United Blower, Inc. v. Lycoming County Water and Sewer Authority

259 A.3d 960

UNITED BLOWER, INC.

v.LYCOMING COUNTY WATER AND SEWER AUTHORITY

G.M. McCrossin, Inc.

v.Lycoming County Water and Sewer Authority

Appeal of: Lycoming County Water and Sewer Authority

No. 3 MAP 2021

Supreme Court of Pennsylvania.

Argued: May 18, 2021

Decided: September 22, 2021

Joseph David Smith, Esq., Austin Paul White, Esq., McCormick Law Firm, Williamsport, for Appellant.

Theodore A. Adler, Esq., Thomas Owen Williams, Esq., Reager & Adler, PC, Camp Hill, Paul Aloysius Logan, Esq., Post & Schell PC, Philadelphia, for Appellee.

BAER, C.J., SAYLOR, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

OPINION

JUSTICE WECHT

In a case of first impression, we granted review to determine whether the Commonwealth Court properly calculated the "cost" of steel products under the Steel Products Procurement Act ("Steel Act" or "the Act"),¹ which requires that "75% of the cost of the articles, materials and supplies [of a steel product] have been mined, produced or manufactured" in the United States. 73 P.S. § 1886. Because we hold that the Commonwealth Court improperly calculated the cost of the steel products at issue, we reverse and remand.

I. The Steel Act

The United States’ willingness to combat domestic economic concerns with protectionist² measures dates to the earliest days of the republic.³ However, the modern trend of mandating the use of American-made products in public works projects dates to 1933 with the passage of the "Buy American Act,"⁴ which directs that "only ... articles, materials, and supplies that have been mined, produced, or manufactured in the United States ... shall be acquired for public use." 41 U.S.C. § 8302(a)(1). In the following decades, several states enacted similar statutes mirroring the federal act,⁵ and Pennsylvania was no exception. In 1978, the General Assembly passed the Steel Act, embodying "the policy of the Commonwealth of Pennsylvania that all public officers and agencies should, at all times, aid and promote the development of the steel industry of the United States in order to stimulate and improve the economic well-being of the Commonwealth and its people." 73 P.S. § 1883 ; see also id. § 1882 ("This act shall be deemed to be an exercise of the police powers of the Commonwealth for the protection of the health, safety and general welfare of the people of the Commonwealth.").

Section 4 of the Steel Act provides:

Every public agency shall require that every contract document for the construction, reconstruction, alteration, repair, improvement or maintenance of public works contain a provision that, if any steel products are to be used or supplied in the performance of the contract, only steel products as herein defined shall be used or supplied in the performance of the contract or any subcontracts thereunder.

Id. § 1884(a).

The Act's definition of "steel products" is at issue here. Specifically, we inquire whether a particular product that contains both foreign and domestic steel satisfies the domestic requirement. In relevant part, the Steel Act provides:

If a product contains both foreign and United States steel, such product shall be determined to be a United States steel product only if at least 75% of the cost of the articles, materials and supplies have been mined, produced or manufactured, as the case may be, in the United States.

Id. § 1886.

Regarding payments for non-conforming steel products, Section 5 of the Act provides:

No public agency shall authorize, provide for or make any payments to any person under any contract containing the provision required by section 4 unless, when unidentified steel products are supplied under a contract, such person has provided documentation including, but not limited to, invoices, bills of lading, and mill certification that the steel was melted and manufactured in the United States, which establish that such person has fully complied with such provision. If a steel product is identifiable from its face, such person must submit certification which satisfies the public agency that such person has fully complied with the provision required by section 4. Any such payments made to any person by any public agency which should not have been made as a result of this section shall be recoverable directly from the contractor, subcontractor, manufacturer or supplier who did not comply with section 4 by either such public agency or the Attorney General of Pennsylvania.

Id. § 1885(a).

