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Procurement Compass

April 29, 2024

Back to Basics – The Trade Agreements Act Remains a Material Compliance Risk for Government Contractors

By David Yang

At a time when supply chain and cybersecurity concerns have intersected, capturing the attention necessary to promote and safeguard the country’s national security interests, and where mutual compliance has focused on the ban of certain prohibited sources of telecommunications equipment or services and CMMC certification and related requirements, a recent U.S. Government Accountability Office (“GAO”) decision reminds contractors that compliance with longstanding rules under the Trade Agreements Act (“TAA”) remains a material consideration for contractors. 

In W&K Container, Inc., B-422234.2, 2024 WL 1237328 (Mar. 12, 2024), W&K Container, Inc. ("W&K") challenged the Defense Logistics Agency Troop Support’s award of a contract for transoceanic shipping containers to Intrepid Eagle Logistics, Inc. (“Intrepid”). The solicitation, in accordance with Defense Federal Acquisition Regulation Supplement (“DFARS”) 252.225-7021, required offerors to certify that their end products, here the containers, would be produced in the United States or in a trade designated/compliant country as required under the TAA. W&K argued that despite Intrepid’s certification that its containers would be produced in South Korea, a trade-compliant country, the certification was essentially false because the shipping container kits were from China (which is not a trade-compliant country) and their mere assembly in South Korea would not amount to the “substantial transformation” of the kits into final, TAA compliant container end products produced in South Korea.

Interestingly, when W&K raised these concerns to DLA Troop Support, and argued that the Chinese sources explained Intrepid’s substantially lower price, the agency asked Intrepid from where the container parts would be sourced, confirmed that the kits would be Chinese made, and the agency concluded that the assembly of the kits would not amount to their substantial transformation into trade compliant shipping containers even if the assembly occurred in South Korea. However, rather than terminate the contract, DLA Troop Support issued Intrepid a cure notice in response to which Intrepid provided a corrective action plan as to how it would become TAA compliant.

In its protest, W&K argued that Intrepid’s contract should be terminated because its proposal violated the TAA requirements in the solicitation. GAO, however, rejected the argument finding that agencies may rely on an offeror’s certifications in its proposal absent a reason to suspect their validity. GAO was unconvinced that those circumstances existed in the case despite the Chinese made kits likely explaining the reason for Intrepid’s much lower price and indications that this was perhaps not the first time that Intrepid’s TAA compliance had come into question and that the issue had been communicated to the DLA. Instead, GAO explained that the issues raised by W&K, including Intrepid’s intention to comply with the TAA, amounted to matters of contract administration that are not subject to GAO’s bid protest jurisdiction.

Reasonable minds may debate whether GAO’s ruling was correct, but the case demonstrates that TAA compliance remains highly relevant for government contractors. Indeed, while the protest was denied, it is believed that DLA Troop Support, for future acquisitions of such containers (and perhaps for other acquisitions), will require not only an offeror’s certification as to the TAA compliance of any end products but to identify the countries of origin of their component parts. Finally, it is worth noting that a TAA certification is material and can serve as a basis for False Claims Act violations and other remedies. As such, not only can noncompliance result in a contract but it can result in far more severe penalties. New or old, supply chain compliance will continue to be an important compliance area for contractors.