~Jtril.4 ..~_I_St,at,w ----- (kneral Accounting Of’ficre k:port t.,othe Honorable ICobert W . Kasten, ?Jr.,U.S. Senate, and t,he Honorable ,John E. Porter, House of Representatives _.._--.~. IJtAl)t71 it ry I !)!I0 DEFENSE CONTRACTING Air Force Machine Tool Procurement Raises Buy American Questions __- -- (;AO/‘NSIAI)-!)O-7:1 United States GAO General Accounting Office Washington, D.C. 20548 National Security and International Affairs Division B-232190 February 21,199O The Honorable Robert W. Kasten, Jr. United States Senate The Honorable John E. Porter House of Representatives In your respective letters of December 29,1988, and January 4,1989, you requested that we examine the circumstances of the Air Force’s July 15, 1988, contract award to the Italian Machine Tool Agency (IMTA), Inc. The firm fixed-price contract in the amount of $1,299,53 1 was for a machining center. You expressed concern that the award was in direct conflict with the statutory restriction prohibiting the use of funds for foreign-made tools. Specifically, you requested that we provide informa- tion on the Air Force’s actions relative to its compliance with the statu- tory restriction prohibiting the acquisition of foreign machine tools, determination that IMTA was a manufacturer as defined in the Walsh- Healey Act, and determination that IMTA was “responsible” as defined in the Federal Acquisition Regulation. Subsequent to our review work, IMTA disclosed that it would be unable to build the machining center. Details on IMTA'S disclosure and information you requested are summarized below and discussed in appendix I. We reviewed the Air Force’s actions from both a legal and an audit Results in Brief standpoint and believe the Air Force, in awarding the contract to IMTA, acted on information that was too limited to determine that IMTA would deliver a domestic product in compliance with the statutory restriction and that IMTA met the Walsh-Healey Act requirements. Nevertheless, we have no legal basis to challenge the contract award to IMTA and therefore sustained the Air Force’s award in a bid protest reconsideration decision dated September 27, 1989 (see app. II). Of primary importance now is that IMTA disclosed in early October 1989 that it would be unable to build the machine specified in the contract because a major supplier would not honor an agreement to supply a crit- ical item. IMTA proposed that it supply a machine from the Henri Line Company, which IMTA indicated is a Canadian manufacturer. IMTA stated that the Line machine has the exact specifications of the proposed IMTA machine. The Air Force is considering IMTA'S proposal and has asked IMTA to provide data to ensure that the Line machine meets the domestic content criteria. Page1 GAO/NSL4D-9O-73MachineToolProcurement B232190 Domestic Content IMTA'S contract requires that it deliver a domestic product.’ A product is considered to be domestic if it is manufactured in the United States or Canada and the cost of its U.S. and/or Canadian components2 exceeds 60 percent of the cost of all its components. IMTA certified in a letter that it would meet the U.S.-manufactured requirement. Also, the contracting officer requested that IMTA provide evidence to show that it would meet the U.S.-manufactured requirement. In response, IMTA provided a price list that purported to show the portion of domestic and foreign compo- nents to be used in producing the machining center. The contracting officer reviewed the price list and concluded that IMTA would manufac- ture a domestic product. We do not believe that the price data contained the detail necessary to conclude that IMTA would deliver a domestic product. The contracting officer should have requested that IMTA provide a more detailed listing of anticipated foreign and domestic component parts as well as pro- jected costs for those items, The Air Force should have obtained suffi- cient data to ensure compliance with statutory restrictions. Walsh-Healey Act Under the Walsh-Healey Act, a contractor must certify that it is either a manufacturer of or a regular dealer in the items to be delivered under a government supply contract over $10,000. IMTA certified that it was a manufacturer under the Walsh-Healey Act. The contracting officer determined that IMTA qualified as a manufacturer based on IMTA'S certifi- cation and its parent company’s status as a manufacturer. However, the contracting officer did not apply the provisions of the Federal Acquisi- tion Regulation that state that each offeror must qualify in its own right as a manufacturer and that an offeror’s affiliation with or relation to another firm, even its parent company, are not evidence of the offeror’s own eligibility as a manufacturer. The regulation provides that the con- tracting officer must investigate and determine the eligibility of an offeror if the offeror has not previously been awarded a contract by the individual acquisition office. At the time of the award, IMTA did not meet the regulation’s require- ments in terms of having the necessary prerequisites, such as plant and equipment, or having made all the necessary arrangements and commit- ments to obtain them, To remedy this situation, a contracting officer ‘The restriction on buying domestic products is generally referred to as a “Buy American” restriction. “Components are those articles, materials, and supplies incorporated directly into end products. Page 2 GAO/NSIAD4JO-73Machine Tool Procurement E-282120 may terminate a contract if it is determined that the Walsh-Healey Act certification was not made in good faith. We found no evidence during our review that IMTA had not acted in good faith, but the Air Force must make this determination. Resdonsibility Before awarding a government contract, a contracting officer must Detebmination determine that the potential contractor is responsible in accordance with acquisition regulations. The contracting officer must determine whether the potential contractor has, among other things, adequate financial, technical, and physical resources to perform the contract or the ability to obtain such resources. Although the regulations specify the factors to be considered in determining whether a prospective contractor is responsible, the specific type and quantity of information used in mak- ing such a determination is left to the contracting officer’s judgment. In this case, IMTA was judged to be responsible based on very general input from the Des Plaines, Illinois, Better Business Bureau on IMTA'S record as a distributor. Agency Comments acknowledged that the contracting officer did not comply with some parts of the Federal Acquisition Regulation (see app. III). However, the Department believed we erroneously implied that a contracting officer, in most cases, must conduct a detailed cost analysis to ensure domestic content. The Department also believed that we gave a misleading impression that the contracting officer’s analysis was inadequate, even though the contracting officer did more than was required to conclude that IMTA would deliver a domestic product and could have relied solely on IMTA’scertification. We recognize that domestic origin certifications from contractors are usually accepted by the Department of Defense’s contracting officers at face value. However, the Comptroller General has taken the position in bid protest decisions that an agency should not automatically rely on such certifications when it has reason to question whether a domestic end product will be furnished. It was apparent that the contracting officer requested additional information from IMTA because some ques- tions existed regarding IMTA'S ability to deliver a domestic product. We believe that once the contracting officer received the additional information, she was responsible for analyzing it. Under the regulations, to determine whether an item is a domestic product, only the total cost Page 3 GAO/NSIAD-90-73Machine Tool Procurement , B-232180 of the components is used (i.e., what the contractor paid for the compo- nents or the total cost to make them in-house). The key indicator is cost of components. IMTA provided information that showed the price, not the cost, of major components and noncomponents. In short, the Air Force needed more information from IMTA to resolve the contracing officer’s apparent concerns that led her to request additional data. The problems identified