[Federal Register Volume 74, Number 144 (Wednesday, July 29, 2009)]
[Rules and Regulations]
[Pages 37626-37642]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-17967]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 202, 212, 225, and 252

RIN 0750-AF95


Defense Federal Acquisition Regulation Supplement; Restriction on 
Acquisition of Specialty Metals (DFARS Case 2008-D003)

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

ACTION: Final rule.

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SUMMARY: DoD has issued a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to address statutory 
restrictions on the acquisition of specialty metals not melted or 
produced in the United States. The rule implements Section 842 of the 
National Defense Authorization Act for Fiscal Year 2007 and Sections 
804 and 884 of the National Defense Authorization Act for Fiscal Year 
2008.

DATES: Effective Date: July 29, 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-D003.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 842 of the National Defense Authorization Act for Fiscal 
Year 2007 (Pub. L. 109-364) added new provisions at 10 U.S.C. 2533b, to 
address requirements for the purchase of specialty metals from domestic 
sources. Section 804 of the National Defense Authorization Act for 
Fiscal Year 2008 (Pub. L. 110-181) made amendments to 10 U.S.C. 2533b 
with regard to its applicability to commercial items,

[[Page 37627]]

electronic components, items containing minimal amounts of specialty 
metals, items necessary in the interest of national security, and items 
not available domestically in the required form. In addition, Section 
884 of the National Defense Authorization Act for Fiscal Year 2008 
added a requirement for DoD to publish a notice on the Federal Business 
Opportunities Web site before making a domestic nonavailability 
determination that would apply to more than one contract.
    DoD published a proposed rule at 73 FR 42300 on July 21, 2008. 
Sixteen sources submitted comments on the proposed rule. A discussion 
of the comments is provided below.

1. Definition of Commercially Available Off-the-Shelf (COTS) Item

    Comments: Five respondents stated that the definition of COTS item 
in the proposed rule was too broad, was inconsistent with the intent of 
Congress, and would allow modifications to occur at the next higher 
tier in the supply chain. One respondent stated that allowing 
modifications at the next higher tier in the supply chain would 
negatively affect the high performance magnet industry and would allow 
abuse of this exception.
    Several respondents were concerned that an item could be 
substantially modified by downstream contractors prior to delivery to 
the Government. One respondent recommended that DoD change the 
definition to state that anything contained in a COTS end item, as well 
as subcontracts for COTS subassemblies used in non-COTS end items, 
would be exempt, but non-exempted COTS items, such as mill products, 
forgings and castings, high performance magnets, and fasteners, that go 
directly into non-COTS end items or non-COTS assemblies would not be 
exempt. Another respondent requested that DoD allow only modifications 
that are incidental to installation, joining, or incorporation into the 
non-commercial end item. Some of these respondents cited language from 
the House Armed Services Committee report, which states that the 
exception for COTS items and components generally applies to items 
incorporated into non-commercial end items. The Committee report also 
states that, if a contractor is using COTS items with more substantial 
modifications, it must use the de minimis or commercial derivative 
military article exceptions.
    One respondent provided a few examples where the rule might lead to 
an increased use of foreign specialty metals and might allow 
substantial modification. In one example, a mill product in the form of 
bar or plate might be machined, rolled, and cut into a blank form by a 
subcontractor in Russia or China, but would still be considered a COTS 
item, and then might be used in military unique compressor blades. The 
blank would undergo substantial modification that altered the 
dimensions and metallurgy of the metal to meet military specifications 
before being offered to the Government.
    Several respondents wanted DoD to further clarify the difference 
between COTS and ``commercially available'' for suppliers to which the 
flowdown requirement applies.
    DoD Response: Section 804 of Public Law 110-181 clearly denies use 
of the COTS item exception for mill products and high performance 
magnets under any circumstances, and also for fasteners, castings, and 
forgings unless certain conditions are met. There is no reason for 
concern about the treatment of ``blanks'' as COTS items, because 10 
U.S.C. 2533b(h)(2)(A) specifically requires application of the 
restriction to contracts or subcontracts for the acquisition of 
specialty metals * * * that have not been incorporated into end items, 
subsystems, assemblies, or components. Blanks clearly fall into this 
category. Therefore, even if the blank is considered to be a COTS item, 
there would be no waiver of the specialty metals restrictions for the 
blank. The military-unique blade could not be made from a blank from 
China unless another exception applies.
    Other than those groupings of items specifically restricted, it is 
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 discover whether or not 
a particular item could be used. This would force COTS suppliers to 
track not only the sale of the particular COTS item, but also the 
eventual use of the COTS item to the end of the final assembly. Nowhere 
in the manufacturing or distribution chain of COTS items does such a 
rule exist, and it is unreasonable to require COTS suppliers to create 
one. The advantages to the taxpayer are evident. DoD's maximum use of 
COTS items results in cheaper, faster, and sufficient availability of 
such items, at satisfactory quality. Additionally, most DoD production 
programs have specifically been designed and developed with a growing 
reliance on non-developmental items to reduce costs to the taxpayer, 
with great effort not to rely on unique DoD solutions wherever 
possible. This benefits DoD, and also the taxpayer, by providing a 
reliable source of items at reasonable prices.
    The rule provides a clear definition of COTS items. This definition 
is flowed down with the clause to subcontractors at all tiers. The 
definition contains two additional criteria for a COTS item beyond the 
requirement for the item to be a commercial item.
    Comments: Several respondents stated that the COTS definition was 
too restrictive. One respondent stated that it is wasteful and costly 
to require sub-tier COTS suppliers to provide COTS items without 
modification to the next higher tier. The respondent stated that, in 
some cases, the modifications that occur after the next higher tier 
must be incorporated in the assembly process earlier, which requires 
disassembling, testing, and then reassembling of the COTS item under 
the rule's definition. The respondent stated that DoD should reconsider 
the need to accept the COTS items separately before allowing 
modifications, because it is wasteful and costly to require a serial 
approach.
    DoD Response: It is not possible to revise the rule as requested by 
these respondents and still be in compliance with the statutory 
definition of a COTS item and the statutory restrictions on the use of 
the COTS item exception. The law requires that a COTS item be offered 
to the Government without modification.

