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For those who don't like acronym overload in a post without definitions --

BAA: Buy American Act

TAA: Trade Agreements Act

COTS: commercial off the shelf item, defined in 2.101 as the same thing that is sold commercially, no modifications or 'of a type.'

Both the BAA and TAA require construction material to be "domestic", meaning it must be made in the US and have at least 50% US content. However, the content test is waived for COTS items.

Here's the situation: several things used in construction are items that are assembled from several COTS items and brought to the site as a larger assembly. For example, some air handling units consist of ducts, controls, actuators and valves. Each of those things are COTS, in that they are sold as is to all customers. However, the final configuration may be unique to that project. The manufacturers allow customers to configure the air handler from a list of the components in a catalog, and some even have a "configurator" on their web site. So a commercial customer might need valve A, while the government project might need valve B.

Here's the question: If the air handler is brought to the project site in its pre-assembled form, is it a COTS item, even if it is not the exact configuration sold to a commercial customer? Related question: Do each of the components remain COTS items, if they get pre-assembled into an air handler offsite? In other words, whether looked at as a whole air handler or as ducts, actuator, valve, etc, is it all COTS?

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I will take a stab at this……

FAR 25.003 provides this definition –

“Construction material” means an article, material, or supply brought to the construction site by a contractor or subcontractor for incorporation into the building or work. The term also includes an item brought to the site preassembled from articles, materials, or supplies. However, emergency life safety systems, such as emergency lighting, fire alarm, and audio evacuation systems, that are discrete systems incorporated into a public building or work and that are produced as complete systems, are evaluated as a single and distinct construction material regardless of when or how the individual parts or components of those systems are delivered to the construction site. Materials purchased directly by the Government are supplies, not construction material.

FAR 2.1 provides this definition -

“Commercially available off-the-shelf (COTS) item-”

(1) Means any item of supply (including construction material) that is-

(i) A commercial item (as defined in paragraph (1) of the definition in this section);

(ii) Sold in substantial quantities in the commercial marketplace; and

(iii) Offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial marketplace; and

(2) Does not include bulk cargo, as defined in 46 U.S.C. 40102(4), such as agricultural products and petroleum products.

Your questions –

Q. If the air handler is brought to the project site in its pre-assembled form, is it a COTS item, even if it is not the exact configuration sold to a commercial customer?

A. No, because “it is not the exact configuration” therefore it does not meet “in the same form” standard.

Q: Related question: Do each of the components remain COTS items, if they get pre-assembled into an air handler offsite? In other words, whether looked at as a whole air handler or as ducts, actuator, valve, etc, is it all COTS?

A. No, because the preassembled air handler is brought to the site it is a construction material therefore the air handler must meet the standard of COTS not its individual parts.

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Fara, you said:

"Here's the situation: several things used in construction are items that are assembled from several COTS items and brought to the site as a larger assembly. For example, some air handling units consist of ducts, controls, actuators and valves. Each of those things are COTS, in that they are sold as is to all customers. However, the final configuration may be unique to that project. The manufacturers allow customers to configure the air handler from a list of the components in a catalog, and some even have a "configurator" on their web site. So a commercial customer might need valve A, while the government project might need valve B."

Carl, How do you know that valve b isn't available and sold to some commercial customers, too? Fara didn't say that valve b is unique to the government or can't be simply incorporated into the manufacturers product.

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Guest Vern Edwards

Fara Fasat:

Are these fair interpretations of your questions?

  1. Can the CO for a construction acquisition consider an item to be COTS that does not itself meet the definition of COTS, but is assembled entirely from COTS components?
  2. Can domesticity be determined on the basis of the individual COTS components of an assembly that is brought to the construction site, instead of on the basis of the assembly itself?

If so, then I agree with C_Culham's answer to your first question. The air handler assembly (air handler) does not qualify as COTS based on the information that you provided, and I do not know of any rule or case law interpretation that says that an item that does not itself meet the definition of COTS can be treated as domestic construction material under the (2)(ii) rule if it is assembled entirely from COTS components. However, I do not agree that the components are no longer COTS once they have been assembled as an air handler. I think that the individual components are still COTS. However, I think that is irrelevant to what I think is your second question. You cannot comply with Buy American by determining that the components of the assembly are COTS instead of by making that determination for the assembly itself.