in this report reinforce the need for better application of acquisition regulation requirements. Because our scope was limited to one contract, we are not making any recommendations. However, we suggested to Department of Defense officials that better application of acquisition regulation requirements be included as an issue needing attention in the fiscal year 1990 Federal Managers’ Finan- cial Integrity Act3 analysis. We are sending copies of this report to the Chairmen, House and Senate Committees on Appropriations and on Armed Services; the Secretaries of Defense and the Air Force; the Director, Office of Management and Budget; and other interested parties. Please contact me on (202) 276-4268 if you or your staff have any ques- tions concerning this report. Other major contributors to this report are listed in appendix IV. Nancy R. Kingsbury Director Air Force Issues “Under provisions of the Federal Managers’Financial Integrity Act of 1982 (31 U.S.C. 3612(b) and (c)), agency managers are given the primary responsibility for maintaining adequate systems of inter- nal control and accounting. The act requires agency heads to report annually to the President and the Congress on the status of these systems, and it holds managers responsible for correcting identifled deficiencies. Page 4 GAO/NSIAWO-73 Machine Tool Procurement Page 6 GAO/NSJ.AD9O-73 Machine Tool Procurement LeFter I 1 Adpendix I 8 Buy American Objectives, Scope, and Methodology Measures Taken to Ensure Domestic Content 10 10 Questions Raised in Walsh-Healey Determination 14 Aik Force Machine Determination of IMTA’s Responsibility 16 Status of IMTA Contract 17 Tdol Procurement Adequacy and Timing of Site Visits 17 Best and Final Offers 18 Agency Comments and Our Evaluation 18 Appendix II 20 Bid Protest Reconsideration Decision Appendix III 24 Comments From the Department of Defense Appendix IV 30 Major Contributors to This Report T&ble Table I. 1: Schedule of Items in IMTA’s Contract 12 Abbreviations DCASMA Defense Contract Administration Services Management Area FAR Federal Acquisition Regulation GAO General Accounting Office IMTA Italian Machine Tool Agency Page 6 GAO/NSIAD@O-73Machine Tool Procurement Page 7 GAO/NSIAD-90-73Machine Tool Procurement Appendix I Bby American QuestionsRaisedin Air Force h&whineTool Procurement In October 1987 the Air Force Contracting Center, Wright-Patterson Air Force Base, Dayton, Ohio, was asked by the 4950th Test Wing (Fabrication and Modification Division), the primary design and manufacturing facility at the base, to procure a six-axis machining center. A machining center is a computer-controlled machine that, depending on the number of axes, is capable of performing a variety of complex operations. According to the test wing, the machine was needed in the modification, research, and development area to ensure higher mission capabilities and enable the test wing to pro- vide faster and more sophisticated support to its customers. It esti- mated that the Air Force would save millions of dollars by having these capabilities in-house. The test wing also planned to use the machining center to produce aircraft and other parts of major weap- ons systems and estimated that it had spent over $1 million in the past 3 years to have a contractor make parts requiring six-axis capability. Before requesting the assistance of the contracting office, engineers from the test wing visited several potential contractors, including Pratt & Whitney, Cincinnati Millicron, and White Sunstrand, to examine their machining centers. They initially became interested in a machining center with a brand name of “Jo Mach 23” through a presentation by Walker Machinery Company, who they believed was the manufacturer of this machine. After considering its options, the Air Force decided that the Jo Mach machine, or its equivalent, would best meet its needs, and it initiated the procurement process. On December 4,1987, the contracting office at Wright-Patterson Air Force Base issued a synopsis in the Commerce Business Daily stating that the Air Force wanted to procure a Jo Mach 23 or equivalent machining center. According to contracting officials, the Air Force often issues “brand name or equal” solicitations to buy off-the-shelf items. This practice is not illegal or against procurement policies. However, through discussions with officials of Walker Machinery, the contracting office later learned that the Jo Mach 23 was made by the Italian Machine Tool Agency (IMTA) Industrial Goods, Ltd., Worthing, England, and that Walker was merely a distributor for the manufacturer. Due to the statutory restriction on the acquisition of foreign machine tools, the Air Force withdrew its synopsis, wrote a generic specification for the machine, and issued a request for proposals on March 21, 1988. Page 8 GAO/NSIAD-90-73Machine Tool Procurement Appendix 1 Buy American Questions Raked in Air Force Machine Tool Procurement The Air Force’s request for proposals provided for full and open compe- tition and required that offers be submitted by May 12, 1988, for a ver- tical six-axis machining center with all necessary tooling, operation and maintenance manuals, training, and installation. The Air Force received offers from four firms. One of the offers was determined to be techni- cally unacceptable. According to contracting office officials, a letter was sent on June 14, 1988, to the remaining three offerors, asking that best and final offers be submitted by June 24,1988. Only two of the three acceptable offerors responded with best and final offers and were there- fore considered for award. The contracting officer said that based on a technical evaluation, best and final responses, and all other information available, the contract was awarded on July 15,1988, to IMTA Inc., a subsidiary of IMTA Indus- trial Goods, whose best and final offer was the lowest received. The firm -fixed price contract was in the amount of $1,299,531 and was num- bered F3360 l-88-C-O 163. Pratt & Whitney and Onsrud, two of the competing contractors, filed bid protests with us, contesting the contract award to IMTA and suggesting that the contract should be terminated. On December 13,1988, we denied the protests.1 We said that the contracting officer did not have information before the contract award that was inconsistent with IMTA'S commitment to supply a domestic machining center. We also said that the protesters’ contentions concerning IMTA'S responsibility and its sta- tus as a manufacturer under the Walsh-Healey Act were not subject to review under our bid protest regulations, We do not consider protests challenging affirmative responsibility determinations in the absence of a showing of possible fraud or bad faith on the part of contracting offi- cials or an allegation that definitive responsibility criteria contained in the solicitation were misapplied. None of these conditions had been alleged. W ith respect to IMTA'S status as a manufacturer under the Walsh-Healey Act, we said that such matters, by law, are to be decided by the contracting agency, subject to review by the Small Business Administration (if a small business is involved) and the Department of Labor. On December 30,1988, and January 3,1989, Pratt & Whitney and Onsrud, respectively, filed requests with us for reconsideration of the bid protest decision. On September 27, 1989, we affirmed our prior bid protest decision. A copy of the decision is included in appendix II. ‘The Pratt 81Whitney Co., Inc.; Onsrud Machine Corp., B-232190, et., Dec. 13,1988,88-2 CPD 693. Page 9 GAO/NSIAD-90-73 Machine Tool Procurement Appendix I Buy Amerbn Questiona Raised In Air Force Machine Tool Procurement On December 29,1988, and January 4,1989, Senator Kasten and Con- Objectives, Scope,and gressman Porter, respectively, requested that we examine the Air Mbthodology Force’s contract award for the machining center to IMTA. We agreed to determine (1) whether the Air Force complied with the statutory restric- tion prohibiting the acquisition of foreign machine tools, (2) what over- sight steps the Air Force will take to ensure that IMTA'S product will be manufactured in the United States or Canada, (3) whether the Air Force properly determined that IMTA was a manufacturer as defined in the Walsh-Healey Act, (4) whether the Air Force properly determined IMTA was “responsible” as defined in the Federal Acquisition