Class Deviation 2008-O0002
Implementation of New Specialty Metals Restriction

Director, Defense Procurement and Acquisition Policy issued Class Deviation 2006-O0004, on December 6, 2006, to implement Section 842 of the National Defense Authorization Act of Fiscal Year 2007 (Pub. L. 109-364). Section 842 established the restriction on acquisition of specialty metals under a new section 10 U.S.C. 2533b. On October 26, 2007, Class Deviation 2007-00011 provided a waiver of the specialty metals restriction for commercially available off-the-shelf (COTS) items, in accordance with section 35 of 41 U.S.C. 431. The newly enacted sections 804 and 884 of the FY 2008 National Defense Authorization Act have changed the specialty metals restriction in 10 U.S.C. 2533b, and are attached for reference. This Class Deviation supersedes previous Class Deviations 2006-O0004 and 2007-O0011.

Section 804 includes several new, expanded flexibilities. The electronic component exception has been broadened to cover all electronic components, no longer limited to commercially available electronic components.

Section 804 includes a statutory exception for COTS items, but excludes high performance magnets and fasteners, unless the magnets or fasteners are incorporated into COTS items. This COTS exception does not apply to contracts or subcontracts for the acquisition of specialty metals, including mill products, such as bar, billet, slab, wire, plate and sheet, that have not been incorporated in end items, subsystems, assemblies or components. However, specialty metal supply contracts issued by COTS producers are not subcontracts for the purposes of this exception.

A COTS item is defined as a commercial item that is sold in substantial quantities in the commercial marketplace and is offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial marketplace.' A COTS item is considered to be “offered without modification” as long as it is not modified prior to contractual acceptance by the next higher tier in the supply chain (see paragraph (b) (3) (ii) of the clause at 252.225-7014, Alternate I). Specialty metals contained in a COTS item that was accepted without modification by the next higher tier are excepted and remain excepted even if a piece of the COTS item subsequently is removed (e.g. the end is removed from a COTS screw or an extra hole is drilled in a COTS bracket). For specialty metals that were not contained in a COTS item upon acceptance but are added to the COTS item after acceptance, the added specialty metals are subject to the restrictions (e.g. a special reinforced handle made of specialty metal that is added to a COTS item). If two or more COTS items are combined in such a way that the resultant item is not a COTS item, only the specialty metals involved in joining the COTS items together are subject to the restrictions (e.g. a COTS aircraft is outfitted with a COTS engine, but not the COTS engine normally provided with that aircraft). For COTS items that are normally sold in the commercial marketplace with various options, items that include such options are also COTS items. However, if a COTS item is offered to the Government with an option that is not normally offered in the commercial marketplace, that option is subject to the specialty metals restrictions (e.g., an aircraft is normally sold to the public with an option for several radios. DoD requests a military-unique radio. The aircraft is still a COTS item, but the military-unique radio is not a COTS item, and must comply with the specialty metals restriction unless another exception applies).

We contemplate including Section 804's COTS reporting requirement in a forthcoming interim rule. It will likely require prime contractors to provide information on the types of COTS components in noncommercial items, and require agencies to report any COTS end item purchased valued at $5M or above.

Acquisitions of fasteners that are commercial items, and not incorporated into COTS items, can be considered compliant if the fastener manufacturer certifies in good faith that it will purchase, during the relevant calendar year, an amount of domestically melted specialty metal, in the required form, for use in production of such fasteners for sale to the Department of Defense and other customers, that is not less than 50% of the total amount of specialty metal that it will purchase to carry out the production of such fasteners for all customers.

It does not include bulk cargo, as defined in section 3 of the Shipping Act of 1984 (46 U.S.C. App. 1702), such as agricultural products and petroleum products The exception for qualifying countries remains. However, this exception does not apply when buying specialty metal as an end product.

As for domestic nonavailability determinations (DNADs), "required form” means mill products, such as bar, billet, wire, slab, plate or sheet (see paragraph (m) of section 804). Section 804 requires the Department to review previously approved DNADs and amend them to comply with the new statute within 180 days from enactment, i.e. by July 26, 2008. The broad DNADs for circuit card assemblies, fasteners, needle roller bearings, and diesel engines will expire for use on new contracts on July 26, 2008. Contracts awarded while DNADs were in effect may be modified by bilateral agreement to remove those exceptions. Additionally, section 884 restricts the Department's ability to approve new broad DNADs. At least 30 days prior to approval of a DNAD that would apply to more than one DoD contract, a notice must be published in FedBizOpps of the intent to approve a DNAD. USD(AT&L) will take into consideration all information submitted and this information will be made publicly available, except for classified information and confidential business information.

The new law also provides a new de minimis exception. DoD may accept delivery of an item containing specialty metals that were not melted or produced in the United States if the total weight of noncompliant metals in the item that are not exempt under other exceptions (other than the exception for military commercial derivative items) does not exceed 2 percent of the total weight of all specialty metals in the item. This de minimis exception does not apply to specialty metal in high performance magnets.

A new exception for commercial derivative military articles allows contractors to certify that the contractor or its subcontractors have entered into agreements to purchase an amount of domestically melted or produced specialty metal, in the use during the period of contract performance in the production of the commercial derivative military article and the related commercial article that is not less than the greater of: (1) an amount equivalent to 120% of the amount of specialty metal that is required to carry out the production of the commercial derivative military article (including the work under subcontracts); or (2) an amount equivalent to 50% of the amount of specialty metal that is purchased by the contractor and its subcontractors for use during such period in the production of the commercial derivative military article and the related commercial article. For the purpose of this exception, ti metal that is required to carry out production of the commercial derivative military article includes specialty metal contained in any item, including COTS items. DoD expects that these certifications will be based on good faith estimates.

Section 804 includes a new national security waiver. The Under Secretary of Defense for Acquisition, Technology and Logistics may approve a written determination to accept noncompliant materials if he determines that acceptance of such items is necessary to the national security of the United States. The written determination must specify the quantity of the end items covered by the waiver, specify the time period the waiver applies, and must be forwarded to the congressional defense committees. In any case in which USD(AT&L) makes a determination under this exception, the contractor or subcontractor responsible for the noncompliance must develop and implement an effective plan to ensure future compliance and the USD(AT&L) must determine whether the noncompliance was knowing or willful. If the noncompliance is determined to be knowing or willful, the Secretary will consider suspending or debarring the contractor or subcontractor until the contractor or subcontractor has effectively addressed the issues leading to the noncompliance. Because national security waivers will only be granted when the acquisition in question is necessary to the national security interest of the United States, the requirement for a plan will be applied as a condition subsequent, and not a condition precedent, to the granting of a waiver.

Section 804 uses the term component in such a way that it clearly applies to parts and assemblies incorporated into the end product at any tier. This eliminates the previous interpretation in Class Deviation 2006-O0004 that parts and assemblies below the second tier are not components.

Section 804 removes the implication that accepting non-compliant material may create an Anti-deficiency Act violation. However, contractors continue to be obligated to comply with the restriction.

The attachment to this Class Deviation 2008-O0002 supersedes the attachment to the class deviation 2007-O0011, is effective upon signature, and remains in effect until incorporated in the DFARS or until otherwise rescinded. In line with the authority under FAR 1.108(d)(3), contracting officers may, at their discretion, include the changes implemented by this Class Deviation in any existing contract with appropriate consideration.

Effective Date: January 29, 2008 (13 years ago)
Expire Date: None Given
Incorporated: July 29, 2009 (12 years ago)
References: 2007-O0011 2006-O0004
Official Documents: Memo
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