Government Contracts VA Erred in Construing and Applying Trade Agreements Clause
Monday, August 13, 2018

VA Erred in Construing and Applying Trade Agreements Clause

By Government Contracts Editorial Staff

A protester prevailed in its challenge to a solicitation for a hepatitis medication because the Court of Federal Claims agreed the Department of Veterans Affairs did not construe and apply the solicitation’s Trade Agreements clause properly, the solicitation included a provision that was inconsistent with the clause, and the VA improperly relied on the Customs and Border Protection’s country-of-origin determination. The solicitation for Entecavir Tablets incorporated the TA clause, FAR 52.225-5, and included a Trade Agreements Certificate. FAR 52.225-5(b) requires the awardee to supply “only U.S.-made or designated country end products.” The protester, which distributed Entecavir Tablets manufactured in the United States with the active ingredient sourced from India, contended the government misconstrued the TA clause as preventing the purchase of products that qualified as domestic end products. The government countered that whether a product was a domestic end product had no bearing on whether the product was a U.S.-made end product, and the Trade Agreement Act’s rule of origin was the proper test for determining whether an offered product was a U.S.-made or designated country end product.

Domestic End Products. However, FAR 52.225-5(a) defines a “U.S.-made end product” as “an article that is mined, produced, or manufactured” or “substantially transformed” in the U.S. Products manufactured in the U.S. are domestic end products, and the fact that a trade agreement applies to a procurement does not prevent the government from procuring domestically sourced products. The VA’s responses to the protester’s questions indicated it misconstrued the TA clause because it did not consider the term “U.S.-made end product” to include domestic end products. In addition, by directing manufacturers to certify that the offered products were “[Trade Agreements Act] compliant,” the VA directed offerors to affirmatively represent that their Entecavir Tablets were “wholly” manufactured or substantially transformed in the U.S. or a designated country in accordance with the Act’s rule of origin. This requirement conflicted with the solicitation’s TA clause and TA Certificate, which did not require that the end product be “wholly” manufactured in the U.S.

Outsourced TA Determination. It also was improper for the VA to rely on a CBP country-of-origin determination in concluding the manufacturing location of the protester’s tablets was India, which was not a Trade Agreement Act designated country. Procuring agencies and contracting officers are responsible for ensuring compliance with pertinent law and regulations when procuring goods and services, and the government identified no Federal Acquisition Regulation provision that directs procuring agencies to refer TA clause compliance issues to CBP. In addition, Trade Agreements Act provisions indicate CBP has authority to determine whether a product is “wholly” manufactured in a foreign country in accordance with the Act’s rule of origin, but it does not have authority to address the threshold question of whether an offered product is a U.S.-made end product under the TA clause. Although the protester did not offer the lowest price, the government’s improper conduct would severely diminish the protester’s ability to compete for other national contracts. The court granted declaratory and injunctive relief requiring the VA to construe the term “U.S.-made end product” in the TA clause as including domestic end products and prohibiting the government from relying on CBP country-of-origin determinations instead of independently ascertaining whether an offered product is manufactured in the U.S. (Acetris Health, LLC v. U.S., FedCl, 62 CCF ¶81,433).

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