Regulation (FAR), (6) the status of the contract, paying particular attention to the plant, equipment, and labor force, (6) the reason the Air Force initially specified it wanted the Jo Mach 23 or equivalent and whether that spec- ification was legal, (7) the adequacy and timing of the surveys per- formed by the Defense Contract Administration Services Management Area (DCASMA),and (8) whether the Air Force was obligated to ask Onsrud for a best and final offer and what method the Air Force used to request a best and final offer from Onsrud. We interviewed responsible agency officials and reviewed pertinent con- tract and related documents and regulations at the Departments of Defense and the Air Force, Washington, D.C.; the using organization and contracting office at W right-Patterson Air Force Base, Dayton, Ohio; and DCMMA, Chicago, Illinois. We visited the IMTA facility in Rockford, Illi- nois, and interviewed the president of IMTA. We examined the limited records that IMTA made available to us. We conducted our review from February through September 1989 in accordance with generally accepted government auditing standards. The solicitation for the six-axis machining center included the clause MeasuresTaken to from section 62.226-7023 of the Department of Defense FAR Supplement, flnsure Domestic “Restriction on Acquisition of Foreign Machine Tools,” which states that Content the machine tool to be supplied must be of domestic origin. To be consid- ered domestic, the machine tool must be manufactured in the United States or Canada, and the cost of its components manufactured in the United States or Canada must exceed 50 percent of the cost of all its components. IMTA certified that the machine tool would be of domestic origin, Also, in response to a specific request from the Air Force, IMTA provided a price list to show that it would deliver a domestic product. However, we do not believe that the Air Force could have determined the dollar value of the foreign components of the machine tool because Page10 GAO/NSIAD-90-73 Machine Tool Procurement Appendix I Buy Amerkan Questions Raised in Air Force Machine Tool Procurement (1) there was no component-by-component breakdown sufficient to per- mit a thorough analysis of foreign versus domestic costs and (2) costs such as labor, material, and overhead incurred in assembling the various components into the final product were not separately stated. As a general rule, all contractors bidding on Department of Defense con- tracts for certain classes of machine tools, including the machining center the Air Force contracted for, must agree that the product will be manufactured in the United States or Canada and the cost of its compo- nent parts manufactured in the United States or Canada will exceed 50 percent of the cost of all components. This is based on an appropriation restriction, which, for the fiscal year involved in this case, was con- tained in section 8085 of Public Law 100-202, dated December 22, 1987. The Department of Defense FAR Supplement, section 226.7008, imple- ments the law. Additional guidance concerning the domestic content of products has also been addressed in our decision@ on “Buy American” issues that also involve the 50-percent domestic content rule. To determine whether an item is a domestic end product that has been manufactured in the United States, only the total cost of the components is used (i.e., what the manufacturer paid for the components or the total cost to manufacture them in-house). The total cost of the end product, price minus profit, is irrelevant because total cost includes noncom- ponent costs such as labor, overhead, packaging, testing, and evaluation costs. However, when the same manufacturer produces a component and incorporates it into an end product, the manufacturer can include appropriate overhead and other costs incurred in the manufacture of the component in the total cost of the component. We were told by the president of IMTA in March 1989 that some of the components for the machining center will be manufactured in IMTA’S Rockford, Illinois, facility and that the machining center will also be assembled at that facility. IMTA’S president said that this is his first man- ufacturing contract and thus cost projections are not available. He also told us that his bid was based on data provided by the parent company. 2See,for example,48 Camp.Gen. 727 (1969) and 60 Camp.Gen.697 (1971). Page 11 GAO/NSIAD&&73 Machine Tool Procurement I Appendix1 Buy American Queationa I&bed in Air F O F W Machine Tool Procurement Air Force’s Analy s is The contract awarded to IMTA is for the items shown in table I. 1. Tat$e 1.1: Schedule of Item6 in IMTA’s Cojtract Item no. Item Price 1 Six-axis milling machine $995,800 2 Tooling package 21,051 3 Installation 47,300 -_____ 4 Manuals 19,650 5 Training 8,600 6 J ib crane 6,580 , 7 Foundation s 36,000 8 Automatic digitizing cell 164,350 Total $1,299,531 In addition to IMTA'S certification that it would comply with the domestic content restriction, the contracting officer asked IMTA to furnish a break- down (foreign versus domestic) for each of the items . This additional s tep was to ensure that IMTA would meet the U.S.-manufactured require- ment. IMTA provided a price lis t on June 6, 1988, which showed only items 1 and 8 as having foreign components. The documentation pro- v ided a major component breakdown for items 1 and 8 and the amount of “foreign content” for the two items . The Air Force contracting offic ials analyzed the price breakdown for items 1 and 8 and concluded that $388,600, or 39 percent, of the $996,800 price for item 1 and $56,860, or 34.6 percent, of the $164,350 price for item 8 was for foreign components, On the basis of this infor- mation, the offic ials concluded that IMTA would manufacture a domestic product. W e question the Air Force’s analy s is . Prior GAO decis ions have s tated that when determining the portion of the product that is foreign, only the cost of the components (what the manufacturer paid for the compo- nents or the total cost to manufacture them in-house) is used. The price that the contractor charges for the components (cost plus profit) is irrel- evant. W e believe the Air Force could not have performed the required cost analy s is using the price lis t provided by IMTA. Further, the price lis t should have alerted the Air Force that IMTA'S price lis t inc luded noncomponent items . IMTA'S price lis t inc luded such noncomponent items as ins tallation at the manufacturer’s and cus- tomer’s plants , ins tallation engineering and implementation for tracing Page 12 GAO/NSIADSO-73 Machine Tool Procurement Appendix I Buy American Queetione IfJIbed in Acr mll?@ MadUne Tool Procnmment and digitizing, and parametric programming. These are noncomponent- type items; therefore, their costs cannot be considered in determining the portion of the total cost of components that is foreign. We do not know the final assembly costs for items 1 and 8 or what profit is included in the prices given for those items. We asked the presi- dent of IMTA in March 1989 to provide us with this information but were told that the information is not available. In addition, to perform a proper domestic content analysis, we believe that the Air Force needed a more detailed cost breakdown of the compo- nents (foreign versus domestic) included in each end item. Such a break- down was not provided by IMTA or requested by the Air Force. For example, IMTA'S price breakdown showed that the six-axis milling machine included such components as a worktable, direct reading scales, and an operator’s control panel, but it did not indicate which compo- nents were domestic and which were foreign or the cost for any of the components. Monitoring Domestic The Air Force is monitoring the domestic content of the machining center with the aid of ncAs&+Chicago. According to Air Force contract Content administration officials at W right-Patterson Air Force Base, DCASMA- Chicago has the basic oversight responsibilities in administering the con- tract after award. Initially, the Air Force had no special arrangements planned for administering the contract. However, because of congres- sional interest in the Air Force’s compliance with the statutory restric- tion prohibiting the purchase of foreign machine tools, we suggested that the Air Force provide close surveillance to ensure that IMTA would supply a U.S.