DFARS CHANGE NOTICE 20091224

FR Doc E9-30295[Federal Register: December 24, 2009 (Volume 74, Number 246)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 225 and 231

Defense Federal Acquisition Regulation Supplement; Allowability of Costs To Lease Government Equipment for Display or Demonstration (DFARS Case 2007-D004)

AGENCY: Defense Acquisition Regulations System, Department of Defense (DoD).

ACTION: Final rule.

SUMMARY: DoD has issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to address limitations on the allowability of contractor costs associated with the leasing of Government equipment for display or demonstration. The rule specifies that monies paid to the Government for the leasing of Government equipment are unallowable, except in the case of foreign military sales contracts.

DATES: Effective Date: December 24, 2009.

FOR FURTHER INFORMATION CONTACT: Mr. Julian Thrash, Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone 703-602-0310; facsimile 703-602-0350. Please cite DFARS Case 2007-D004.

SUPPLEMENTARY INFORMATION:

A. Background DoD Instruction 7230.08, Leases and Demonstrations of DoD Equipment, contains policy on the leasing of DoD equipment to defense contractors for demonstration to foreign governments or for display or demonstration at international trade shows and exhibitions. In addition to the leasing of equipment, contractors may obtain related support services from DoD. The Instruction provides that the contractor leasing the equipment may not recover the DoD charges associated with the lease, directly or indirectly through any U.S. Government contract, except to the extent chargeable to contracts for foreign military sales. For consistency with the policy in DoD Instruction 7230.08, this final rule adds DFARS text to address the limitations on the allowability of costs associated with the leasing of Government equipment.

DoD published a proposed rule at 72 FR 69176 on December 7, 2007. DoD received no comments on the proposed rule. Therefore, DoD has adopted the proposed rule as a final rule without change.

This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act DoD certifies that this final rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule is consistent with existing DoD policy, and applies only in those situations where a contractor chooses to lease military equipment for display or demonstration purposes.

C. Paperwork Reduction Act The Paperwork Reduction Act does not apply, because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 225 and 231

Government procurement. Amy G. Williams, Editor, Defense Acquisition Regulations System.

Therefore, 48 CFR Parts 225 and 231 are amended as follows:

1. The authority citation for 48 CFR parts 225 and 231 continues to read as follows:

Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 225--FOREIGN ACQUISITION

2. Section 225.7303-2 is amended by revising paragraph (b) and adding paragraph (e) to read as follows:

225.7303-2 Cost of doing business with a foreign government or an international organization.

* * * * *

(b) Costs not allowable under FAR Part 31 are not allowable in pricing FMS contracts, except as noted in paragraphs (c) and (e) of this subsection.

* * * * *

(e) The limitations in 231.205-1 on allowability of costs associated with leasing Government equipment do not apply to FMS contracts.

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

3. Section 231.205-1 is added to read as follows:

231.205-1 Public relations and advertising costs.

(e) See 225.7303-2(e) for allowability provisions affecting foreign military sales contracts.

(f) Unallowable public relations and advertising costs also include monies paid to the Government associated with the leasing of Government equipment, including lease payments and reimbursement for support services, except for foreign military sales contracts as provided for at 225.7303-2.

FR Doc E9-30296[Federal Register: December 24, 2009 (Volume 74, Number 246)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 225 and 252

Defense Federal Acquisition Regulation Supplement; Definitions of Component and Domestic Manufacture (DFARS Case 2005-D010)

AGENCY: Defense Acquisition Regulations System, Department of Defense (DoD).

ACTION: Final rule.

SUMMARY: DoD is issuing this final rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to clarify the definitions of ``component'' and ``domestic manufacture'' as they relate to policy on foreign acquisition.

DATES: Effective date: December 24, 2009.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone 703-602-0328; facsimile 703-602-7887. Please cite DFARS Case 2005-D010.

SUPPLEMENTARY INFORMATION:

A. Background DoD published a proposed rule at 71 FR 18695 on April 12, 2006. We did not receive any public comments. Therefore, DoD has issued a final rule with only a minor editorial correction and an update of the baseline.

This final rule amends DFARS Part 225 and associated provisions and clauses to clarify the distinction between foreign acquisition policies that apply only to top-level components of end products and those that apply to both top-level and lower-tier components of end products. As used in this background discussion, ``top-level components'' are those components that are incorporated directly into the end product; and ``lower-tier components'' are components that are incorporated into a component of the end product.

The general definition of ``component'' in FAR 2.101 is ``any item supplied to the Government as part of an end item or of another component.'' Therefore, for general use, the term includes both top-level components and lower-tier components. For purposes of determining whether a product is a domestic end product under the Buy American Act or the Balance of Payments Program, the term ``component'' is defined in FAR 25.003 to include only ``an article, material, or supply incorporated directly into an end product or construction material'' (i.e., only top-level components). This definition would also be applicable to any other situation in which evaluation of the end product is based on the value of the components, similar to that under the Buy American Act (e.g., to determine a qualifying country end product or whether anchor chain is a domestic end product).

