Presentation on theme: "2 Note: This analysis is based on data available as of November 13, 2007. FY08 legislation was not considered, but is briefly summarized in the final."— Presentation transcript:
2 Note: This analysis is based on data available as of November 13, 2007. FY08 legislation was not considered, but is briefly summarized in the final UPDATE slides.
3 Objectives To provide a background and understanding of DOD specialty metals restrictions To demystify the complexities and exceptions of the restrictions To give contractors the framework and education to assess their applicable compliance requirements
4 Who was E.Y. Berry? Ellis Yarnal Berry (R) served as South Dakota's western district congressman from 1951 - 1971.
5 1 Nadler, D., Sherzer, H. G., & Mateer, M. C. (2006). New Department Of Defense Berry Amendment Guidance—Some Answers And More Questions. The Government Contractor, 48(46), 1. 2 Specialty Metals were added to the Berry Amendment via the FY72 Act. A Brief History of the Berry Amendment As discussed by Nadler, Sherzer, and Mateer 1 :Nadler, Sherzer, and Mateer 1 The Berry Amendment—The Berry Amendment is a law of ancient vintage that rarely was enforced until recent years. In general, it forbids DOD from using funds to procure certain items that are not 100 percent American-made. Originally enacted in 1941 as a war-time measure to ensure that our troops ate American food and wore American clothing, the Berry Amendment has grown expansively and now covers a wide range of items, including food, many textiles, tents, hand tools and specialty metals 2.
6 Does Berry include Specialty Metals? 1 Greenberg & Traurig (2006). FY 2007 Defense Authorization Act Introduces Procurement Reform: One- Time Waiver on Domestic Source Restrictions for Specialty Metals. ALERT: Government Contracts. The Berry Amendment is found at 10 U.S.C. § 2533a. However, Title VIII, Section 842 of the John Warner National Defense Authorization Act of 2007 moved the restriction on specialty metals into the newly created 10 U.S.C 2533b. While Greenberg Traurig 1 ALERT states that the Berry Amendment includes both “10 U.S.C. 2533a and 2533b”. There is currently confusion as to whether or not it is still accurate to continue to refer to specialty metals restrictions within the context of the Berry Amendment 2.10 U.S.C. § 2533aJohn Warner National Defense Authorization Act of 2007 10 U.S.C 2533bGreenberg Traurig 1 2 The Defense Acquisition University’s (DAU) course titled Berry Amendment (course CLC 125) does not list specialty metals as falling under the Berry Amendment. However, a 7/30/2007 DAU “Ask the Professor” Q/A provides some clarification that specific training is forthcoming—see: https://akss.dau.mil/askaprof-akss/qdetail2.aspx?cgiSubjectAreaID=14&cgiQuestionID=20654
7 Does Berry include Specialty Metals? Currently, the specialty metals restrictions, as described at DFARS 225.7002-1, state: “The following restrictions implement 10 U.S.C. 2533a (the ‘Berry Amendment’).” Therefore, there is currently no mention of 2533b within 225.7002-1. In summary, the argument is really a matter of semantics, as 10 U.S.C. 2533b is law.225.7002-1
8 Rationale for Restrictions 1.Protectionist position. This protectionist would contend that certain light weight / high strength metals and metal alloys are so critical to the national defense that the United States must ensure suppliers are available domestically (or at least available from certain “qualifying” countries for which there are international trade understandings/ agreements) to ensure that there is a timely and secure source. 2.Nationalistic position. The second argument supporting restrictions is purely nationalistic (i.e., flag-waiving). The specialty metals industry has a very large congressional lobbying effort to influence legislators that certain metals should be smelted domestically. The rationale for restricting the smelting of specialty metals is essentially two-fold:
9 Berry vs. Buy America 1 Greenberg & Traurig (2006). FY 2007 Defense Authorization Act Introduces Procurement Reform: One- Time Waiver on Domestic Source Restrictions for Specialty Metals. ALERT: Government Contracts. The Berry Amendment (including specialty metals restrictions) are not the same as the Buy American Act (41 U.S.C. 10a-d) nor the Trade Agreements Act (19 U.S.C. § 2501 et seq.) What may contribute to confusion is that 10 U.S.C. 2533a (the Berry Amendment), is not the same as 10 U.S.C. 2533(a) (i.e., Determinations of public interest under the Buy American Act.) In other words, Berry/specialty metals restrictions are requirements in addition to the Buy American Act and Trade Agreements Act. As summarized by Greenberg Traurig 1 : “Unlike the Buy American Act and the Trade Agreements Act, the Berry Amendment flows down the supplier chain in a manner that is much more burdensome than the other laws.”Greenberg Traurig 1
10 Compliance Complexities The extreme difficulty and even impossibility for some contractors to comply with specialty metals restrictions is widely recognized—not only among contractors but also within the DOD. For example: Chierichella & Gallacher 2007 1 summarize the following compliance burden brought before the House Armed Services Committee: “2,200 man hours to review documentation measuring eight inches thick relating to 4,000 parts to support a waiver involving $14,000 of DOD funds.”Chierichella & Gallacher 2007 1 The July 2, 2007 Federal Register proposed COTS waiver reports that COTS manufacturers are subject to “to costly and burdensome, if not impossible, tracking requirements.”July 2, 2007 Federal Register 1 Chierichella, J. W. & Gallacher, D. S. (2007). The Continuing Saga Of Specialty Metals—Nothing Is Ever So Bad That It Cannot Be Made Worse. International Government Contractor, 4(4).
