merely suggest that the Section should have elicited and considered more information about the labor surplus status of Allis-Chalmers.
We conclude, however, that the section correctly bifurcated the total lump bid of Hitachi and properly declined to apply the differential to Items 17 and 18 of the bid. The Buy American Act differential should only be applied to the bid prices of the turbine sub-assemblies delivered to the railsite at Del Rio, Texas.
Because Allis-Chalmers needed to convince us of the clear illegality of both of the above decisions of the Section, but only succeeded with one, we denied its request for a preliminary injunction by our order dated December 7, 1979.