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Allis-Chalmers Corp. v. Friedkin

decided: December 16, 1980.

ALLIS-CHALMERS CORPORATION, HYDRO-TURBINE DIVISION, APPELLANT AND LOCAL UNION 1400, INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS, AFL-CIO, INTERVENOR PLAINTIFF
v.
FRIEDKIN, JOSEPH F., COMMISSIONER, UNITED STATES COMMISSIONER, INTERNATIONAL BOUNDARY AND WATER COMMISSION, U.S. SECTION; THE UNITED STATES SECTION OF THE INTERNATIONAL BOUNDARY AND WATER COMMISSION APPELLEE HITACHI AMERICA, LTD., 100 CALIFORNIA ST., SAN FRANCISCO, CA 94111 (415) 981-7871 AND SOUTH TEXAS ELECTRIC COOPERATIVE, INC. AND MEDINA ELECTRIC COOPERATIVE, INC., INTERVENING DEFENDANTS



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA (D.C. Civil No. 79-1153)

Before Adams, Hunter and Higginbotham, Circuit Judges.

Author: Hunter

Opinion OF THE COURT

This action concerns whether a contract for the construction of the hydroelectric power plant at the Amistad damsite on the Rio Grande River*fn1 was awarded to defendant-intervenor Hitachi America, Ltd. in violation of the Buy American Act (hereinafter the "Act").*fn2 Allis-Chalmers, an unsuccessful participant in the contract bidding, contends that the Buy American Act was not correctly applied to Hitachi's bid. Specifically it has two claims; one, that the cost of installation and other post-delivery services were subject to the Act's surcharge, and two that a greater surcharge rate should have been applied to the foreign bid. If both of these adjustments were made to Hitachi's bid, Allis-Chalmers asserts they submitted the lowest bid and therefore the contract was awarded to Hitachi America unjustly.

We uphold the award of the contract to Hitachi America as within the discretion of the government purchasing agent and find that in the context of hydroelectric turbines the cost of installation and other post-delivery expenses should not be subject to the Buy American Act's surcharge. We therefore affirm the district court's denial of appellant's motion for preliminary injunction and sustain the grant of summary judgment in favor of appellees.

I. FACTUAL SETTING

A. The Bidding Process.

The contract for the construction of the Amistad power plant involves the procurement of two massive hydroelectric turbines used to generate electricity.*fn3 The purchasing agent for the government was the United States Section of the International Boundary and Water Commission (hereinafter the "Section"). The Section retained the Army Corps of Engineers (hereinafter the "Corps") to orchestrate the contract bidding process and serve as its engineering representative for the project. Traditionally, the Corps solicits offers for the turbines from one manufacturer while a general contractor, retained under a separate bidding process, installs the turbines and builds the power plant. In the Amistad project these two segments-manufacture of the turbines and installation at the power plant-were contained in a single bid solicitation.*fn4 Under this combined system, one company bids on both stages, and the success of its bid depends on the combined price. The two stages, manufacture and installation, are separate line items within the bid, but each company bids on both even if it is not a general contractor.

In response to this bid solicitation, the sole domestic bidder, Allis-Chalmers, submitted an unadjusted bid of $4,005,800. The lowest foreign bidder, Hitachi America, Ltd., submitted an unadjusted bid of $3,400,000. These lump sum figures were then modified to reflect any applicable discounts and surcharges. The Corps deducted $38,070.50 (prompt payment discount) and $198,750 (testing) from Allis-Chalmers' bid.*fn5 Consequently, its final adjusted bid was $3,768,979.50.

As a foreign manufacturer bidding on a government contract Hitachi America's bid was subject to the Buy American Act and its implementary regulations.*fn6 The statute provides that American made articles and supplies be preferred in government construction contracts "unless the head of the department or independent establishment concerned shall determine it to be inconsistent with the public interest, or the cost to be unreasonable...." 41 U.S.C. ยง 10a (1976). As interpreted by the federal procurement regulations, the price of domestic goods is considered "unreasonable" and hence the Act's preference for domestic goods does not apply when their cost is six percent greater than that of foreign goods. 41 C.F.R. 1-6.104-4(b) (1979). Further, a twelve rather than six percent surcharge is taxed to the cost of foreign goods if the domestic bidder operates in an area of substantial unemployment ("labor surplus concern"). Id. After consulting with the United States Department of Labor, the Corps found that Allis-Chalmers' manufacturing plant in York, Pennsylvania, was in an area of substantial unemployment making Allis-Chalmers a labor surplus concern and therefore applied the twelve percent Buy American surcharge to Hitachi's bid. The Corps subtracted the cost of installing the turbines ($983,800) and the services of an erecting engineer ($15,750) from Hitachi's bid and then applied the twelve percent surcharge to the balance. the cost of installation and engineering services were then added back into the total price as well as an additional $60,000 for foreign inspections. This made Hitachi's final adjusted bid $3,748,054, or approximately $20,000 less than Allis-Chalmers'.

B. The Procedural History

On June 18, 1979 the Corps informed Allis-Chalmers that the cost of installation and engineering services would be excluded from the amount of Hitachi's bid that was subject to the Act's surcharge. The Section then reviewed the Corps' recommendation that the contract be awarded to Hitachi and upon independent examination concluded that the six percent rather than twelve percent surcharge should have been imposed on Hitachi's bid. The Section found that the East Berlin plant of Allis-Chalmers was located, not in the City of York, but rather in nearby Manchester Township which is not an area of substantial unemployment.*fn7

In light of these findings Allis-Chalmers protested the anticipated award of the contract to the Corps and the Comptroller General of the General Accounting Office (hereinafter "GAO"). It asked that no final action be taken on the contract until its protest was resolved. On September 9, 1979 the Section informed the GAO of its decision to award the contract to Hitachi notwithstanding Allis-Chalmers' protest. After reviewing the contract and the bid solicitation, the Comptroller General denied Allis-Chalmers' protest and upheld the award of the contract to Hitachi. In re Allis-Chalmers Corporation, B-195311 (Dec. 7, 1979) (Opinion of the Comptroller General).

Allis-Chalmers sought a temporary restraining order and a preliminary injunction in the United States District Court for the Middle District of Pennsylvania to enjoin the Section's award of the contract to Hitachi. On September 28, 1979, Hitachi moved to intervene as defendant with the Section. The court granted this motion and permitted South Texas and Medina Electric, two privately owned electrical cooperatives which had contracted to purchase the electricity generated by the project, to intervene as defendants. The court also allowed Local Union, 1400, International Association of Machinists and Aerospace Workers, AFL-CIO, the union at Allis-Chalmers' East Berlin plant, to intervene as plaintiffs. After a hearing on this issue the district court granted a restraining order staying the award of the contract until Allis-Chalmers' protest was resolved. The TRO was then extended until December 7, 1979 when the district court ruled against Allis-Chalmers on the merits and awarded the contract to Hitachi. Allis-Chalmers Corp. v. Friedkin, 481 F. Supp. 1256 (M.D.Pa.1980).

The two prongs of Allis-Chalmers' complaint have remained consistent throughout the administrative hearings and earlier litigation; one, the Corps erred in not applying the Buy American surcharge to the installation and engineering services portion of Hitachi's bid; and two, contrary to the Section's discussion, the twelve percent surcharge rate is applicable to Hitachi's bid. Allis-Chalmers must succeed on both of these claims if it is to have the lowest bid and hence the contract. A six percent differential applied to the entire bid of Hitachi or a twelve percent differential applied ...


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