1. Specialty Metals Dave Riley Deputy Counsel
Presented By:
Dave Riley
Deputy Counsel
Space & Missiles, Ground Systems & Munitions
DCMA Carson

2. First, some background on the Berry Amendment and Specialty Metal Requirements…

3. Berry Amendment: It’s not intuitive!
It’s kind of odd that chopped liver might be covered; silver bullets aren’t.

4. Berry Amendment Background
Earliest version – 1940 Naval Appropriations Act.
1941: Restriction was included in the General Appropriation Act. Thereafter, the annual Defense Appropriation Acts contained the Berry Amendment restrictions.
1992: Becomes a note to 10 U.S.C. § 2241.
2002: Codified at 10 U.S.C. 2533a (FY02 Defense Authorization Act).
The legislative history of the Berry Amendment indicates that the purpose of the amendment was and is to maintain and support the defense industrial base for those items it covers.

5. Berry Amendment Coverage
Restricts the use of DoD funds to pay for certain items that are not grown, reprocessed, reused, or produced in the U.S.
Food, Clothing, Tents/Tarpaulins/Covers
Cotton and Other Natural Fiber Products
Woven Silk or Woven Silk Blends
Spun Silk Yarn for Cartridge Cloth
Synthetic Fabric or Coated Synthetic Fabric
Canvas Products
Wool (including in manufactured articles)
Individual Equipment manufactured from or containing such fibers, yarns, fabrics, or materials
Specialty Metals, including stainless steel flatware, unless the metals were melted in manufacturing facilities located within the United States
Hand or Measuring Tools
Added to Berry Amendment coverage in Consider the timing of this addition – Vietnam War

6. Exceptions for Specialty Metals
Note: This list only includes those applicable to Specialty Metals
At/below Simplified Acquisition Threshold
In support of Contingency Operations
Under other than competitive procedures approved on the basis of unusual and compelling urgency USC § 2304(c)(2)
When acquisition furthers an agreement with a foreign government (Qualifying Country sources)
Domestic Non-Availability Determination (DNAD) at Secretariat level
Satisfactory quality and sufficient quantity of specialty metals (including stainless steel flatware), cannot be acquired as and when needed at U.S. market prices.
Outside the United States in support of combat operations

7. Qualifying Countries
The following Qualifying Countries are treated equally* with “domestic” sources for specialty metal and other restrictions (see DFARS )
Australia
Belgium
Canada
Denmark
Egypt
Federal Republic of Germany
France
Greece
Israel
Italy
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
Turkey
United Kingdom of Great Britain and Northern Ireland
* equally? or better?

8. Anti-Deficiency Violations
“….Funds appropriated or otherwise available to the Department….”
It is statutory violation if DoD pays for equipment that is non-compliant.
31 U.S.C. 1350
Fines up to $
Imprisonment up to 2 years
Adverse personnel actions

9. Why do we need the Berry Amendment?
Some examples (from American Manufacturing Trade Action Coalition):
Vietnam War – Sony withheld cameras used to guide tactical missiles
In 1983, the socialists in the Japanese Diet blocked the sale of ceramic packaging used in U.S. cruise missiles
JDAM bomb production was delayed during Iraq war because of a Swiss industrialist concern about Swiss neutrality
Hellfire Missile production was stopped during West Coast dock strike because critical parts sourced in Japan were awaiting off-loading

10. Now, let’s talk about the current situation…
As of April 17, 2006: 254 Potentially noncompliant Suppliers

11. DCMA’s Specialty Metals Instruction
DCMA’s Specialty Metals Clause Compliance Instruction
It’s an interim approach to allow for shipments of supplies to our customers.
Reflects short-term pragmatism while complying with the letter of the law
Attempts to foster consistency – we had received complaints about disparate treatment (especially on withhold calculations – still a problem)
It’s not a long-term option or new way of doing business
Available on DCMA Website at…
We expect OSD Policy soon to mandate use of DCMA’s Instruction across DoD (as an interim measure)

12. Recent Berry Issues
Army black berets from China, Romania and Sri Lanka
Russian titanium fraud case of late 90s – spawned the withhold methodology
Specialty Metal issues arising primarily at major subs
* Providing non-conforming goods is a fraud indicator; investigative referrals have been made in some instances

13. Biggest Concern – Specialty Metal
Has arisen most often at sub level in programs where flow-down required:
Aircraft; missile and space systems; ships, tank-auto; weapons; ammo (Laird Memo – DFARs )
See also DFARS (subcontracts for commercial items)
It’s still the Prime’s problem

14. Main Problems Prime didn’t flow down clause to subs
Prime contract used confusing or inappropriate language – duty to inquire?
Prime contract omitted required language – Christian Doctrine?
(GAO reports 60% of contracts have “problems”)
Prime not taking ownership (overseeing) sub compliance – getting a cert is not enough
General lack of understanding of the requirement

15. DCMA Interim Guidance
Supplants the fire-proofing memo as the primary DCMA Berry guidance document
Fire-proofing memo still good background info
Main issues addressed by guidance:
Authority to accept with a withhold
Calculation of withhold
Conditional acceptance language
Accounting for withholds
WAWF test of invoicing process has been successful

16. What ACOs Expect From PCOs
Tell us if a Berry Amendment exception applies to this acquisition.
Tell us if you intend to obtain a DNAD (Secretarial Exception).
Tell us if you want to reject the item.
If the answers to 1-3 are all no, tell us if we are authorized to conditionally accept the non-conforming part with a withhold calculated per the DCMA Interim Guidance.
Execute contract mods, as appropriate.