2. Definition of Component

    Comments: One respondent noted that the language in DoD Class 
Deviation 2008-O0002 states that items that are not incorporated in the 
six major end items are not considered to be components. The deviation 
states that items such as test equipment and ground support equipment 
are excluded from specialty metals restrictions. The respondent found 
this language critically important. Although it may be possible to 
infer these exclusions, the respondent recommended adding this language 
from the deviation explicitly to the rule, especially since, prior to 
the creation of 10 U.S.C. 2533b, items such as test equipment and 
ground support equipment were required to be compliant with the 
specialty metal restrictions.
    DoD Response: According to the principles set forth at DFARS 
201.301, the DFARS contains--
    (i) Requirements of law;
    (ii) DoD-wide policies;
    (iii) Delegations of FAR authorities;

[[Page 37628]]

    (iv) Deviations from FAR requirements; and
    (v) Policies/procedures that have a significant effect beyond the 
internal operating procedures of DoD or a significant cost or 
administrative impact on contractors or offerors.
    Relevant procedures, guidance, and information that do not meet 
these criteria are issued in the DFARS companion resource, Procedures, 
Guidance, and Information (PGI).
    Definition of the term ``component'' is a requirement of law. 
``Component'' is explicitly defined in the rule as ``any item supplied 
to the Government as part of an end item or of another component.'' 
Therefore, any items that are not incorporated into any of the items 
listed in DFARS 225.7003-2(a) are not components of those items. 
Because test equipment, ground support equipment, and shipping 
containers are just examples of items that may not be components of the 
missile system, these items are listed as examples in PGI 225.7003-
2(a).

3. Definition of Electronic Component

    The proposed rule defined ``electronic component'' as ``an item 
that operates by controlling the flow of electrons or other 
electrically charged particles in circuits, using interconnections of 
electrical devices such as resistors, inductors, capacitors, diodes, 
switches, transistors, or integrated circuits. The term does not 
include structural or mechanical parts of an assembly containing an 
electronic component.''
    Comments: One respondent stated that the rule's definition does a 
good job of defining the exclusion of the housing materials. Another 
respondent recommended use of the exact words from the Section 804 
report, which stated that the term ``electronic component'' does not 
include any assembly, such as a radar, that incorporates structural or 
mechanical parts.
    DoD Response: DoD maintains its interpretation of the Congressional 
report language as stated in the rule. DoD interprets the report 
language as stating that the whole radar assembly, including the 
structural or mechanical parts, cannot be considered an electronic 
component and, therefore, cannot be exempted in its entirety from the 
specialty metals restrictions. This should not be interpreted to imply 
that none of the components within the radar assembly can be considered 
to be electronic components. Components that otherwise meet the 
definition of ``electronic component'' within the radar assembly, other 
than structural and mechanical parts, are electronic components.
    Comments: One respondent stated that, because magnets control the 
flow of electrons and charged particles--
    [cir] A high performance magnet could easily be interpreted as an 
electronic component; or
    [cir] A larger assembly, comprised of many electrical devices as 
listed in the rule ``interconnected'' with one another, including high 
performance magnets, could be considered to be an electronic component.
    The respondent recommended clarification of the definition to avoid 
total exclusion of high performance magnets from the specialty metals 
restrictions, under the exception for electronic components.
    DoD Response: DoD concurs with this recommendation. While high 
performance magnets are almost always used in conjunction with 
electronic components, DoD concludes that the exception for electronic 
components should not exempt all high performance magnets from the 
specialty metals restrictions. Congressional intent on this point is 
clear, given the special treatment of high performance magnets in the 
COTS exception at 10 U.S.C. 2533b(h)(2)(c) and the minimum content 
exception at 10 U.S.C. 2533b(i)(2). Therefore, for purposes of this 
regulation, the definition of ``electronic component'' has been 
clarified to specifically exclude high performance magnets.