11 Compliance Complexities Defense Melvin R. Laird’s 11-20-1972 memo provides an earlier example of the DOD recognizing the impractical compliance requirements. This memo states that: “It is apparent, from the legislative history of this provision, that it was not intended that the Department achieve or attempt to achieve the impossible in its implementation.”Defense Melvin R. Laird’s 11-20-1972 memo The October 9th BNA Inc. Federal Contract Report discusses how House Armed Services Committee Ranking Republican Duncan Hunter (R-Calif.) has “taken issue with one instance of the Army's implementation of such restrictions.”October 9th BNA Inc. Federal Contract Report
12 Follow the Money Various opinions can be found as to whether interagency assisted acquisitions that support DoD acquisitions (buying with DoD funds) must comply with specialty metals restrictions. For example, if the GSA procures a widget for the DoD, must the widget be compliant with specialty metal restrictions? According to a 2006 article written by Jan Ferguson 1 :Jan Ferguson 1 Finally, the Berry Amendment follows the money, so the requirements of the Berry Amendment apply to all procurement vehicles (including non-DoD contracts, such as Federal Supply Schedules) if the contract action is funded by money appropriated or otherwise made available to DoD. See the next 3 slides for additional literature regarding the “follow the money” premise. 1 Ferguson, J. (2006 March-April). Buying American: The Berry Amendment. Defense AT&L, 25-28.
13 According the Defense Logistics Agency, DLAD 7.9003 Policies and procedures pertaining to assisted acquisitions paragraph (b)(4) states:DLAD 7.9003 Any terms, conditions and/or requirements unique to DOD or DLA are incorporated into the order to comply with applicable statutes, regulations and directives (e.g., the requirement that the items listed in DFARS 225.7002-1, pertaining to restrictions on food, clothing, fabrics, specialty metals, and hand or measuring tools, and that are procured with DOD funds, be of domestic origin). Follow the Money
14 Defense Procurement and Acquisition Policy (DPAP) provides answers to Frequently Asked Questions on the Berry Amendment. One question regarding the “follow the money” premise follows: Frequently Asked Questions on the Berry Amendment Q3. What if I am from a DoD buying activity but I am spending non-DoD money, for example, on behalf of an FMS country or another U.S. Federal agency-- is the Berry Amendment applicable in that circumstance? A3. Yes. FMS funding and other Federal agencies’ funding is being made available to DoD and therefore falls under the Berry Amendment. The Berry Amendment also applies when DoD provides funding to another agency to buy items. The other Federal agency must comply with the Berry Amendment. Violation of the Berry Amendment would generally also result in the violation of the Anti-Deficiency Act ( 31 U.S.C. 1341) [should read 1347]. 31 U.S.C. 1341 However, the DPAP Berry Amendment FAQ website states that: CAUTION: THESE FAQS ARE FOR GENERAL INFORMATION AND ARE NOT DEFINITIVE. THE STATUTE AND REGULATIONS SHOULD ALWAYS BE REVIEWED FOR THE DEFINITIVE RULES THAT APPLY TO INDIVIDUAL FACT SITUATIONS. Follow the Money
15 While the previously cited Ferguson article, the DLAD guidance, and DPAP FAQs indicate that specialty metals regulations do follow the money, the 2007 JWNDAA would seemingly eviscerate this position. Although the 2007 JWNDAA states in 2533b(a) that restrictions apply to “funds appropriated or otherwise available to the Department of Defense”; paragraph 2533(b)(2) goes on to say that the acquisition must “be purchased directly by the Department of Defense.” So which is it? According to Churchill and Weinberg 1, determining whether funds are available to DoD is not always a simple matter. For example the authors present an argument that FMS funds “should no more be considered ‘available’ to the DOD than personal trust funds would be ‘available’ to their administrator.”Churchill and Weinberg 1 1 Churchill, D. A. & Weinberg, K. C. (2007, March). Domestic Specialty Metals Restrictions: A Bumper Crop of Fresh Berry Issues. Briefing Papers, Second Series, NO. 07-04. Follow the Money
16 Incorporation by Reference The first step of assessing specialty metals compliance requirements is to determine if the clause is included in or applicable to the DoD solicitation. Rather than finding 252.225-7014 Preference for Domestic Specialty Metals as a stand alone clause, 252.225-7014 usually appears (for commercial items) as part of 252.212-7001 Contract Terms and Conditions Required to Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items.252.212-7001 Contract Terms and Conditions Required to Implement Statutes or Executive Orders Applicable to Defense Acquisitions of Commercial Items Paragraph (b) states: The Contractor agrees to comply with any clause that is checked on the following list of Defense FAR Supplement clauses which, if checked, is included in this contract by reference to implement provisions of law or Executive orders applicable to acquisitions of commercial items or components. (see next slide)