In broadly applying these concepts to DFARS Part 225, ``component'' has been defined to apply only to top-level components, except in Subpart 225.70, where the term ``component'' includes components at all tiers. However, there are some requirements of Part 225 other than those in 225.70 that are not based on or are not similar to the Buy American Act, and there are some requirements in 225.70 that should be treated as similar to the Buy American Act.

Therefore, the definitions of ``component'' included in the final rule reflect the correct applicability of foreign acquisition policies as follows:

---225.900-70 and 252.225-7013, Duty-Free Entry. Duty-free entry is not related to evaluation of domestic products under the Buy American Act and should apply to qualifying country components at any tier.

---252.225-7019, Restriction on Anchor and Mooring Chain--The requirement that the cost of components manufactured in the United States exceed 50 percent of the total cost of components is similar to the Buy American Act component test, in which only top-level components are considered. Therefore, the definition restricting application to top-level components should apply.

---252.225-7025, Restriction on Acquisition of Forgings--The requirement to acquire forging items that are of domestic manufacture is not related to evaluation of domestic products under the Buy American Act and should apply to components at any tier.

In addition, the rule eliminates references to the DoD Industrial Preparedness Production Planning Program, at 225.7005-1 and in the definition of ``domestic manufacture'' at 252.225-7025, since DoD no longer has an Industrial Preparedness Production Planning Program.

This rule was subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

DoD certifies that this rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule updates and clarifies DFARS terminology, but makes no significant change to DoD acquisition policy. DoD did not receive any comments on regulatory flexibility and impact of the rule on small business entities.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply, because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 225, 236, and 252

Government procurement. Amy G. Williams, Editor, Defense Acquisition Regulation System.

Therefore, 48 CFR parts 225 and 252 are amended as follows:

1. The authority citation for 48 CFR parts 225 and 252 continues to read as follows:

Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 225--FOREIGN ACQUISITION

2. Section 225.900-70 is added to read as follows:

225.900-70 Definition.

``Component,'' as used in this subpart, means any item supplied to the Government as part of an end product or of another component.

3. Section 225.7001 is amended by revising paragraph (b); by redesignating paragraphs (c) and (d) as paragraphs (d) and (e) respectively; and by adding a new paragraph (c) to read as follows:

225.7001 Definitions.

* * * * *

(b) ``Component'' is defined in the clauses at 252.225-7009, Restriction on Acquisition of Certain Articles Containing Specialty Metals; 252.225-7012, Preference for Certain Domestic Commodities, and 252.225-7016, Restriction on Acquisition of Ball and Roller Bearings, except that for use in 225.7007, the term has the meaning given in the clause at 252.225-7019, Restriction on Acquisition of Anchor and Mooring Chain.

(c) ``End product'' is defined in the clause at 252.225-7012, Preference for Certain Domestic Commodities.

* * * * *

4. Section 225.7005-1 is revised to read as follows:

225.7005-1 Restriction.

In accordance with 10 U.S.C. 2534, do not acquire chemical weapons antidote contained in automatic injectors, or the components for such injectors, unless the chemical weapons antidote or component is manufactured in the United States or Canada by a company that--

(a) Has received all required regulatory approvals; and

(b) Has the plant, equipment, and personnel to perform the contract in the United States or Canada at the time of contract award.

5. Section 225.7101 is revised to read as follows:

225.7101 Definitions.

``Component'' and ``domestic manufacture,'' as used in this subpart, are defined in the clause at 252.225-7025, Restriction on Acquisition of Forgings.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

6. Section 252.225-7000 is amended by revising the clause date and paragraph (a) to read as follows:

252.225-7000 Buy American Act--Balance of Payments Program Certificate.

* * * * *

Buy American Act--Balance of Payments Program Certificate (DEC 2009)

(a) Definitions. ``Commercially available off-the-shelf (COTS) item,'' ``component,'' ``domestic end product,'' ``foreign end product,'' ``qualifying country,'' ``qualifying country end product,'' and ``United States'' have the meanings given in the Buy American Act and Balance of Payments Program clause of this solicitation.* * * * *

7. Section 252.225-7013 is amended by:

a. Revising the clause date;

b. Redesignating paragraphs (a)(1) through (3) as paragraphs (a)(2) through (4) respectively; and

c. Adding a new paragraph (a)(1) to read as follows:

252.225-7013 Duty-Free Entry.

