Agency Reasonably Applied Berry Amendment Exception to Raw Materials but Not Processed End Item; GAO B-416704.3, Mechanix Wear Inc.

Protest challenging solicitation’s domestic source restriction is denied, where the agency reasonably drew a distinction between separate stages of a manufacturing process, and required certain materials to be processed domestically. While the DFARS provides an exception to the application of the Berry Amendment to the raw materials, GAO found it reasonable for the agency to require certain processing to be done domestically, as the raw materials would be transformed into an item that is not subject to the exception. GAO also rejected the protester’s assertion that it had settled the issue in an earlier protest, because that challenge addressed only the raw materials, not the manufacturing process required to create the component needed for the end item.

Mechanix Wear Inc. protested the terms of the Defense Logistics Agency’s solicitation for combat gloves with capacitive capability, i.e., the capability to be used with touchscreens, arguing that the solicitation improperly applied the Berry Amendment to impose a domestic sourcing requirement on the processing of one of the glove components.

The RFP specifications required that the leather used in the gloves be made from goat and kidskin. As originally issued, the RFP stated that while pre-tanned goat/kidskin from foreign sources could be used, all tanning and processing of the goat/kidskin must be done domestically. However, DLA later amended the solicitation to state that all goat/kidskin must be 100 percent domestically sourced.

Mechanix Wear filed a pre-award protest of this restriction, which GAO sustained. DLA argued that the exception did not apply, because the agency’s market research indicated that goat/kidskins were available in sufficient quantity and quality to meet the agency’s needs. However, GAO disagreed, finding that the DFARS sections implementing the Berry Amendment do not require the agency to impose a domestic restriction on the goat/kidskins at issue here since this item qualifies for an applicable exception. GAO recommended the agency support its decision to require the gloves be made with domestic leather or remove the restriction.

DLA later amended the solicitation to return the language to the original. The solicitation now states that pre-tanned goat/kidskin may be used but that all tanning and processing must be done domestically. Mechanix also challenged this requirement.

The protester argued that the restriction is unreasonable and contrary to the Berry Amendment exception for goat/kidskins. The protester also argued GAO had already decided this issue in its earlier protest, and that DLA’s arguments to the contrary amount to an untimely request for reconsideration. Finally, Mechanix Wear argued that DLA’s interpretation of the relevant DFARS clause is inconsistent, because the agency asserts that foreign processing of the skins is permissible up to a certain point, but not permissible beyond that point.

First, GAO disagreed with the protester’s assertion that the earlier protest settled the issue. GAO explained that the earlier protest did not address the distinction between goat/kidskins and goat/kidskin leather, and its prior decision did not address the issue before us here, i.e., whether the tanning and processing of the goat/kidskins to turn them into leather is subject to the Berry Amendment’s domestic restrictions. Instead, that decision primarily considered whether the applicable regulations permitted DLA to override the non-availability exception for goat/kidskins, where the agency had determined that such skins were available in sufficient quantity and quality.

On the merits, the protester agued that because DFARS clause 252.225-7012(c) provides that “[t]his clause does not apply” to items listed at FAR 25.104(a), goat/kidskin (which is listed at FAR 25.104(a)) is not subject to the Berry Amendment’s domestic processing restrictions. In response, DLA noted that DFARS clause 252.225-7012 prohibits procuring an item, as either an end item or as a component of another item, if the item is not grown, reprocessed, reused, or produced in the United States.

For clothing such as the combat gloves at issue, DLA argued that that the production of each glove component, and each successive stage in the manufacturing of the gloves, must be performed domestically, unless an exception applies. Although there is an exception for one “component,” DLA argued this does not mean that subsequent manufacturing steps and components are similarly exempted. Accordingly, DLA maintained that the exception for goat/kidskins does not extend to the process used to manufacture goat and kidskin leather.

GAO found the agency’s interpretation reasonable. DFARS clause 252.225-7012(b) requires the contractor to deliver items, either as end products or components, that have been “grown, reprocessed, reused, or produced in the United States,” unless an exception applies. Barring an applicable exception, each successive manufacturing stage needed to produce the combat gloves, as well as each component of the gloves, must be performed within the United States.

GAO noted that while items listed in FAR 25.104(a), including goat/kidskins, qualify for an exception to this requirement, goat/kidskin leather is not listed at FAR 25.104(a). Because the tanning process fundamentally alters the nature of the product, GAO concluded that goat/kidskin and goat/kidskin leather were two distinct products. Based on that difference, GAO concluded that DLA reasonably differentiated between goat/kidskin in a pre-leather state, which is covered by the FAR § 25.104(a), and goat/kidskin leather, which is not.

Nonetheless, the protester argued that the exception applies to goat/kidskins and therefore to the processing, but GAO did not agree. GAO found that the clause provides that each end item and component delivered under the contract must be “grown, reprocessed, reused, or produced in the United States,” unless an exception applies. Because the tanning process results in the production of goat/kidskin leather, GAO found the agency reasonably interpreted the clause’s restriction on foreign manufacturing as imposing a restriction on the manufacture of the leather, even though the clause affords an exception for goat/kidskins in a pre-leather state.

The protester next argued that DLA’s interpretation is inconsistent, because the agency asserts that some processing of goat/kidskins can be performed outside the United States, while arbitrarily prohibiting other types of foreign processing. However, GAO disagreed, finding that the tanning stage is different from the earlier stages of processing of goat/kidskins, because tanning transforms the raw material to leather, and therefore the process can be reasonably characterized as a step in the manufacture of a new component.

GAO found nothing inconsistent in DLA applying a domestic restriction to this manufacturing step, but not to earlier processing steps. Further, until the skins have undergone the pre-tanning stage, they are generally unsuitable for transport from overseas, and therefore requiring the pre-tanning stage to be completed domestically would require the skins be sourced domestically as well. Interpreting the regulation in this way would effectively eviscerate the Berry Amendment exception for goat/kidskins.

Mechanix Wear Inc. is represented by Frank S. Murray, David T. Ralston Jr., Micah T. Zomer, and Krista A. Nunez of Foley & Lardner LLP. The government is represented by Allison Colsey Eck, Defense Logistics Agency. GAO attorneys Alexander O. Levine and Jennifer D. Westfall-McGrail participated in the preparation of the decision.