II. Factual and Procedural History

G. M. McCrossin, Inc. ("McCrossin"), a contracting and construction management firm, served as the general contractor for the Lycoming County Water and Sewer Authority ("Authority") on a project known as the Montoursville Regional Sewer System Waste Water Treatment Plan, Phase I Upgrade ("Project"). In July 2011, McCrossin entered into an agreement with the Authority to supply eight air blower assemblies, which move air from one area to another inside the waste treatment facility. In August 2011, McCrossin and the Authority agreed to a change order for McCrossin to supply and install three new digestive blowers to replace existing digestive blowers. The change order was approved, and United Blower, Inc. ("UBI"), became a subcontractor on the Project. UBI was to supply the eight blowers required by the original specifications and was to replace the three digestive blowers as required by the change order.

UBI prepared a submittal for the blowers which McCrossin in turn submitted to the Authority's Project engineer, Brinjac Engineering ("Brinjac"). As part of the submittal, McCrossin provided Brinjac and the Authority with an ST-3 form,⁶ which verified that 75% of the cost of the blowers was attributable to articles, materials, and supplies ("AMSs") that were mined, produced, or manufactured in the United States. The total amount McCrossin paid UBI for the blower assemblies and digestive blowers was $239,800. The amount paid by the Authority to McCrossin for these items was $243,505.

Authority employees began to question whether McCrossin and UBI provided products that complied with the Steel Act.⁷ Ultimately, the Authority held a hearing on the matter on September 23, 2014. Thereafter, the Authority issued an adjudication in which it determined that, while McCrossin and UBI had not willfully violated the Steel Act, they had failed to provide steel products as defined therein.

McCrossin and UBI appealed the Authority's adjudication to the Lycoming County Court of Common Pleas. The trial court remanded the matter to the Authority to be heard by an independent hearing officer and directed the officer to issue findings of fact and conclusions of law for adoption by the Authority, which would nullify and supersede the Authority's previous findings of fact, conclusions of law, and adjudication. The Authority adopted the hearing officer's ensuing findings and conclusions, and issued its adjudication on December 6, 2017.

Relevant to the present appeal, the hearing officer addressed whether 75% or more of the steel products provided by UBI were manufactured in the United States as required by the Steel Act. To that end, the hearing officer examined a 10% deduction that UBI applied to the costs of blower components purchased from third parties. These third parties provided letters attesting that 10% of the costs listed on their invoices encompassed importation, warehousing, and shipping, while the other 90% represented the value of the foreign component being sold. Applying the 10% deduction, the total cost of the foreign components came to $59,655. Comparing that amount to the amount UBI charged McCrossin ($239,800), the hearing officer concluded that the foreign steel costs came to 24.88% of the total cost of the Project. This percentage was lower still if compared to the amount McCrossin charged the Authority ($243,505). However, the hearing officer found it inappropriate to allow the 10% deduction because the invoices did not itemize the specific costs of importing, storing, and shipping the components. Thus, without the 10% deduction, the foreign steel costs came to $67,340, which exceeds 25% regardless of the chosen denominator.⁸

The hearing officer also determined that the appropriate denominator was the amount McCrossin paid UBI, not what the Authority paid McCrossin. As the hearing officer explained:

[W]hen determining the total cost of the steel product (the [denominator] of the equation), it is most appropriate to use the cost to McCrossin, not the cost to the Authority. Otherwise, simply by marking up the cost of the steel product more, the contractor could create a result that would result in a determination that the product is domestic rather than foreign. To comply with the requirements of the [Steel] Act, the cost to the contractor is the appropriate measuring stick, not the price that the contractor charges the customer.

Hr'g Officer's Adjudication at 12. Therefore, the hearing officer calculated the foreign steel costs as 28% of the total ($67,340 divided by $239,800).

In sum, the hearing officer reached the following conclusions of law:

The blower assemblies contain both foreign and United States steel.

The blowers inserted into the pre-existing assemblies at the Authority's plant ... contain solely foreign steel.

* * * *

Less than 75% of the cost of the steel in the blower assemblies and blowers, when considered as a unit, represent steel that has been mined, produced, or manufactured in the United States.

The blower assemblies and blowers, when considered as a unit, are not "United States steel products" as defined by the Act.

Id. at 14 (numbering omitted).

McCrossin and UBI appealed. On July 31, 2019, the trial court reversed the Authority's adjudication. The court found, inter alia , that the hearing officer and the Authority did not properly calculate the United States-based steel content of the blowers under review. The court held that the hearing officer should have taken into account evidence of UBI's vendors’ "markups," and that, if this...