Class Deviation 2006-O0004
Restriction on Procurement of Specialty Metals

Section 842 of the John Warner National Defense Authorization Act (NDAA) for Fiscal Year 2007 (Pub. L. 109-364) is entitled “Protection of Strategic Materials Critical to National Security“ Section 842 establishes a new specialty metals provision, 10 USC 2533b.

Many requirements of the new law reflect regulations previously established in the Defense Federal Acquisition Regulations Supplement (DFARS). The statutory definition for specialty metals is the same as in the current DFARS. The new law codifies current DFARS regulation that requires flow down of the specialty metals restriction to all tiers of subcontractors when acquiring aircraft, missile and space systems, ships, tank and automotive items, weapon systems, or ammunition. The new law restricts not only the procurement of the specialty metal in these items, but restricts procurement of the end items, and components thereof, that contain specialty metals. Therefore, in any contract awarded after November 15, 2006, the Department can no longer continue the practice of withholding payment while conditionally accepting noncompliant items in these categories.

The enclosed Class Deviation and the planned change to DFARS 252.225-7014 entitled “Preferences for Domestic Specialty Metals" defines "component” to mean those first-tier parts and assemblies that are incorporated directly into the end product (i.e., first-tier components). Parts and assemblies that are incorporated directly into first-tier components are also components (i.e., second-tier components). Third-tier and below parts or assemblies are not components. When the Government purchases an end product that is in one of the six product categories listed in subsection 2533b(a)(1), components, including all parts and assemblies at all tiers, must be compliant. When the Government purchases first-tier components separately, components, including all parts and assemblies at all tiers, must be compliant. When the Government purchases second-tier components separately, all parts and assemblies at all tiers must be compliant. However, if the Government purchases third-tier and below parts or assemblies separately, those parts and assemblies are not components. Items that are not incorporated into the end product, such as factory test equipment and ground support equipment, are not components.

Any specialty metal (e.g. raw stock) acquired directly by the Government or by a Prime Contractor for delivery to the Government must be melted or produced in the United States.

A new one-time waiver is now established for contracts under which specialty metals were incorporated into items produced, manufactured, or assembled in the United States prior to November 16, 2006, and where final acceptance by the Government takes place after that date. A one-time waiver requires a written determination by the contracting officer, approval from the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L) or the Service Acquisition Executive of the Military Department concerned, and notification in within 15 days from the time the contracting officer makes the required determination.

The House of Representatives, Committee on Armed Services Report for the FY07 NDAA (H.R. Report 109-452, p. 361) recognized that many suppliers have been “inadvertently non-compliant” with the specialty metals provision of the Berry Amendment. Thus, the new provision allows for a period for suppliers at all levels of the supply chain to become compliant with section 2533b of title 10. For past violations, in order to be consistent with the approach of the new law, contracting officers should determine whether the violation was of the inadvertent type recognized by the Congress.

For example, for violations involving commercial items, it is likely that non compliance was inadvertent. If so, the appropriate amount and form of consideration, if any, due to the Government, should be determined by the contracting officer on a case by case basis. When making the required determination, the contracting officer should obtain and may rely on contractors' representations that “the non-compliance is not knowing or willful.” The contractor should be reminded of the importance of having adequate procedures in place to ensure compliance in the future. Many contractors have already prepared a corrective action plan to ensure future compliance. Given the breadth of the noncompliance problem, as indicated in the June 1, 2006 memorandum from Under Secretary of Defense for Acquisition, Technology and Logistics (USD(AT&L), the guidance regarding the submittal of corrective action plans on a broad basis to the Defense Contract Management Agency (DCMA) is still applicable.

10 U.S.C. §2533b provides another new exception for commercially available electronic components whose specialty metal content is de minimis in value compared to the overall value of the lowest level component produced that contains such specialty metal. The Department will use "does not exceed 10 percent" for the de minimis standard for specialty metals contained in electronic components. See the attached clause 252.225-7014 (DEVIATION) paragraph (a)(3) for the definition of “electronic component" and paragraph (c)(2) for implementation of the de minimis standard.

The new law provides for a revised domestic non-availability exception. USD(AT&L) or the Secretary of the Military Department concerned can grant a Domestic Non-Availability Determination (DNAD) if compliant specialty metal cannot be procured as and when needed in the required form. For example, domestic specialty metal may not be available in the bar stock required to produce fasteners or the specialty metal may not be available, as and when needed, in the forged or milled form that is required. When considering a DNAD, one of the factors that should be addressed is whether the price of compliant metal is fair and reasonable, in accordance with FAR 15.402. This may be a relevant factor in determining whether “compliant specialty metal of satisfactory quality and sufficient quantity, and in the required form, cannot be procured as and when needed. Existing DNADs should be reviewed to ensure that they are consistent with the new law.

Other than the exception for procurements by vessels in foreign waters, which has been deleted from the new law, the other existing exceptions remain, including the exception for procurements from sources in qualifying countries.

This class deviation authorizes use of the attached clause and its alternate in new contracts in lieu of the existing DFARS clause 252.225-7014, Preference for Domestic Specialty Metals, and its Alternate I. This class deviation is effective immediately and remains in effect until incorporated in the DFARS or until rescinded.

Effective Date: December 6, 2006 (16 years ago)
Expire Date: None Given
Rescinded: October 26, 2007 (15 years ago)
Official Documents: Memo
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