-manufactured product. As a result of our suggestion, the Air Force, in February 1989, requested that DCASMA provide close sur- veillance of IMTA'S production to ensure strict compliance with the domestic content requirement. The Air Force also requested that DCASMA provide monthly reports on its findings, To satisfy the Air Force’s request, DCASMA devised a plan in March 1989, which the Air Force approved. The plan includes having an industrial specialist visit IMTA'S facility monthly to (1) monitor IMTA'S overall performance and ability to meet milestone schedules, (2) review names and locations of major sup- pliers and subcontractors and the items or materials to be furnished by them, and (3) verify orders placed and subcontracts used. DCXGMA believes that this information would show from which sources IMTA intends to procure the material necessary to perform the contract. Page 13 GAO/NSIAJHW73 Machine Tad Procurement Appendix I Buy American Questions Raised in Air Force Machine Tool Procurement In addition, the Defense Contract Audit Agency and DCASMA’Financial S Services Branch planned to perform quarterly audits to review all direct material invoices and corresponding purchase orders to verify actual origin of acquisition, They planned to provide the Air Force with quar- terly reports on their findings. Even though DCWMA agreed in March 1989 to increase its production surveillance by having an industrial specialist visit IMTA'S facility on a monthly basis and have its Financial Services Branch and the Defense Contract Audit Agency conduct quarterly audits, few visits have actu- ally been made to date. More specifically, DCASMA’industrial S specialist has only visited IMTA'S facility twice (in August and October 1989) over an 8-month period from March 1989 through November 1989. Moreover, no quarterly audits have been conducted during this period. We were told by an Air Force official that the industrial specialist had called IMTA frequently over the period to discuss the status of IMTA'S production efforts. Accordingly, the specialist found that plant visits were not nec- essary at the time because no production activity had occurred. Addi- tionally, since IMTA had not placed any purchase orders or requested progress payments, quarterly reviews did not have to be conducted by DCASMA’Financial S Services Branch and the Defense Contract Audit Agency. Under the Walsh-Healey Act, a contractor must certify that it is either a Walsh-Healey manufacturer of or a regular dealer in the items delivered under a gov- Determ ination ernment supply contract over $10,000. FAR subpart 22.6 implements this requirement. FAR 22.606-1(a)(2) requires new manufacturers to have made all the nec- essary arrangements and commitments for manufacturing space, equip- ment, and personnel. At the time of award, IMTA did not appear to meet this requirement in terms of having the necessary prerequisites such as a plant and equipment, or having made all the necessary arrangements and commitments to obtain them. However, at the time of our visit IMTA appeared to be a manufacturer under the Walsh-Healey Act. Although IMTA certified when it responded to the solicitation that it was a manufacturer, it did not have at that time or at the time of the award the manufacturing facilities, equipment, or personnel needed to perform a manufacturing operation, or written, legally binding arrangements or commitments to obtain them. The contracting office considered IMTA as Page 14 GAO/NSIAD-90-73 Machine Tool Procurement Appendix 1 Buy Amerknn Questions Bald ln Air Force Machine Tool Procurement an established manufacturer and not a “new” manufacturer just enter- ing the business, primarily because of the reputation of its parent com- pany, IMTA Industrial Goods, Ltd., Worthing, England. Contracting office officials advised us that IMTA was “just setting up shop in another coun- try” and would only be transferring its technology to the United States; therefore, IMTA was considered eligible to receive the contract. Contracting office officials explained that they did not pursue IMTA'S sta- tus as a manufacturer because no one came forth before the award to protest IMTA'S eligibility and no information in the files cast doubt on IMTA'S ability to perform as a manufacturer. They pointed out that at the time of the award FAR 9.104-3 stated in part that the contracting officer shall investigate and determine Walsh-Healey Act eligibility and not rely on the prospective contractor’s representation if a protest has been lodged or the contracting officer has knowledge that casts doubt on the validity of the representation.3 We were told that since none of these circumstances existed, the contracting officer did not consider the requirement for further eligibility examination to be applicable. We do not agree with the Air Force’s position. Even though an investiga- tion to ensure IMTA'S status as a manufacturer may not have been required under section 9.104-3(a) of the FAR, section 22.606-1(c) of the FAR provides that every offeror must qualify as a manufacturer in its own right and that an offeror’s affiliation or relation to another firm , even its parent company, are not evidence of the offeror’s own eligibility as a manufacturer. Further, section 22.608-2(b) provides “The contracting officer shall investigate and determine the eligibility of the offeror and not rely on the offeror’s representation that it is a manufacturer or regular dealer in the following circumstances: “(3) The offeror that is in line for contract award has not previously been awarded a contract subject to the Act by the individual acquisition office.” The contracting office in this case had no prior contracting experience with IMTA. Thus, further inquiry into IMTA'S ability to satisfy the Walsh- Healey Act was required. At the time of award, IMTA did not qualify as a Walsh-Healey manufacturer because IMTA did not have the prerequisite resources or explicit arrangements or commitments to obtain them. 3Section 0.104-3, which was arguably inconsistent with FAR 22.608-2, has subsequently been changed and now merely cites FAR section 22.608-2 asthe applicable FAR provision on Walsh-Healey Act determinations. Page 16 GAO/NSLiD-90-73 Machine Tool Procurement J Appendix I B u y A m e r i c a n Q u e s t i o n a R a b e d in Air F o r c e M a c h i n e Tool P r o c u x w m e n t T h e A ir Force c o n c l u d e dth a t IM T A h a d th e necessaryfinancial, techni- te r m i n a tio n o f cal, a n d physical resources(i.e., p e r s o n n e l a n d e q u i p m e n t) to perform T A ’s R e sponsibility th e c o n tract primarily a s a result o f M IA ’S record a s a distributor, T o b e eligible to receive a g o v e r n m e n t c o n tract, a c o n tracting o fficer m u s t d e te r m i n e th a t th e prospective c o n tractor is “responsible” in a c c o r d a n c ewith F A R criteria. F A R S u b p a r t 9 .1 0 3 (a) a n d (b) provides th a t c o n tracts a r e to b e a w a r d e d to responsibleprospective c o n tractors only a n d th a t n o a w a r d s h o u l d b e m a d e unless th e c o n tracting o fficer m a k e s a n a ffirm a tive d e te r m i n a tio n o f responsibility. T o b e d e te r m i n e d r e s p o n - sible within th e m e a n i n g o f F A R 9 .1 0 4 -1 , a prospective c o n tractor m u s t l h a v e a d e q u a te financial resourcesto perform th e c o n tract or th e ability to o b ta i n th e m ; . b e a b l e to c o m p l y with th e r e q u i r e d or p r o p o s e d delivery or perform- a n c e schedule,considering all existing c o m m e r c i a l a n d g o v e r n m e n tal b u s i n e s sc o m m i tm e n ts; l h a v e a satisfactory p e r f o r m a n c e record; . h a v e a satisfactory record o f integrity a n d b u s i n e s se thics; l h a v e th e necessaryorganization, experience, a c c o u n tin g a n d o p e r a tio n a l c o n trols, a n d technical skills (including, a s appropriate, s u c h e l e m e n tsa s p r o d u c tio n c o n trol procedures, property c o n trol systems, a n d quality a s s u r a n c em e a s u r e sa p p l i c a b l e to m a terials to b e p r o d u c e d or services to b e p e r f o r m e d b y th e prospective c o n tractor a n d s u b c o n tractors) or th e ability to o b ta i n th e m ; l h a v e th e necessaryp r o d u c tio n , construction, a n d technical e q u i p m e n t a n