17 If checked in 252.212-7001(b), the clause would be part of the contract: (Additional clauses not shown) Incorporation by Reference
18 Applicability If the clause is not checked, the contractor should understand why. The clause prescription is found at 225.7002-3(b):225.7002-3(b) (1) Use the clause at 252.225-7014, Preference for Domestic Specialty Metals, in solicitations and contracts exceeding the simplified acquisition threshold that require delivery of an article containing specialty metals. The prescription goes on to say: (2) Use the clause with its Alternate I 1 in solicitations and contracts exceeding the simplified acquisition threshold requiring delivery, for one of the following major programs, of an article containing specialty metals: (i) Aircraft. (ii) Missile and space systems. (iii) Ships. (iv) Tank-automotive. (v) Weapons. (vi) Ammunition 1 Alternate I requires flowdown “in all subcontracts for items containing specialty metals.”
19 Flowdown (Additional clauses not shown) The key term is “if applicable”. Does applicable mean that flowdown is required if the clause is checked in 252.212-7001(b); or is flowdown always applicable within the 6 major programs? Or, is the clause to be flowed down only in subcontracts (within the 6 major programs) when subcontracting for articles items containing specialty metals? Mechanically speaking, the Alternate I version of 252.225-7014 is inserted (in commercial contracts) per 252.212-7001(c), not as a checklist, but as a mandatory clause:
20 Christian Doctrine The previous slides introduce a significant dilemma. If the clause is not checked in 252.212-7001(b), or if 252.212-7001 and/or 252.225-7014 do not appear anywhere in the solicitation/contact, could the restrictions could still be read into contracts per the Christian Doctrine? As discussed by McCaleb and Maynard 1 in an April 2002 issue of Procurement Law Advisor, under the Christian Doctrine, clauses that are a “significant or deeply ingrained strand of public procurement policy” are incorporated by operation of law. However the authors explain that there can be “difficulty of predicting (or proving) that a particular contract clause is so significant or deeply ingrained that it should be incorporated into a contract by operation of law.”McCaleb and Maynard 1 1 McCaleb, S. & Maynard, K. (2002, April). Incorporation of Contract Clauses under the Christian Doctrine: An Argument of Last Resort in the D.C. Circuit? Procurement Law Advisor, 5(1).
21 Christian Doctrine McCaleb and MaynardMcCaleb and Maynard go on to say: According to the D.C. Circuit, under the Christian doctrine (as further refined in Amoroso and O’Keefe), ‘it is not enough that the legislative or regulatory provision is important or significant (assuming one could make such rankings). To constitute a contractual obligation even though not written into the contract, the provision must be a mandatory contract clause, a clause the legislation—or as in the Christian, the regulation – requires to be included in contracts.’ Because specialty metals regulations are derived from law (10 U.S.C 2533a), it seems quite possible that the Christian doctrine could apply the restrictions, even if the clause is not checked in a solicitation/contract.
22 Christian Doctrine While courts have already applied the Christian Doctrine one domestic preference clause, Buy American Act, it is not yet certain as to how the courts would rule regarding specialty metals. However, Churchill and Weinberg 1 state that:Churchill and Weinberg 1 Thus, in practical terms, the Christian doctrine most likely means that you must still comply with the “Preference” clause or Alternate I if either clause applies to your prime contract even if it is left out, or even negotiated out, of your prime contract. 1 Churchill, D. A. & Weinberg, K. C. (2007, March). Domestic Specialty Metals Restrictions: A Bumper Crop of Fresh Berry Issues. Briefing Papers, Second Series, NO. 07-04.
23 Exceptions When discussing specialty metals, using the term “exception” is a somewhat fuzzy term that requires a bit of explaining. In a perfect world, exceptions to specialty metals restrictions would be listed in the law (i.e., 10 U.S.C. 2533b)— and then align with the exceptions listed in the regulations (i.e., DFARS 225- 7002-2). While 225-7002-2 lists certain categorical acquisitions that “are not subject to the restrictions in 225.7002-1” there is not a perfect alignment with the exceptions discussed in paragraphs (b) through (j) of 10 U.S.C. 2533b. In fact, certain conditions that are not addressed in 225-7002-2 nor U.S.C. 2533b, provide what are in effect “exceptions” to the specialty metals restrictions. In other words, there is not necessarily one place to turn to find all “exceptions”. Further, some of the exceptions at 225.7002-2 are applicable to all of the items listed in 225.7002-1, whereas others apply to a limited subset.