An item that meets the FAR 2.101 definition of COTS can be treated as domestic construction material without consideration of the costs of its components. See FAR 52.225-9(a), definition of domestic construction material, paragraph (2)(ii) [the "(2)(ii) rule"].

An item must be construction material as defined in FAR 52.225-9(a) in order to be domestic construction material. According to an article published in American Law Reports in 2003 (185 A.L.R. Fed. 253), and that was based on extensive analysis of GAO and board of contract appeals decisions and a decision of the Federal Circuit, items that are brought on site and then assembled are construction materials (as opposed to components), but the resultant assembly is not. According to the article, this interpretation of the law is called the "construction site rule." See the article, §§ 4 and 8.

Here is the construction site rule as applied by the ASBCA in Mauldin-Dorfmeier Construction, Inc., 93-2 BCA ¶ 25790, ASBCA No. 43633, Feb. 5, 1993:

The record establishes that the steel pipe fittings and flanges at issue in this appeal were delivered separately to the construction site in their manufactured condition by appellant's mechanical subcontractor, Richards. There they were welded and connected to other parts that comprised the complete water condenser system. Since the water condenser system was not brought to the construction site in a fully constructed or preassembled condition, each of its constituent parts must be regarded as ‘construction materials,‘ not ‘components.‘ George Hyman Constr. Co., ASBCA No. 13777, 69-2 BCA par. 7830 at 36,389; see Allen L. Bender, Inc., ASBCA No. 38068, 89-3 BCA par. 22,092 at 111,098; cf. 46 Comp. Gen. 813 (1967) (foreign motors assembled with and mounted on complete circulating water pump units treated as ‘components‘).

According to Westlaw, that decision has not been overruled or contradicted. The logical obverse of that rule is that an item assembled off site and then brought on site as an assembly is construction material, but its components are not. They are components as defined in FAR 52.225-9(a). The GAO decision cited in the board decision, 46 Comp. Gen. 813, B-161061, 1967 CPD ¶ 16, May 22, 1967, appears to support the obverse interpretation--the components of off site assemblies are just that, components, not construction materials.

If the ALR article and Mauldlin-Dorfmeier still reflect the law in 2015, and if the logical obverse to the construction site rule applies, then it is the assembly that is brought on site (the air handler), and not its COTS components, that is construction material. The components are COTS, but they are not construction material, and thus cannot be domestic construction material. The assembly must itself be COTS in order for it to be considered domestic construction material under the (2)(ii) rule. It cannot be considered COTS on the ground that it was assembled entirely from COTS components, because the waiver applies to construction material, and its components are not considered construction material.

The COTS components cannot separately be considered to be domestic construction material, in lieu of consideration of the assembly, because they do not qualify as construction material, since they were brought on site as components of the assembly.

Edited by Vern Edwards
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Joel - In all honestly I do not remember reading the value A, value B example in the OP when I responded. Must have missed it.

As to your question,my first reaction is that your question is appropriate but only if you drop the "available" as it appears that B, by the COTS definition, must be sold in, "substantial quantities".

Likewise this statement in your post is confusing "simply incorporated into the manufacturers product." By my read of the OP now is that either value A or value B is the air handler and as such when delivered to the site is the "material".

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Thanks Vern. Those look like good resources. I intend to read them more thoroughly Monday. In the meantime, a quick review looks like they say that the item that is brought to the job site is the construction material. I kind of figured that based on my reading of the definitions.

I think an unintended consequence of that definition is that it can be used to achieve the result that is needed. If you need the components to be the construction material, then bring them onto the site separately and then assemble and/or install in the building. If you need the assembly to be the construction material, pre-assemble it offsite if possible. Many things besides air handlers can have those options, such as control panels or electrical panels.

A related question: what is the difference between the first and second sentences of the construction material definition? The first sentence says it is an item brought to the site; the second sentence says it is also an item preassambled and brought to the site. If an item is preassembled and brought to the site, doesn't that already fit the first sentence? I can't figure it out, but maybe I'm missing something obvious?