d facilities or th e ability to o b ta i n th e m ; a n d l b e qualified a n d eligible to receive a n a w a r d u n d e r a p p l i c a b l e laws a n d regulations. T h e c o n tracting o fficer a t W right-Patterson A ir Force B a s e m a d e a n a ffirm a tive d e te r m i n a tio n th a t IM T A w a s a responsiblem a n u facturer within th e m e a n i n g prescribed in FAR. A c c o r d i n g to c o n tracting o ffice o fficials, th e d e te r m i n a tio n w a s primarily b a s e d o n a B e tter B u s i n e s s B u r e a u report from th e B u r e a u ’s o ffice in D e s P laines, Illinois. T h e con- tracting c e n ter a n d th e D e fe n s e C o n tract A u d i t A g e n c y indicated th a t IM T A n e v e r h a d a c o n tract with th e c o n tracting c e n ter, th e A ir Force, th e D e p a r tm e n t o f D e fe n s e ,or th e g o v e r n m e n t. H o w e v e r , th e B e tter Busi- n e s s B u r e a u reported th a t IM T A is a m e m b e r in g o o d standing, h a d n o record o f a n y complaints, a n d h a d successfully c o m p l e te d work o n vari- o u s m u n i c i p a l projects in th e D e s P laines a r e a . Page 16 G A O / N S I A D - 9 0 - 7 3M a c h i n e Tool P r o c u r e m e n t Appendix I Buy American Questions Raised in Air Force Machine Tool Procurement Although the FAR specifies the factors to be considered in determining whether a prospective contractor is responsible, the specific type and quantity of information used in making such a determination is left to the contracting officer’s judgment. In this case, the contracting officer could have sought additional information to assesswhether IMTA was responsible; however, we have no basis for taking exception to the con- tracting officer’s affirmative determination of IMTA'S responsibility. As of March 1989, IMTA was operating out of its leased facility in Rock- St&us of IMTA ford, Illinois, where it planned to manufacture the six-axis machining Ccintract center. IMTA signed a lease with EX-CELL-O Corporation on Novem- ber 17, 1988, for 2 years, with options to extend the term of the lease for additional periods of 1 year each. At the time of our visit on March 3, 1989, IMTA had 23 employees, including engineers, draftsmen, and a machine designer, and planned to hire an additional 7 skilled machinists by mid-1989. Although IMTA planned to subcontract out much of the machining components to job shops in the area, it had two large overhead cranes and planned to purchase a three-axis machining center to do manufacturing work in-house. The president of IMTA advised us at the time of our visit that he was confident that IMTA could perform the work for the contract on time and meet the provisions of the contract. He also advised us that about 10 percent of the contract was completed. More recent information indicates that IMTA cannot manufacture the machining center. In an October 4, 1989, site visit to IMTA by DCASMA'S industrial specialist, IMTA disclosed that it would not be able to build the machine specified in the contract because a major supplier of IMTA would not honor an agreement to supply castings. IMTA proposed that it supply a machine from the Henri Line Company, which IMTA indicated is a Canadian manufacturer. IMTA states the Line machine has the exact specifications of the proposed IMTA machine. The Air Force is consider- ing IMTA'S proposals and has asked IMTA to provide data to ensure that the Line machine meets the domestic content criteria. After the contract had been awarded, the Air Force asked DCASMA to Adequacy and Timing visit IMTA and determine its ability to perform the contract. One of the of Site Visits Air Force’s primary concerns was whether IMTA could meet the domestic I content requirement. Two industrial specialist from DCASMA visited IMTA. The visits consisted primarily of a tour of the facilities and an interview with the president of IMTA. Page 17 GAO/NSIAWO-73 Machine Tool Procurement Appendix I Buy American Questiona Itahd in Ah Force Machine Tool Procurement One of the industrial specialists visited IMTA'S administrative facility in Des Plaines, Illinois, in August 1988. (IMTA had not yet leased its facility in Rockford, Illinois.) The other specialist visited IMTA'S newly leased facility in Rockford in December 1988. Both concluded that IMTA could meet the terms of the contract. We believe that since this was IMTA'S first manufacturing contract and first contract with the federal government, it would have been prudent for the Air Force to have asked DCASMA, before contract award, to visit IMTA to determine its ability to perform the contract. We also believe that if a preaward visit/survey had been conducted, the Air Force would have obtained more detailed information on IMTA'S status as a manufac- turer (i.e., having prerequisite resources) necessary to make its Walsh- Healey Act determination. In its bid protest to us, Onsrud argued that it was not afforded the Be&t and Final Offers opportunity to present a best and final offer. An official from Onsrud stated in an affidavit that he did not receive any telephone calls or cor- respondence from the Air Force stating that it wanted a best and final offer. However, contracting office officials stated that they sent requests to Onsrud and two other acceptable offerors for best and final offers and showed us copies of the requests. (The FAR does not require certified mail in requesting best and final offers. Air Force contracting officials said they use regular mail for this purpose.) The Air Force’s contract files contained a copy of a June 14, 1988, letter to Onsrud, which requested a best and final offer. An Air Force official told us that he had telephoned an Onsrud official before the letter was sent to advise the official that the Air Force was requesting a best and final offer. The contracting office had no documentation of that call, since it does not prepare such documentation. The Department of Defense generally concurred with our findings and Adency Comments and acknowledged that the contracting officer did not comply with some Otir Evaluation parts of the Federal Acquisition Regulation (see app. III). However, the Department believed we erroneously implied that a contracting officer, in most cases, must conduct a detailed cost analysis to ensure domestic * content. The Department also believed that we gave a misleading impression that the contracting officer’s analysis was inadequate even though the contracting officer did more than was required to conclude Page 16 GAO/NSLAK@O-73 Machine Tool Procurement Buy American Que&io~~ Rhed in Air Force Ma&he Tool Procurement that IMTA would deliver a domestic product and could have relied solely on IMTAcertification. We recognize that domestic origin certifications from contractors are usually accepted by the Department of Defense’s contracting officers at face value. However, the Comptroller General has taken the position in bid protest decisions that an agency should not automatically rely on such certifications when it has reason to question whether a domestic end product will be furnishedS4 It is apparent that the contracting officer requested additional information from IMTA because some questions existed regarding IMTA'S ability to deliver a domestic product. We believe that once the contracting officer received the additional information, she was responsible for analyzing it. The information pro- vided by IMTA showed its prices for major components and noncom- ponents totaling to the contract price of $1.3 million. The contracting officer concluded from this information that IMTA would deliver a domestic product. Under the regulations, to determine whether an item is a domestic prod- uct, only the total cost of the components is used (i.e., what the contrac- tor paid for the components or the total cost to make them in-house). The total cost of the end product, price minus profit, is irrelevant because total cost includes noncomponent cost such as labor, overhead, packaging, testing, and evaluation costs. We recognize that the contracting office will have to exercise some judg- ment in determining what information is needed to make an adequate domestic content analysis. In this case, Air Force’s analysis was based on IM?A’S prices for, not the costs of, components that make up the machining center. In addition, IMTA'S list and the Air Force’s calculation included amounts for such noncomponent items as engineering and installation. Further, the information submitted by IMTA was not suffi- cient to permit the Air Force to exclude from its calculation amounts for such noncomponent costs as the labor and overhead incident to final assembly of the end product. In short, the additional information pro- vided by IMTA could not have been sufficient to resolve the contracting officer’s apparent concerns that led her to request additional data. 4Wire Rope Corporation of America, Inc., B-226672, Mar. 13,1987,87-l CPD 286. Page 19 GAO/NSIAMW73 Machine Tool Procurement , Appendix I II Bid Protest ReconsiderationDecision The Camptdler Genctal of the llnitml Sta2ee Wuhhgton. D.C. 20518 Decision The Pratt & Whitney Company, Inc.: Onsrud Motur of: Machine Corporation--Reconsideration File: B-232190.3, B-232190.4 Date: September 27, 1989 DIGBST 1. The award of a contract constitutes an affirmative determination of responsibility. 