17. What DCMA Will Do
Work with DCAA, PCO and Primes to determine appropriate withhold amounts
Process Conditional Acceptance (modified DD250) incorporating withhold after PCO approval
Perform normal quality function w/r/t tendered product including release of product from subs where source inspection is authorized

18. Administration Issues
Conditional Acceptance & Withholds vs. “Conclusive” Acceptance & Price Reduction Mods
Administrative Requirements
Obtaining PCO Concurrence
Invoicing Requirements
Quality Certification
ACO Reporting Requirements
Closeout (Physically Complete & Active w/Withholds)

19. Controversial Areas Amount of withhold:
Contract end item, major sub-assembly, lowest level auditable part, or metal only?
What about FAR (replace at no cost)?
Burdened amount from all subs and withheld at prime level – impact of different accounting systems
Lowest Level Auditable Part Plus Burden
This calculation is auditable, does not rely on an estimate, includes all costs associated with the non-compliant part, and is in synch with replace option.
We create an ADA violation if we pay for items containing non-domestic metals.
Our withhold approach is based on DoJs position in actual fraud case.

20. Related Issues What about FMS?
Statute restricts use of funds “appropriated or otherwise available to DoD”
Industry position – FMS funds not “otherwise available” to DOD
DCMA defers to PCO on funds availability issues
GAO opinions, case-law on false claims act, long-standing positions of Defense Security Cooperation Agency and DoJ are at odds with industry position
FMF is distinct from FMS as to funding.
The part is still contractually non-compliant.

21. Definition Issues What constitutes an ALT 1 major program?
DPAS rating is instructive but not necessarily determinative.
Not all contracts are rated – or rated correctly.
DPAS system is a Dept of Commerce reg.
Safe approach:
If contract rated DPAS A1-A6 – ALT 1 likely applies.
If you think something has been ordered for an ALT 1 program but it isn’t rated DPAS A1-A6, ask PCO for a definitive determination. This may turn on who placed the order – contractor or government.

22. More Definition Issues
Why isn’t the US considered a qualifying country? Won’t this drive business off-shore?
This issue was considered by DAR Council.
Making US a qualifying country would “gut” the statutory intent.
DAR Council considered and rejected requirement for metal in article from qualifying country to also be smelted in a qualifying country.
The qualifying countries list results from various trade agreements.

23. Fiscal Issues
The amount of withhold is so small it costs more to work the fix than is being saved.
That may be so but fiscal law does not recognize a de minimis threshold.
Contractors can make a business decision to set the withhold amount at a higher component level if obtaining auditable data for lowest level non-compliant part is difficult, not cost-effective, or impossible.

24. New Discovery Issues Lag-time presents real problems:
New noncompliant suppliers being identified daily – 274 at last count. Expect many more.
Getting PCO approval for withhold/conditional acceptance takes time (often over a week)
DD250 needs to be accurate at point of signature (QARs can’t sign up to an inaccuracy)
Invoicing after DD250 signing takes time (as much as a week)
How can new discoveries be worked without a do-loop?

25. General DNAD Process/Contents
See DFARS (b), PGI (b)(3) and your agency procedures
General Content:
1. Item or class of items, quantity, length of time DNAD is needed
2. Current and detailed market research justifying the non-availability of item(s) in satisfactory quality and sufficient quantity at U.S. market prices
3. Analysis of alternatives that would not require a domestic non-availability determination
4. Written certification by the requiring activity, with specificity, why such alternatives are unacceptable.
5. Report and recommendation of the Contracting Activity Commander discussing supply and procurement situation (mission impacts), commercial practices, and other relevant facts in greater detail
6. Potential political ramifications, Congressional involvement, small business concerns, etc.
7. Expected outcome if a DNAD is not approved

26. General DNAD Process/Contents
Coordinate with Legal and organizational levels as required
Obtain Approval: Secretary of Army, Navy, Air Force, or USD(AT&L)
Once granted, annually assess necessity of the DNAD and determine if market conditions have changed or acceptable product substitutions have become available
Notifications for titanium and clothing/textiles
Titanium – USD(AT&L) Memo of October 22, 2004 requires notification to Congressional defense committees 10 days prior to award
Clothing/textiles - Section 833 of the FY2006 NDAA requires notification in FEDBIZOPS within 7 days of award.

27. Now, let’s talk about the path forward…

28. Long-term Solution Combination of:
Compliance (Strict adherence to contractual terms is a must)
DNAD discussions and determinations at point of award vice point of delivery
Possible Legislative Changes (submitted to OMB)
“Market Basket” Approach to encourage Civil-Military Integration
De Minimis Threshold (10% of price or SAT)
It would also be reasonable to expect to see training, more Government Oversight (e.g., CPSRs) and possibly some refinement of regulatory language
But before we get there…

29. Corrective Action Plan Requirement
OSD Policy anticipated soon to require Contractors to submit comprehensive plans identifying:
Noncompliant items
Reason why
Date compliance can be achieved (if ever)
Plans can be submitted on a shipment, contract, program, segment, sector or corporate basis
Plans will be evaluated and may justify DNADs for individual items (or, perhaps in some cases, groups of items)
Including manufacturer, quantity, value, NAICS code, etc.

30. Summary OSD is engaged and they know we are looking for policy
OSD knows how DCMA has recommended conducting business in the interim
Industry (AIA and others) has engaged OSD at the AT&L level and above
Serious people on both sides of the legislative debate over Berry restrictions will be heard from