* * * * *

Duty-Free Entry (DEC 2009)

(a) * * *

(1) ``Component'' means any item supplied to the Government as part of an end product or of another component.

* * * * *

8. Section 252.225-7019 is amended by:

a. Revising the clause date;

b. Redesignating paragraphs (a) through (c) as paragraphs (b) through (d) respectively;

c. Adding a new paragraph (a);

d. Amending newly designated paragraph (c) by removing ``paragraph (a) of this clause'' and by adding ``paragraph (b) of this clause'' in its place; and

e. Revising newly designated paragraph (d) to read as follows:

252.225-7019 Restriction on Acquisition of Anchor and Mooring Chain.

* * * * *

Restriction on Acquisition of Anchor and Mooring Chain (DEC 2009)

(a) Definition.

``Component,'' as used in this clause, means an article, material, or supply incorporated directly into an end product.

* * * * *

(d) The Contractor shall insert the substance of this clause, including this paragraph (d), in all subcontracts for items containing welded shipboard anchor and mooring chain, four inches or less in diameter.

9. Section 252.225-7025 is amended by:0

a. Revising the clause date;

b. Redesignating paragraphs (a)(1) and (2) as paragraphs (a)(2) and (3) respectively;

c. Adding a new paragraph (a)(1); and0

d. Revising newly designated paragraph (a)(2) and paragraph (b) to read as follows:

252.225-7025 Restriction on Acquisition of Forgings.

* * * * *

Restriction on Acquisition of Forgings (DEC 2009)

(a) * * *

(1) Component means any item supplied to the Government as part of an end product or of another component.

(2) Domestic manufacture means manufactured in the United States, its outlying areas, or Canada.

* * * * *

(b) End products and their components delivered under this contract shall contain forging items that are of domestic manufacture only.

* * * * *

10. Section 252.225-7035 is amended by revising the clause date and paragraph (a) to read as follows:

252.225-7035 Buy American Act--Free Trade Agreements--Balance of Payments Program Certificate.

* * * * *

Buy American Act--Free Trade Agreements--Balance of Payments Program Certificate (DEC 2009)

(a) Definitions. ``Bahrainian end product,'' ``commercially available off-the-shelf (COTS) item,'' ``component,'' ``domestic end product,'' ``Free Trade Agreement country,'' ``Free Trade Agreement country end product,'' ``foreign end product,'' ``Moroccan end product,'' ``qualifying country end product,'' and ``United States,'' as used in this provision, have the meanings given in the Buy American Act--Free Trade Agreements--Balance of Payments Program clause of this solicitation.

* * * * *

FR Doc E9-30294[Federal Register: December 24, 2009 (Volume 74, Number 246)]

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 252

Defense Federal Acquisition Regulations Supplement; Statutory Waiver for Commercially Available Off-the-Shelf Items (DFARS Case 2008-D009)

AGENCY: Defense Acquisition Regulations System, Department of Defense (DoD).

ACTION: Final rule.

SUMMARY: DoD has adopted as final, without change, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to conform to the FAR changes implementing the waiver of the component test of the Buy American Act to contracts and subcontracts. The Federal Acquisition Regulation (FAR) Case 2000-305 implemented 41 U.S.C. 431 with respect to the inapplicability of certain laws to contracts and subcontracts for the acquisition of commercially available off-the-shelf (COTS) items.

DATES: Effective Date: December 24, 2009.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition Regulations System, OUSD(AT&L) DPAP(DARS), IMD 3D139, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone 703-602-0328; facsimile 703-602-7887. Please cite DFARS Case 2008-D009.

SUPPLEMENTARY INFORMATION:

A. Background The Buy American Act (41 U.S.C. 10a-10b) uses a two-part test to define a ``domestic end product'' (manufactured in the United States and a formula based on cost of domestic components) (see FAR 25.001(c)(1) and definition of ``domestic end products'' at 25.003). The second part of this test is referred to as the ``component test.''

DoD published an interim rule on January 15, 2009 (74 FR 2422), to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to conform to the FAR changes implementing the waiver of the component test of the Buy American Act for the acquisition of commercially available off-the-shelf (COTS) items (FAR Case 2000-305), published as a final rule in the Federal Register on January 15, 2009 (74 FR 2713), and effective February 17, 2009.

The comment period on the DFARS interim rule closed on March 16, 2009.

DoD received two responses, both representing the view of manufacturers of specialty metals.

1. The rule has been promulgated and justified based on circular logic.

One respondent objects that the final rule under FAR Case 2000-305 and the interim rule under DFARS Case 2008-D009 employ circular reasoning in changing the definition of COTS item. The respondent states that ``each of the two rules is justified by pointing to the other.'' The respondent objects that GSA and DoD have adopted a rule without meaningfully addressing comments on the new COTS definition submitted in response to DoD's proposed rule 2008-D003.

