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A recent court ruling could reshape how agencies source under the Trade Agreements Act
Interview transcript
Terry Gerton Before we get into the case that we’re going to talk about today, can you give us a rundown of the difference between the Trade Agreements Act and the Buy America Act, because that plays into the case we’ll examine.
Dan Ramish Absolutely. So there are two domestic sourcing regimes that apply to government contracts, the Trade Agreements Act and the Buy American Act. And generally, the line between the two statutory regimes is dictated by the value of the procurement. So the Buy American Act applies to contracts that are below the free trade agreement thresholds. The most notable one is the World Trade Agreement Government Procurement Agreement, or WTO GPA, which has thresholds of 174,000 for supply and service contracts and then 6,708,000 construction contracts. The sort of basic difference is, of course, the Buy American Act has been around a long time and establishes preferences for American-made goods. The Trade Agreements Act kind of came in with the free trade movement and established equal treatment for trading partner countries. And there are also a number of other so-called designated countries, mostly developing countries. And the products of those countries can also be used along with domestic products. But there’s a critical point on how these two frameworks are applied, which is that the Buy American Act institutes a price preference, whereas the Trade Agreements Act prohibits procurement of foreign products that are not designated countries.
Terry Gerton Sounds like it could be a pretty confusing space for contracting officers, so I think it will be helpful to walk through this case. The Veterans Affairs Department was engaged in buying medical supplies and pharmaceuticals. Tell us about this particular case.
Dan Ramish Yes. So the procurement was for a drug called Prasugrel, which is a blood thinner that’s used to reduce risk of heart attacks and strokes. And the prasugrel was available to the VA on Cosette’s federal supply schedule contract and also on an open market basis. But the agency wanted to establish a standardized contract to obtain volume discounts essentially and have set prices that it could rely on and anticipated that the contract would be used both by the VA and also by other agencies, the Department of Defense and Indian Health Service and the Bureau of Prisons. And so they established in the solicitation fixed price indefinite delivery requirements contract that was gonna have a base year and four option periods. And so, they put this out for bid, Golden State Medical Supplies proposed a generic version of the Prasugrel drug that was manufactured in India. And India is not compliant with the Trade Agreements Act, they’re not a trading partner, not a developing country that is a designated country for TAA, so non-compliant with TAA. Cosette Pharmaceuticals proposed to supply a brand name version of the drug that was much more expensive. And their drug was manufactured in Germany, the active pharmaceutical ingredient was from Japan. Now, in some cases, they’re questions about which is the actual country of origin for Trade Agreements Act purposes, but both Germany and Japan are TAA compliant countries. So that wasn’t an issue. Everyone agreed that Cosette’s drug was compliant with TAA and Golden State Medical Supplies’ drug was not compliant. And there were a number of other drugs also from India that other offerors supplied, all generic. So the VA decided to award to Golden State Medical Supplies. They argued that the Trade Agreements Act exception applied because Cosette’s price was excessively high and they argued that the offer was therefore insufficient to fulfill the government’s requirement, which is one of the narrow exceptions of the Trade Agreements Act.
Terry Gerton I’m speaking with Dan Ramish. He’s a partner at Haynes Boone. So Dan, if you’re the contracting officer and you’re looking at this wide differential in prices, how would you know to make a choice one way or the other?
Dan Ramish Well, so the solicitation in this case was lowest price technically acceptable. So of course, the VA wanted to get the, you know, the lowest available price for these drugs, they’re standardized. And so it was understandable. And I think the court certainly saw where the agency was coming from in trying to get a good deal for the taxpayer. However, the court said, well, you have to look at the language of the statute and this exception for offers where no offers are received that meet the government’s requirement isn’t intended to encompass price. And in part, the court looked at the difference between the Buy American Act, which does actually specifically have an unreasonable cost exception, and the Trade Agreements Act, which only says, well, if you don’t receive any compliant offers or offers that meet the government requirement than you can procure from foreign sources.
Terry Gerton So the Court of Federal Claims sided with Cosette, the more expensive one that met the Trade Agreement Act requirements. What did the court say specifically about VA’s interpretation of the Trade Agreements Act?
Dan Ramish The VA’s approach was, in one part, to say that it was making use of this insufficiency to fulfill the government’s requirement exception. They also essentially excluded Cosette from the competitive range because of their price. And the court said, well, that approach wasn’t appropriate and didn’t comply with the Trade Agreements Act because you’re not allowed to effectively compare the price of a compliant, Trade Agreements Act product with non-compliant products, that that’s an apples to oranges comparison, and that that couldn’t be a valid basis for excluding Cosette from the competitive range.
Terry Gerton So does that mean that government agencies are locked into buying these really expensive products if they’re the only TAA compliant option? Do they have other choices? What did the court say about that?
Dan Ramish So the court pointed out that the statute, among other things, includes the option of a waiver issuance by the agency head, which is available on a case-by-case basis when it’s in the national interest. There was no waiver here. So the agency, if they felt there was a compelling interest, could have the agency head issue a waiver. They also could cancel solicitation, issue the drug, solicitation on the open market. And so they weren’t locked into making an award. And of course they needed to establish that there was a fair and reasonable price that they were paying for the award, but they couldn’t ignore the requirements of the Trade Agreements Act and award to a non-compliant offer when there was Trade Agreement Act compliant offer that was received.
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