Applicability of Cargo Preference Act of 1954 to Subcontractors on Federal Contracts

GAO believes the Cargo Preference Act is applicable to subcontractors where the subcontracted item is the end product or service that the United States is essentially contracting for or the subcontracted item or service is clearly identified to a government contract. This law was enacted to assure that at least 50 percent of government-sponsored cargoes transported on ocean vessels would be moved on privately-owned United States flag ships. The legislative history of the Act supports a broad application of the Act to federally owned or financed ocean cargoes purchased here or abroad. The language literally does not refer to subcontractors. A subcontractor or supplier of raw materials, as an example, may not necessarily identify a particular shipment as consigned for a government contract. The Act cannot be applied where there is an inability to identify particular purchases as government financed. Application of the Cargo Preference Act to particular shipments will depend upon the circumstances and specific facts of each case. Individual agencies have certain discretion to determine when the Act does apply. GAO would not question such a determination without substantial evidence that the agency's action operated as a device to evade the purpose of the Act.