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C Culham - valves A and B both meet the COTS definition. In configuring its air handler, the government chose B. Because of all the configurations possible ((all ducts) X (all controls) X (all actuators) X (all valves)), the final assembly put together by the government does not match any other. Similarly, the final assembly put together by a commercial customer is not likely to match another customer's either.

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Guest Vern Edwards

Fara:

I think an unintended consequence of that definition is that it can be used to achieve the result that is needed. If you need the components to be the construction material, then bring them onto the site separately and then assemble and/or install in the building. If you need the assembly to be the construction material, pre-assemble it offsite if possible. Many things besides air handlers can have those options, such as control panels or electrical panels.

What makes you think it is an unintended consequence? Maybe they just wanted to make the intention clear -- the determination is to be based on the item brought to the site, not its components.

[W]hat is the difference between the first and second sentences of the construction material definition? The first sentence says it is an item brought to the site; the second sentence says it is also an item preassambled and brought to the site. If an item is preassembled and brought to the site, doesn't that already fit the first sentence? I can't figure it out, but maybe I'm missing something obvious?

I think that the purpose of the second sentence in the definition is to confirm that it's the item delivered to the site that counts, and not its components. It rules out any loophole interpretation about the focus of the domesticity decision.

That definition is quite old.

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To meet the Rule of Origin test an article has to be “substantially transformed into a new and different article.” Acceptable would be actual manufacturing and/or meaningful and complex assembly. The gist of this is that to qualify, most of the value in the product must originate in the “designated country”.

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Guest Vern Edwards
The gist of this is that to qualify, most of the value in the product must originate in the “designated country”.

TAP:

I think that bears on application of the Trade Agreements Act, not the Buy American Act. Thus you're talking about FAR 52.225-11, not 52.225-9. I don't think the "rule of origin" applies to the determination of what is domestic construction material. I think it's a different test under Buy American.

Am I wrong?

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Vern,

I may have mixed up some TAA terminology here, but I think to determine the country of origin it's essentially the same. I had a contractor who wanted to "assemble" non-domestic construction material (in this case a large AHU that comes from the manufacturer in sections) on-site and call it "domestic". Naturally I told him no. He then asked what if they assembled it off-site? I told him that such assembly doesn't substantially transform the AHU and therefore wouldn't qualify as "domestic". Not to mention the sections would come from Canada, the contract was below the TAA threshold, and the AHU would have to be disassembled first to physically fit into the mechanical room and then reassembled. They had to substitute an American made AHU for the Canadian made one they were planning to use for the project.

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The BAA uses a "manufactured" test as the first part of the two-part test for "domestic" (the second part being the 50% US content test). The TAA uses a "substantial transformation" test to determine the country of origin. The few cases that discuss the difference suggest that it might be easier to meet the "manufactured" test, for example some simple assembly processes that might not constitute substantial transformation.

There is a significant difference between supply contracts and construction contracts in how US products are treated when you go above the TAA threshold. For a supply contract subject to the BAA, an end product must be domestic. When the contract is above the TAA threshold, the US product need only be "US-made", meaning it no longer has to meet the US content test. See 52.225-5(b ). For a construction contract, the US construction material must be domestic both for the BAA and the TAA. That's why the COTS exception to the content test is a big deal for construction.

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Guest Vern Edwards

Vern,

I may have mixed up some TAA terminology here, but I think to determine the country of origin it's essentially the same. I had a contractor who wanted to "assemble" non-domestic construction material (in this case a large AHU that comes from the manufacturer in sections) on-site and call it "domestic". Naturally I told him no. He then asked what if they assembled it off-site? I told him that such assembly doesn't substantially transform the AHU and therefore wouldn't qualify as "domestic". Not to mention the sections would come from Canada, the contract was below the TAA threshold, and the AHU would have to be disassembled first to physically fit into the mechanical room and then reassembled. They had to substitute an American made AHU for the Canadian made one they were planning to use for the project.

TAP:

Your anecdote about what you told a contractor does not prove anything. Give us some facts to back up your thinking. I frankly think you erred in what you told the contractor, if the issue was domesticity under the Buy American Act.