2. Eligibility under the Walsh-Realey Public Contracts Act is not for resolution by the General Accounting Office. DECISION The Pratt 6 Whitney Company, Inc., and Onsrud Machine Corporation request reconsideration of our decision in The Pratt 6 Whitney Co., Inc.: Onstud Machine Corp., B-232130, et al., Dec. 13, 1988, 88-2 CPD q 588, in which we denied protests by those firms of the award by Wright-Patterson Air Force Base.of a contract for a vertical CNC six-axis machining center to the Italian Machine Tool Agency, Inc. (IMTAI under request for proposals (RFP) NO. F33601-88- R-0017. We affirm our prior decision.lJ In their original protests, both Pratt 6 Whitney and Onsrud questioned IMTA's ability to comply with a solicitation requireme,nt that the machining center be of United States or Canadian origin. The protesters contended that the machining center IMTA proposed to supply would be. made by a company located in Italy. We noted that there was no exception taken by IMTA to the solicitation requirement and concluded that the contracting officer had no information prior to award that was inconsistent with IMTA's commitment to supply a machining center of U.S. or Canadian origin. We added that whether IMTA actually complies with the require- ment is an issue of contract administration, which we do not review under our Bid Protest'Regulations. 4 C.F.R. 5 21.3(m)(1)(1988). L/ This procurement was also the subject of a separate audit conducted by this Office. The preliminary audit findings are discussed later in this decision. Page20 GAO/NSIAD-90-73Machine Tool Procurement Appendix II Bid Proteat Reconsideration De&ion We did not consider the protesters’ allegations that I%TA was not eligible for award because it was not a manufacturer under the Walsh-Healey Public Contracts Act, 41 U.S.C. ss 35-45 (1982). We said that the question of a firm’s status under that Act is for the contracting agency to decide, subject to review by the Department of Labor (DOL) if a small business is involved, the Small Business ig;inistration (SBA). Finally, we noted that questions as to whether IMTA was a responsible contractor--that is, whether it had the ability to comply with solicitation requirements--also were beyond the scope of our review. Under our Regulations, we only review affirmative responsibility determinations upon a showing that such a determination was made fraudulently or in bad faith or that definitive responsibility criteria in the solicitation were not met. 4 C.F.R. 9 21.3(m) (5). Onsrud contends on reconsideration that the Air Force failed to apply definitive responsibility criteria, citing section 9.104 of the Federal Acquisition Regulation (FAR) as containing the standards the Air Force was required to apply in determining IMTA’S responsibility. The standards contained in FAR section 9.104, however, are general standards (such as adequate financial resources and a satisfactory record of integrity) that apply to all procurements; they are not the type of specific, objective standards (such as a minimum period of prescribed ’ experience) that would constitute definitive responsibility criteria. Onsrud also contends that the Air Force failed to make any responsibility determination at all. We do not agree; the award of a government contract constitutes the contracting officer’s affirmative determination of the contractor’s responsibility. Aesculap Instruments Corp., B-208202, Aug. 23, 1983, 83-2 CPD 11 228. Pratt & Whitney’s position on reconsideration is that the Air Force should have done more prior to award to satisfy itself that IMTA would supply a U.S.- or Canadian-made machining center and that the firm was a manufacturer under the Walsh-Healey Act. We agree. For the reasons discussed below, however, we have no basis for recommending that the award to IMTA be disturbed. With respect to the country-of-origin issue, the solicita- tion provided that a machining center would be considered to be of U.S. or Canadian origin, if (1) it was manufactured in the United States or Canada, and (2) the cost of its components manufactured in the united States or Canada exceeded 50 percent of the cost of all its components. As 2 B-232190.3, B-232190.4 Page 21 GAO/NSLAD-90-73Ma&he Tool Procurement Appemdk II Bid Protest Reconsideration Decision we pointed out in our prior decision, the contracting officer concluded that IMTA’s machining center would be of U.S. origin based in part on a price list provided by IMTr. prior to award indicating “the amount of foreign content” for various items. Based on the price list, the contract::; officer calculated that 61 percent of IMTA’s price for the machining center represented domestic content. Although we previously did not question the agency’s analysis, we now find that the analysis was flawed. First, the agency’s analysis was based on IMTA’s prices for, not the costs of, components that make up the machining center. The list also did not indicate which components were foreign and which were domestic. In addition, IMTA’s list, and 0.e agency’s calculation, included amounts for such non- component items as engineering and installation. Finally, the information submitted by IMTA was not sufficient to permit the agency to exclude from its calculation amounts for such non-component costs as the labor and overhead incident to fin.al assembly of the end product. In short, the Air Force needed more information from IMTA in order to perform the proper analysis. Our conclusion here does not mean, however, that the protests should have been sustained. Fundamentally, an agency’s preaward determination concerning a prospective contractor’s ability to supply a U.S. or Canadian end product involves an issue of responsibility. Because responsibility determinations are basically judgmental, and generally not susceptible to objective review, our Regulations provide for review of affirmative responsibility determinations only in cases of possible misapplication of definitive responsibility criteria, fraud, or bad faith on the part of procurement officials. The protests involved none of these circumstances. Therefore, if we had found in the initial protests that the contracting officer’s conclusion was based in part on incomplete information, we would not have sustained the protests with a recommendation for cancellation of the contract. Rather, we would have suggested that the Air Force obtain the necessary cost data from IMTA and perform the proper analysis before final acceptance of the end product. We understand from our audit work that the Air Force intends to do so and that it has arranged for the Defense Contract Audit Agency and the Defense Contract Administration Services Management Area, Chicago, to monitor performance and provide other assistance to ensure that IMTA supplies a U.S. product. Regarding the Walsh-Healey issue, our prior decision / correctly pointed out that a firm’s status as a manufacturer under that Act is not a matter for this office to decide. 