Buy American Act Protest

In City Chemicals LLC, B-296135.2; B-296230.2, June 17, 2005. GAO provides an excellent analysis of price differential when applying the Buy American Act to maunfactures goods composed of domestic nd non domestic components.

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.

In its decision GAO provides the following 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.

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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).