34 Exceptions Notes—also see: 1.AFFARS April 19 th 2007 Contract Policy Memo 07-C-01: Mandatory Procedures for Exceptions on the Procurement of Specialty MetalsMandatory Procedures for Exceptions on the Procurement of Specialty Metals 2.PGI 225.7002-2(b)(5)(A)PGI 225.7002-2(b)(5)(A)
35 Exceptions 1 Chierichella, J. W. & Gallacher, D. S. (2006). Berry Amendment ‘Reform’—The Sound And The Fury. The Government Contractor, 48(49). 2 The JWNDAA of 2007 also states that the Act "shall apply with respect to contracts entered into after the date occurring 30 days after the date of the enactment of this Act". In addition, there is language in the House Conference Report 109-702 stating that the Act "would allow a 12-month `get well' period for suppliers at all levels of the supply chain to become compliant with section 2533b of title 10".
37 Exceptions 1 Chierichella, J. W. & Gallacher, D. S. (2004). Feature Comment: Specialty Metals And The Berry Amendment— Frankenstein’s Monster And Bad Domestic Policy. The Government Contractor, 46(14). 2 Nadler, D., Sherzer, H. G., & Mateer, M. C. (2006). New Department Of Defense Berry Amendment Guidance—Some Answers And More Questions. The Government Contractor, 48(46), 1,
41 Summary Ensuring compliance with DOD specialty metal restrictions can be a daunting, expensive, and at times, a seemingly impossible task. While this article attempts to “demystify” specialty metals restrictions, there is not exactly a mystery that can be solved. Rather, the reader should understand that regardless of how much one reads, re-reads, or researches there is not always clear solutions or guidance.
42 The Berry Amendment places domestic restrictions on various items. Whether or not specialty metals restrictions fall under the Berry Amendment is not entirely clear. Specialty metals restrictions stem from forces that are both practical (ensuring domestic sources are readily available to support the military) and political (supporting American businesses). However, all restrictions have the effect of limiting full and open competition. Specialty metals restrictions are requirements in addition to the Buy American Act and Trade Agreements, and require more stringent flowdown requirements. Conclusion Consider the following high-level, summarized examples given in this presentation for which there are not clear cut answers or guidance:
43 Debate exists as to exactly how the restrictions “follow the money”. For example, it is debatable as to when funds are “made available” to the DOD. If the specialty metals clause does not appear in a solicitation or contract, it is likely, but not entirely clear, if the Christian Doctrine would apply. When flowdown of the restrictions is required depends on how “if applicable” is interpreted. There are certain conditions where specialty metals restrictions do not apply. While these conditions can generally be thought of as “exceptions”, not all the exceptions are found in one location. Conclusion
44 UPDATE Quoting from the February 5, 2008 BNA, Inc. Federal Contracts Report:February 5, 2008 BNA, Inc. Federal Contracts Report The Defense Department Jan. 29 issued a class deviation implementing provisions in the recently enacted fiscal 2008 defense authorization act (Pub. L. No. 110-181) that give the department ‘several new, expanded flexibilities’ in complying with domestic sourcing requirements for the acquisition of specialty metals. Defense Procurement and Acquisition Policy Director Shay Assad sent a memorandum to the military services and defense agencies providing a plain language explanation of sections 804 and 884 of the DOD authorizing measure and how they are to be implemented by the department (88 FCR 588, 12/25/07).88 FCR 588, 12/25/07
45 UPDATE Paraphrasing from the 2-05-2008 BNA Report: The new flexibilities available to DOD under Section 804 include: Expanded exception for all electronic components Broad statutory exception for commercial off-the-shelf (COTS) items (detailed COTS application further defined) DOD may accept delivery of items containing noncompliant specialty metals if the total weight of such noncompliant metals does not exceed 2 percent of the total weight of all specialty metals in the item DOD may accept commercial derivative military articles (treatment of which is further defined) based on the contractor's agreement to purchase a certain amount of domestic specialty metals National security waiver that may be exercised in writing by the USD(AT&L). Section 804 ‘removes the implication that accepting noncompliant material may create an Anti-Deficiency Act violation’ by the DOD
46 UPDATE Again paraphrasing from the 2-05-2008 BNA Report: Some previously issued DNADs are expiring, and all existing DNADs must be reviewed by July 26. DOD also further defined the availability in “required form” requirement for issuing a DNAD. While new DNADs may still be issued, the 2008 defense authorization act restricts DOD’s ability to approve broad new DNADs.