3 B-232190.3, B-232190.4 Page 22 GAO/NSL4D-90-73 Machine Tool Procurement Appendix II Bld Protest Recoxwlderatlon Jhcbion Rather, FAR S 22.608-3(b) provides that a challenge to an agency’s Walsh-Healey determination is a matter for either DOL or SBA. We therefore affirm our decision on this point. Nevertheless, we found in the course of our audit that the Air Force failed to pursue IMTA’s Walsh-Healey eligibility as required by FAR S, 22.608-2(b)(3), which provides that the contracting officer must investigate the Walsh-Healey eligibility of an offeror, and not rely on the offeror’s Walsh-Healey certification, if, as here, the individual acquisition office has not previously awarded a contract to that offeror. Had such an investigation been conducted prior to award, it is unlikely that the Air Force would have determined that, IMTA qualified as a manufacturer under the Walsh-Healey Act because the firm had not made preaward arrangements for manufacturing space, equipment, and personnel as required by section 22.606-1(a)(2) of the FAR. FAR section 22.608-6(b) provides that if a contracting officer discovers after contract award that the award was made to an ineligible offeror, the contracting officer may terminate the contract if the offeror’s Walsh-Healey Act certification was not made in good faith. That, of course, is a question for the contracting agency to decide. We found no evidence during OUT audit, however, that IMTA was not acting in good faith when it made its certification. As part of our audit we visited IMTA’s facilities and it appears to us that the firm now has the resources required to qualify a8 a manufacturer. * ComptrollYer f;eneral of the United States 4 B-232190.3, B-232190.4 3 Page 23 GAO/NSLAKMO-73 Machine Tool Procurement A&ndix I III C&mmentsFrom the Department of Defense ASSISTANT SECRETARY OF DEFENSE WAS”,NGTON. D.C. 20301-8000 PRODUCTION AND LOGISTICS December 1, 1989 P/FC Mr. Frank C. Conahan Assistant Comptroller General National Security and International Affairs Division U.S. General Accounting Office Washington, DC 20548 Dear Mr. Conahan: This is the Department of Defense (DOD) response to the General Accounting Office (GAO) draft report, "DEFENSE CONTRACTING: Air Force Machine Tool Procurement Raises Buy American Questions," dated September 29, 1989 (GAO Code 3924841, OSD Case 8140. The Department generally agrees with the report. The DOD agrees that the contracting officer did not comply with the provisions of Federal Acquisition Regulation 22.608-2(b). However, the report is misleading in some areas particularly in its indirect criticism of the contracting officer's actions. The draft report states that the price data in the letter submitted to the contracting officer by the contractor did not contain sufficient detail to conclude that the contractor would deliver a domestic product. This implies that the contracting officer did less than required. In fact, the contracting officer was not required to request the letter at all, but could have relied solely on the certification provided by the contractor in his proposal. Instead, the contracting officer requested additional information to support the contractor's certification. Based on information available at the time, the contracting officer was satisfied the contractor would be able to meet the domestic content requirement. The detailed DOD comments on the report findings are provided in the enclosure. The DOD appreciates the opportunity to comment on the draft report. Enclosure Page 24 GAO/NSIAD-W-73 Machine Tool Procurement AppendixIll Comments From the Department of Defense WDRM'TREPORT-DATEDSEPTWSER 29, 1989 CODE (CA0 392484) OSD CASE 8140 "DEFENSE CONTMCTING: AIR FORCE MLCBINE MOL P- RAISES BDY AMERICAN QDESTIaSS" DEPARVWDEFENSBC#MENTS * * * l * FINDINGS CINDING A; packuround on Contract Award to Xtalian Machine Tool Bp9ncv. Inc, The GAO reported that, on July 15, 1988, the Air Force awarded a contract to the Italian Machine Tool Agency, Inc., for a six-axis machining center-- including associated tooling and training. The GAO explained that a statutory restriction on the purchase of foreign machine tools by Defense agencies states that certain classes of machine tools, such as the one contracted for by the Air Force, must be manufactured in the U.S. or Canada. In addition, the GAO noted the implementing Federal Acquisition Regulation instructions require that the cost of U.S. or Canadian components must exceed 50 percent of the cost of all its components. The GAO found that the contract with the Italian Machine Tool Agency required the contractor to deliver a U.S.-made or Canadian-made product in line with these provisions. The GAO also found that, at the request of the Air Force, the Italian Machine Tool Agency certified it would meet the U.S.-manufactured requirement--and provided a price list that purported to show the portion of U.S. and foreign components to be used in producing the Nowon pp, 1-2, lo-14 machine tool. (pp.2-5, pp.18-2O/GAO Draft Report) DOD RESPONSE: Concur. FINDING B: Air Force Analvsis of The Contractor's Certification. The GAO reported that, in addition to receiving the contractor's certification it would meet the U.S.-made requirement, the Air Force also asked the contractor to furnish a breakdown (foreign versus domestic) for each of the contract items. According to the GAO, the contractor then provided a listing that showed only two of the eight items contained foreign items. The GAO noted that, according to the President of Italian Machine Tool Agency, a proportionate share of final assembly costs and profit is included in each of its major component prices. The GAO found that Air Force contracting officials analyzed the price breakdown for these two items and concluded that 39 percent and 34.6 percent, respectively, of the two items were for foreign components. However, the GAO questioned the Air Force analysis. The GAO Enclosure Page25 GAO/NSIAlM&73MachfneToolProeurement Appedlx Ul C4munenta Prom the Department of Defense pointed out that, in prior decisions it has issued, only the cost of the components is to be used in determining the portion of the product that is foreign--with the price the contractor charges being irrelevant. The GAO concluded that the Air Force could not have performed the required cost analysis using the price list provided by the Italian Machine Tool Agency. The GAO further concluded that the price list the contractor provided should have alerted the Air Force that noncomponent items were listed. The GAO emphasized that noncomponent costs cannot be considered in determining the portion of the total cost that is foreign. The GAO also observed that the Air Force needed a more detailed cost breakdown of the components included in each end item--however, such a breakdown was not requested by the Air Force or provided by the contractor. Overall, the GAO concluded that the Air Force contracting officer should have done more to ensure that the contractor's product would be made in accordance with requirements. Now on pp. 2, 10-14. (p.2, pp. 5-6, pp. 19-22/GAO Draft Report) DOD: Partially concur. The DOD concurs with the facts as stated but does not concur with the GAO interpretation of the facts. As written, the report gives the impression that, in most cases, it is the obligation of the contracting officer to conduct a detailed cost analysis in order to ensure that products required by law to be domestic are in fact domestic product, the contracting officer is not required, and should not reasonably be expected, to conduct a detailed cost analysis. The report also gives the impression that the contracting officer's analysis was inadequate and that this inadequacy was the contracting officer's fault. AS the report indicates, however, even this far into the contract, it is too early to tell whether the contractor will actually comply with the statutory restriction. Only after a detailed cost analysis of actual component costs can it be conclusively determined whether there will be compliance. Therefore, regardless of the extent of analysis done by the contracting officer prior to award, the matter could not have been conclusively resolved. The contracting officer did as detailed an analysis as he believed necessary under the circumstances to assure that requirements were met. FINDING c: Air Force Actions to Ensure Domestic Content, The GAO found that after the contract was awarded, the Air Force took steps to ensure that the Italian Machine Tool Agency would meet the domestic content requirement. In this regard, the GAO reported that the Air Force asked the Defense Contract Administration Services Management Area to visit the contractor's Illinois facility and provide an analysis of the domestic content requirement. According to the GAO, the Defense Contract w Page 26 GAO/NSIAD-90.73 Machine Tool Procurement Appendix Dl Comments From the Department of Defense Administration specialists concluded that the contractor could meet the requirement--however, they were provided the same price list as was previously provided to the Air Force. The GAO also found that, in February 1989, the Air Force requested the Defense Contract Administration Services Management provide close surveillance of the Italian Machine Tool Agency production to ensure strict compliance with the domestic content requirement and provide informal monthly reports. The GAO reported that, in March 1989, the Defense Contract Administration Services Management Area indicated it plans to increase production surveillance and to have the specialists (1) verify orders placed, (2) major suppliers and subcontractors used, and (3) the materials furnished by them. The GAO further reported that the Defense Contract Administration Services Management Area also plans to have its officials and the Defense Contract Audit Agency conduct quarterly audits of the contractor--to review and report to the Air Force on all direct material invoices and corresponding purchase orders to verify actual origin. The GAO concluded that, although the Air Force is taking action to ensure delivery of a U.S.