I checked the decisions of the boards of contract appeals and the COFC and could not find a single case in which "substantial transformation" was an issue in a BAA determination of construction material domesticity. It showed up as an issue only with respect to determinations of country of origin under the TAA. The BAA uses a cost percentage test for construction material domesticity, not a substantial transformation test, and waives the cost percentage test for COTS items. See e.g., CompuAdd Corp. v. Department of the Air Force, 93-2 BCA ¶ 26123, GSBCA 12301-P, May 10, 1993:

Note that, unlike the BAA (Buy American Act), the TAA does not embrace a cost based test to determine compliancy. The determining factor is not whether more than 50 percent of the cost of the system is composed of TAA compliant products. The test - if products from several countries are used - is whether component parts have been substantially transformed within an appropriate country.

See also Klinge Corp. v. U.S., 82 Fed. Cl. 127 (2008).

I stand ready to be corrected on the basis of evidence, not anecdote.

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As the Canadian made AHU sections weren't manufactured in the United States I don't see how I erred. Simple assembly of those section doesn't constitute being manufactured in the United States.

52.225-9 Buy American-Construction Materials.

“Domestic construction material” means-

(1) An unmanufactured construction material mined or produced in the United States;

(2) A construction material manufactured in the United States, if-

(i) The cost of its components mined, produced, or manufactured in the United States exceeds 50 percent of the cost of all its components. Components of foreign origin of the same class or kind for which nonavailability determinations have been made are treated as domestic; or

(ii) The construction material is a COTS item.

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Guest Vern Edwards

TAP:

This is from your post #11:

I had a contractor who wanted to "assemble" non-domestic construction material (in this case a large AHU that comes from the manufacturer in sections) on-site and call it "domestic". Naturally I told him no. He then asked what if they assembled it off-site? I told him that such assembly doesn't substantially transform the AHU and therefore wouldn't qualify as "domestic".

​Now, if the issue was whether the AHU was domestic construction material under the BAA and FAR 52.225-9, the substantial transformation test did not apply. Instead, the cost percentage test applied. Thus, you erred in saying that the AHU was not domestic because the off-site assembly wouldn't substantially transform the item.

Do I misunderstand what happened?

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No, you understood correctly. It appears I misunderstood or misremembered some guidance I was given years ago on the subject by our lawyer. But the components (AHU sections) weren't domestic anyways, so in this case it really didn't matter. Thanks for straightening me out though. I learn something new every day.

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Since this forum is a source of guidance for many people, we should be as accurate as possible. The test for domestic construction material under the BAA is a two-part test, not just cost percentage. Specifically, to be domestic, construction material must be 1) manufactured in the US, and 2) consist of at least 50% US-made content, measured by cost.

For example, an item manufactured outside the US, even if composed of 100% US-made content, would not be domestic. In addition, an item manufactured in the US, but with less than 50% US content, would not be domestic. I have a diagram I use in training that shows how a product with less overall US labor and content would get preference over a product with more, because it met the domestic test whereas the latter did not.

Keep in mind also that the standard for "manufactured" is probably less than that for "substantial transformation." Tap's AHU probably would have met the manufactured standard by being assembled off site, but the individual sections were its components, and being made in Canada, would still cause it to fail the domestic test. If the sections were first brought onsite and then reassembled, then the sections would have been the "construction material", not the whole AHU, and would have had to meet the domestic test individually. Being made in Canada, they would fail.

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I think we can close out the original question now. I have reviewed that ALR article and it does answer the question of "what is construction material." The cases are pretty consistent that construction material is something that is brought to the construction site, in the form that it is brought to the site. The cases candidly admit that this makes the definition depend on the method of delivery rather than the nature of the item, and that this can lead to results that differ from project to project.

So to my original question, the answer is that if the AHU is brought to the site assembled, then it is the construction material, and it must meet the COTS definition if you want the advantage of the COTS exception to the content test. If the duct, valve, actuator, and control are brought to the site separately and assembled onsite, then each one is construction material. In my scenario, they are all COTS.

That ALR article, while useful, had some faults. It described the test as the "substantial change" test, and it jumped back and forth between BAA and TAA concepts, without making it clear which one was being discussed. In one case, it described the holding of a case but omitted the word "not", which of course completely reversed the meaning of the case.

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Guest Vern Edwards

That American Law Report article is 103 pages long and analyzes the case law, which is very complex. It is "flawed" if it got the case law wrong. I don't know that it did, but I'll go back and check when I get a chance.

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