Response: This case was not based on circular logic but on a progression from the DFARS proposed rule 2008-D003 to the FAR Case 2000-305 and to the interim rule under this DFARS Case 2008-D009. The comments submitted in response to the proposed rule were thoroughly reviewed and analyzed prior to the decision to incorporate this definition in the FAR rule and this DFARS rule and were then addressed in the Federal Register when the final rule 2008-D003 was subsequently published on July 29, 2009 (74 FR 52895).

2. Definition of COTS item should not allow modification to COTS items at higher tiers in the supply chain.

Both respondents opposed the definition of ``commercially available off-the-shelf (COTS) item'' because they consider it inconsistent with the statutory definition of COTS item (41 U.S.C. 431(c)) to allow modifications to occur at the next higher tier in the supply chain.

The respondents were concerned that an item could be substantially modified by downstream contractors prior to delivery to the Government.

One respondent stated that under this definition, a COTS item can be modified in any way and still retain its character as a COTS item.

The respondent further stated that this definition of COTS items results in the COTS exception applying to all commercial items.

The respondent is concerned that contractors may opt to deconstruct major equipment end items such as green aircraft with the expectation that this approach would leave them with just a very small set of items requiring compliance. The respondent considered that the use of the commercial derivative military article exception would be more appropriate.

The respondents cited language from the House Armed Services Committee report which stated that the exception for COTS items and components generally applies to items incorporated in non-commercial end items. The Committee also stated that if a contractor is using COTS items with more substantial modifications, it must use the de minimis or commercial derivative military article (CDMA) exceptions.

The respondents requested that DoD allow only modifications that are incidental to installation, joining, or incorporation into the non-commercial end item.

Response: The arguments of these respondents are not pertinent to this DFARS rule and this DFARS rule has no impact on these respondents. This case implements a waiver of the component test under the Buy American Act for end items that are COTS items. The concern of these respondents relates to treatment of components containing specialty metals as COTS items. Their rationale is applicable to the restrictions of 10 U.S.C. 2533b on acquisition of specialty metals, but not to the Buy American Act.

The comments relating to the House Report that accompanied the FY-09 Duncan Hunter National Defense Authorization Act are inapplicable to this case, as are the comments regarding exceptions for commercial derivative military articles and de minimis amounts of specialty metals, as these apply only to the specialty metals restriction at 10 U.S.C. 2533b.

The comments with regard to treatment of components as COTS items were addressed in more detail in the preamble to the final rule under DFARS Case 2008-D003 (74 FR 52895). However, the statement that, under this definition, COTS items that have been substantially modified are still considered to be COTS items is not accurate. The item must be provided to the next higher tier of the supply chain without modification. Whether it is a COTS item is determined at the time of transfer. DoD considers it reasonable to view COTS items that are provided from the global supply chain to the next higher tier supplier, without any modifications, to be ``delivered to the Government'' by those suppliers without modification. If DoD were not to view such items in this way, these COTS suppliers would not be able to provide globally available COTS items to the Government without burdensome investigations to track the eventual use of the COTS item to the end of the final assembly. Further, the COTS item definition, unlike the definition of ``commercial item'', requires that the item must be sold in substantial quantities in the commercial marketplace. This rule was subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1933.

B. Regulatory Flexibility Act DoD certifies that this final rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. Under the rule, all offerors and contractors (including small businesses) that provide U.S.-made items will no longer have to track the origin of the components in order to determine whether the items qualify as domestic end products or domestic construction material under the Buy American Act. While beneficial in acquisitions subject to the Buy American Act, the impact of this change is not considered to be a significant economic impact on small businesses, because DoD has already waived the component test for U.S.-made items in acquisitions that are subject to the World Trade Organization Government Procurement Agreement (WTO GPA), and contractors generally pass on to the Government the administrative costs incurred in complying with burdensome Government regulations such as the component test under the Buy American Act, or decline to sell to the Government. No comments were received with regard to impact on small business.

C. Paperwork Reduction Act The Paperwork Reduction Act (Pub. L. 104-13) applies, because this rule will result in some reduced burdens under OMB Control number 0704-0229, DFARS Part 225 and associated clauses. A Paperwork Burden Act Change to pertinent existing burdens has been submitted to the Office of Management and Budget under 44 U.S.C. 2502, et seq.

List of Subjects in 48 CFR Part 252

Government procurement. Amy G. Williams, Executive Editor, Defense Acquisition Regulations System.

PART 252--[AMENDED]

Interim Rule Adopted as Final Without Change

Accordingly, the interim rule amending 48 CFR Part 252, which was published at 74 FR 2422 on January 15, 2009, is adopted as a final rule without change.

END OF DCN 20091224