Cargo-scanning subcontract spurs ‘Buy American’ dispute

Last year, Congress gave the U.S. Agency for International Development $50 million to provide security systems to scan commercial cargo leaving and entering the West Bank and the Gaza Strip. The prime contractor recently eliminated two firms as potential subcontractors, leaving a partnership of Chinese and American companies that the rejected firms say violates the spirit, although probably not the letter, of "Buy American" laws.

USAID awarded the prime contract to Chemonics International Inc., a global consultancy, and in April, Chemonics began receiving proposals from subcontractors who could sell it mobile X-ray scanners. That's when things got complicated.

In June, one of those subcontractors, Rapiscan Systems, a Hawthorne, Calif.-based security systems company, received a letter from Chemonics that said its proposal did not meet minimum mandatory requirements. Rapiscan had offered to provide its new product, the Eagle Mobile scanner, and Chemonics required the equipment to have been around at least two years.

"We were pissed," said Peter Kant, vice president of government affairs for Rapiscan. He said the two-year requirement doesn't make sense, because companies usually offer their most recent models. Moreover, he argued the decision violated the intent of various "Buy American" laws. He said he wants lawmakers to address the issue.

While Chemonics would not discuss the details of the procurement because it is ongoing, it appears that a Chinese company, Nuctech, which paired up with Billerica, Mass.-based American Science & Engineering, won the subcontract. A third subcontractor, Smiths Detection, also was told it was rejected about three weeks ago, leaving AS&E/Nuctech as the only remaining competitor. AS&E/Nuctech declined to comment for this article because the procurement is ongoing.

Executives at Rapiscan and Smiths Detection both said they have seen evidence that the AS&E/Nuctech team will manufacture its security equipment in China, an assertion AS&E would not comment on. Kim Nilson, director of the project for Chemonics, said all potential subcontractors, including AS&E/Nuctech, complied with sourcing requirements.

While building the equipment in China appears to be legal, Rapiscan and Smiths Detection said it is unfair to force them to compete for federal dollars against a Chinese company that can offer lower prices because of lower labor and regulatory costs.

"Where I have a problem is in the rules…. I have a problem with my taxpayer money going to a Chinese company," said Brook Miller, vice president for Smiths Detection. Miller's company is based in Britain but does significant manufacturing in the United States.

Smiths Detection would have made the security equipment for the subcontract in Tennessee, Miller said, adding he would like USAID to enforce a minimum U.S.-content requirement for its equipment. In this contract, the only sourcing requirement appears to have been that products will be shipped from the United States.

Kant added that allowing foreign companies to provide security equipment can create vulnerabilities at home. If hostile companies get their hands on the equipment being used by the United States and its allies, they can figure out how to fool the machines, he said. Partly for that reason, American companies are prohibited from selling such equipment to certain countries. Chinese companies, on the other hand, face no such restrictions.

Rapiscan and Smiths Detection also complained about the way Chemonics handled the procurement. After Miller received a short message informing him that his company was rejected, he said he could not get further details despite repeated requests. "We've been given no information on why," he said. Usually, he said, prime contractors offer a more detailed explanation with their rejections.

Nilson said she was aware that some of the subcontractors were unhappy with the results of the procurement. "Unfortunately, that happens a lot," she said.

Companies like Rapiscan and Smiths Detection, which lose procurements to prime contractors managing federal dollars, have little recourse.

"We protested," Kant said. "[Chemonics] said you can't protest, it's not a [Federal Acquisition Regulation] procurement." He said he complained to USAID as well, and the agency declined to take any action. The Government Accountability Office, which handles protests from prime contractors over disputes with federal agencies, does not have jurisdiction over subcontracting disputes.

USAID directed all questions about the subcontracting procurement to Chemonics.

"We haven't given up; we just have to go politically," Kant said. He is sending letters and meeting with staff members of the House and Senate appropriations committees, in hopes that they will review the contract and, if it turns out Chemonics has violated the intent of Buy American laws, ask USAID to revoke the contract.

"If you're intending companies to buy U.S.A., and this is a loophole -- you should look at it," Kant said. "If USAID can go around the [Federal Acquisition Regulation] and buy from the Chinese," he said, "then as a U.S. company, I will move all my stuff to Malaysia and make it low cost… But I don't think that's what [Congress] wants."