-manufactured product, it is too early to tell whether the Air Force will comply with the statutory restriction prohibiting the use of funds to procure Now on pp, 13-14. foreign machine tools. (p.2, pp. 6-7, pp. 9-10, pp. 22-23/GAO Draft Report) DOD RESPONSE; Concur. The DOD concurs with the GAO conclusion that it is too early to predict whether the contractor will comply with the contractual requirements. The Air Force plans to comply with the statutory requirement. If the contractor does not comply, appropriate actions will be taken. It should be recognized, however, that it was not the Air Force responsibility, as a normal course of action, to require anything more than the contractor's certification regarding the domestic content of the item. The Air Force was required to obtain certification from the contractor that the item met the domestic content criteria. The contracting officer obtained the necessary certification. However, because of the concerns raised by the Congress and the GAO, the Air Force also requested the Defense Contract Administration Services Management Area to provide close surveillance to ensure contract compliance. FINDING D: Walsh-Healv Act Considerations, The GAO reported the Walsh-Healy Act, as implemented by the Federal Acquisition Regulation, requires that a contractor certify that it is either a manufacturer of, or a regular dealer in, the items to be delivered under a Government supply contract over $10,000. In addition, the GAO reported that the Federal Acquisition Regulation requires that new manufacturers have made all the necessary arrangements and commitments for manufacturing space, equipment, and personnel Y Page 27 GAO/NSIAD-W-73 Machine Tool Procurement Appendix III Comment.8 From the Department of Defense before contract award. The GAO further reported the Federal Acquisition Regulation requires that each offeror qualify in its own right as a manufacturer--and that an offeror's affiliation with, or relation to, another firm, even its parent company, are not evidence of the offeror's own eligibility. The GAO found that, at the time of contract award, the Italian Machine Tool Agency did not meet these requirements in terms of having the necessary prerequisites, such as a plant and equipment. The GAO found that, instead, the Air Force determined the contractor was qualified under Walsh-Healy requirements based on the contractor's certification and its parent company's status as a manufacturer. In addition, the GAO found that the contracting officer did not follow Federal Acquisition Regulation provisions which state the contracting officer must investigate and determine the eligibility of an offeror-- if the offeror has not previously been awarded a contract by the acquisition office. The GAO reported that the contracting officials explained they did not pursue the status of the Italian Machine Tool Agency as a manufacturer because (1) no one came forward before the award to protest its eligibility and (2) no information in the files cast doubt on the contractor's ability to perform. The GAO disagreed with that position--concluding that, under Federal Acquisition Regulation provisions, an investigation of eligibility should have been conducted. The GAO also observed that, although the Italian Machine Tool Agency did not qualify as a Walsh-Healy manufacturer at the time of contract award, it now appears to qualify, since it has the necessary resources. The GAO concluded, therefore, that the purposes of Walsh-Healy are being served. The GAO further observed that it found no evidence the contractor certification was not made in good faith. The GAO also concluded, therefore, that there is no basis to recommend termination of the contract. N&v on pp. 2, 14-15. (p. 2-3, pp. 7-10, pp. 23-25/GAO Draft Report) pOD wSPm=: Concur. The contracting officer did not comply with Federal Acquisition Regulation 22.608-2(b). However, failure to comply with this provision should not be interpreted to mean that the contractor did not comply with the provisions of the Walsh-Healy Act. I 8 Rasp0 n aibilitv. FIND;CNO: Det0m.i n atio n of the Contractor The GAO reported that, before awarding a government contract, a contracting officer must determine-that the prospective contractor is "responsible" in accordance with stated Federal Acquisition Regulation criteria. According to the GAO, contracting officials made an affirmative determination of the Italian Machine Tool Agency's responsibility--based primarily on a report by the Better Business Bureau. The GAO pointed out that although the Federal Acquisition Regulation specifies the factors to be considered in Page 28 GAO/NSlAD-SO-73 Machine Tool Procurement AppendixIn Commenta From the Department of Defexwe determining whether a prospective contractor is responsible, the specific type and quantity of information used is left to the judgment of the contracting officer. The GAO observed that in this case, the contracting officer could have sought additional information to assess the contractor's responsibility. The GAO concluded, however, that there is no basis for questioning the contracting officer's determination that the Italian Machine Tool Now qn pp.3, 16-17. Agency was responsible. (p.3, pp. 9-10, pp. 2%27/GAO Draft Report) DOD RESPONSN: Concur. tfNDINO P: Jkleauaov and Timino oi! Site Vieita. The GAO found that after the contract had been awarded, the Air Force asked the Defense Contract Administration Services Management Area to visit the Italian Machine Tool Agency and determine its ability to perform the contract and meet the domestic content requirement. The GAO found that two representatives did visit the Italian Machine Tool Agency in 1988-- (1) touring the facilities and (2) interviewing the president. According to the GAO, both the Defense Contract Administration representatives concluded that the Italian Machine Tool Agency could meet the terms of the contract. The GAO concluded, however, that since this was the first manufacturing contract for the Italian Machine Tool Agency, as well as its first contract with the Government--it would have been prudent for the Air Force to have asked the contract administration staff to visit the Italian Machine Tool Agency and determine its ability to perform the contract. The GAO also concluded that, had a preaward visit/survey been conducted, the Air Force would have obtained more detailed information on the contractor's status as a manufacturer Nowon pp.17.18. necessary to make its Walsh-Healy Act determination. (pp. 28-29/ GAO Draft Report) Q$XJRESPONSN: Concur. ****e* BTIONS Page 29 GAO/NSIAD-90-73 Machine Tool Procurement Apbndix IV IYfajorContributors to This Report Ikin, Associate Director N$ional Security and $r~FmB~~~~t )AAccintnnt -YU-VVY*.V -a* vvvv- TXrprtnr International Affairs Curtis ’ L. Evans, Evaluator-in-Charge Division, Washington, D.C. ;Office of General Counsel (392484) Page 30 GAO/NSIAD-90-73 Machine Tool Procurement
Defense Contracting: Air Force Machine Tool Procurement Raises Buy American Questions
Published by the Government Accountability Office on 1990-02-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)