Foreign Acquisition Amendments (DFARS Case 2011-D017)

Summary:

DCN 20110606 includes a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to correct several anomalies resulting from recent changes relating to source of ball and roller bearing components, eligibility of Peruvian end products under trade agreements, and participation of foreign contractors in acquisitions in support of operations in Afghanistan.

Supplementary Information:

Background

DoD is amending the DFARS to correct several anomalies resulting from recent changes relating to source of ball and roller bearing components, participation of foreign contractors in acquisitions in support of operations in Afghanistan, and eligibility of Peruvian end products under trade agreements.

A. Restriction on Ball and Roller Bearings

DoD published a proposed rule, Restrictions on Ball and Roller Bearings (DFARS Case 2006-D029), in the Federal Register (75 FR 25167) on May 7, 2010 with request for comments. DoD received comments from three respondents and addressed the comments in the publication of the final rule (75 FR 76297) on December 8, 2010. DFARS Case 2006-D029 retained the existing definition of "bearing component". As used in DFARS part 225 and the DFARS clause 252.225-7016, "bearing component" means the bearing element, retainer, inner race, or outer race (see 252.225-7016(a)). However, that rule added a new requirement at 225.7009-2(a)(2) and 252.225-7016(b)(2) that for each ball or roller bearing, the cost of the bearing components "mined, produced, or manufactured" in the United States or Canada must exceed 50 percent of the total cost of the bearing components of that ball or roller bearing.

The phrase "mined, produced, or manufactured" was adopted from the Buy American Act, which applies broadly to many types of items. This rule applies only to bearing components, which are manufactured items and not mined or produced. As used in the DFARS, the term "bearing component" does not refer to the materials that are utilized in the manufacture of the bearing components. There is no restriction with regard to where the iron ore is mined or where the resultant steel in a bearing component is produced. The requirement at 225.7009-2(a)(2) and 252.225-7016(b)(2) that for each ball or roller bearing, the cost of the bearing components "mined, produced, or manufactured" in the United States or Canada must exceed 50 percent of the total cost of the bearing components of that ball or roller bearing, has the same meaning as a requirement that for each ball or roller bearing, the cost of the bearing components "manufactured" in the United States or Canada must exceed 50 percent of the total cost of the bearing components of that ball or roller bearing. The words "mined" and "produced" are extraneous because they are inapplicable, since a ball or roller bearing is manufactured and not mined or produced. Therefore, this final rule under DFARS Case 2011-D017 removes the words "mined, produced, or" and retains only the term "manufactured", to clarify the definition and alleviate any confusion these extraneous words may cause industry or Government personnel.

This final rule also makes a conforming change to the clause date for 252.225-7016, Restriction on the Acquisition of Ball and Roller Bearings, in the clause at 252.212-7001, Contract Terms and Conditions Required to Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items.

B. Foreign Participation in Acquisitions in Support of Operations in Afghanistan

DoD published a proposed rule, "Foreign Participation in Acquisitions in Support of Operations in Afghanistan" on January 6, 2010 (DFARS Case 2009-D012)(75 FR 832), with request for public comments. DoD did not receive any public comments on the proposed rule. DoD published the final rule in the Federal Register (75 FR 81915) on December 29, 2010.

Although no public comments were received, DoD realized that the requirement for a contractor to inform its government of its participation in the acquisition should only apply if the contractor is from a South Caucasus/Central and South Asian (SC/CASA) state. The United States Trade Representative, when providing authority to the Secretary of Defense to waive the procurement prohibition in section 302(a) of the Trade Agreements Act of 1979 (USTR letter of June 2, 2009), included the provision that contractors from the SC/CASA states, which would not have been eligible to participate in the acquisition absent the waiver, advise their governments that they will generally not have such opportunities in the future unless their governments provide reciprocal procurement opportunities to U.S. products and services.

This requirement has meaning only when applied to a contractor from an SC/CASA state, to which the waiver applies. The required statement that the contractor would not have been eligible to participate in the acquisition absent the waiver would not be true for a contractor from other than an SC/CASA state. It would also be meaningless to ask a U.S. contractor to notify its government (the U.S. Government) that it should provide reciprocal procurement opportunities to U.S. products and services. However, the proposed rule did not explicitly limit the application of this requirement to contractors from an SC/CASA state.

The final rule under DFARS Case 2009-D012 revised paragraph (d) of Alternate II of DFARS clause 252.225-7021, Trade Agreements, to limit applicability to contractors from an SC/CASA state. The final rule inadvertently omitted similar amendment of the same requirement in paragraphs (d) of Alternates II and III of DFARS clause 252.225-7045, Balance of Payments Program--Construction Material Under Trade Agreements.

This final rule under DFARS Case 2011-D017 remedies that oversight, adding "If the Contractor is from an SC/CASA state" to paragraph (d) in Alternates II and III of DFARS clause 252.225-7045, Buy American Act--Free Trade Agreements--Balance of Payments Program Certificate, to conform to the same revision made under DFARS Case 2009-D012 to paragraph (d) of Alternate I of DFARS clause 252.225-7021.

C. Trade Agreements--Peru

The Peruvian Free Trade Agreement was initially implemented by DFARS Case 2008-D046, Trade Agreement--Costa Rica and Peru, that was published as an interim rule with a request for public comment (74 FR 37650). No public comments were received and the interim rule was converted to a final rule without change on July 29, 2009 (75 FR 179). This final rule added Peru to the definition of "Free Trade Agreement country" in DFARS clauses 252.225-7021, 252.225-7036, and 252.225-7045.

In order to make some further implementation of the Peru Free Trade Agreement in the trade agreements clauses, DoD utilized the final rule issued under DFARS Case 2009-D012, although the issue of the Peru Free Trade Agreement was peripheral to the main purpose of that case. DoD added a definition of Peruvian end products and added Peruvian end products to the Free Trade Agreement country end products that are not eligible products in the provision and clause at DFARS 252.225-7035 and 252.225-7036. This is consistent with the Peru Free Trade Agreement and the FAR, and ensures that Peruvian end products are not erroneously treated as eligible products in acquisitions that do not exceed the World Trade Organization Government Procurement Agreement threshold.

This change, however, created an inconsistency between Alternate I and the basic clause 252.225-7035. The basic clause now includes in paragraph (b)(2) the phrase "Free Trade Agreement country end products other than Bahrainian end products or Moroccan end products, or Peruvian end products." The Alternate I, which limits the applicable Free Trade Agreements to just Canada, misquotes the phrase that is to be removed and replaced with the phrase "Canadian end products."  Alternate I still quotes the old unrevised phrase as "Free Trade Agreement country end products other than Bahrainian end products or Moroccan end products" and leaves off "or Peruvian end products" that was added by 2009-D012 final rule. Even though this phrase is being removed by Alternate I, the misquote creates an inconsistency, which might cause some confusion, although all of the corresponding regulations make it clear that the Peruvian Trade Agreement does not apply below the threshold of $70,079, when Alternate I is used (see threshold at FAR 25.402(b), clause prescription at DFARS 225.1101(10)(i), and comparable FAR clause 52.225-3 Alternate I).

These DFARS changes are characterized as clarifications and corrections to DFARS language that do not constitute significant revisions, as defined in FAR 1.501-1, because they do not alter the substantive meaning of the coverage.

Dates:

The Effective Date for this final rule is 6 June 2011.

Click here to read the entire Federal Register notice for this rule.