4. Definition of High Performance Magnet

    Comments: Three respondents had concerns on technical grounds with 
the rule's definition of high performance magnets as permanent magnets 
that obtain a majority of their properties from rare earth materials.
    [cir] One respondent stated that all alloying elements are 
important to magnetic properties and, since there is more cobalt than 
samarium in samarium-cobalt magnets, it is difficult to establish that 
a majority of the magnetic properties result from a magnet's samarium 
content.
    [cir] Several respondents stated that magnetic performance is not 
the only criterion used for defining high performance magnets. They 
also cited induction and coercivity as measures of magnetic properties 
and consider thermal properties of magnetic materials to be key 
measures of a magnet's ultimate performance in an application. One 
respondent recommended that the rule's definition provide a clear and 
objective meaning for the definition of high performance magnet--
providing specific standards to be met. The respondent disagreed with 
DoD's Background statement that magnets containing rare earth elements 
are technologically superior in magnetic performance to other types of 
magnets, because the technological superiority of one magnet over 
another is ultimately driven by the requirements of the application 
where it is used. The respondent also stated that, in addition to 
maximum energy product, parameters such as temperature stability, 
temperature range, resistance to demagnetization, corrosion resistance, 
mechanical toughness, and machinability contribute to the decision as 
to which type of magnet to use for a military application.
    These respondents were also concerned that limiting the definition 
to rare earth (such as samarium-cobalt) magnets and excluding alnico 
magnets would increase dependency on Chinese magnets and threaten 
national security. For example, one respondent expressed concern that, 
if alnico magnets are not included in the definition, alnico magnets 
that are COTS items will be exempt from the specialty metals 
restriction.
    Several respondents suggested that DoD use the definition from the 
Conference Report (H.R. 110-477), which provides that ``high 
performance magnet'' means permanent magnets containing 10 or more 
percent by weight of materials such as cobalt, samarium, or nickel.
    DoD Response: With regard to whether it is meaningful to define 
``high performance magnet'' as a permanent magnet that obtains a 
majority of its magnetic properties from rare earth metals: Cobalt, 
iron, and nickel are the three primary ferromagnetic metals and, 
therefore, are present in most, if not all, permanent magnets. However, 
it is the very strong magneto-crystalline anisotropy (the property of 
being directionally dependent) of certain rare earth elements that 
produces the exceptional magnetic behavior in the materials to which 
they are added. The partially filled 4f electron subshells in rare 
earths lead to magnetic properties in a manner similar to the partially 
filled 3d electron subshells in transition elements such as cobalt, 
iron, and nickel. However, the magnetic moment of a rare earth material 
is typically an order of magnitude greater than that in a transition 
element; and rare earths exhibit a large anisotropy due to dipolar 
interactions. In summary, rare earths possess very unique electron 
structures that produce extreme anisotropy in their magnetic 
properties.

[[Page 37629]]

    DoD technical experts have concluded that there is no industry 
standard definition for high performance magnets. However, magnet 
performance is measured using magnetic properties and temperature 
capability.
    [cir] Magnetic properties are summarized using maximum energy 
product. DoD technical experts reviewed various references that place 
heavy emphasis on the maximum energy product of a magnet as ``the 
figure of merit'' by which permanent-magnet materials are judged. The 
greater the maximum energy product of a permanent magnetic material, 
the more powerful the magnet, and the smaller the volume (and typically 
the weight) of the magnet required for a given application. The maximum 
energy products for rare earth magnets are significantly higher than 
those for ferrite and alnico materials, thus supporting their 
designation as ``high performance magnets.''
    [cir] Temperature stability is measured using maximum operating and 
Curie temperatures (the temperature below which there is a spontaneous 
magnetization in the absence of an externally applied magnetic field). 
Although alnico magnetic materials rank well on maximum use temperature 
and Curie temperature, this does not overcome the substantially lower 
maximum energy product.
    The maximum energy product ranking of various magnetic materials 
and temperature stability measurements are as follows:

----------------------------------------------------------------------------------------------------------------
                                                  Maximum energy
                Magnetic material                  product (kJ/m  Maximum energy  Max. use temp.    Curie temp.
                                                       \3\)       product (MGOe)     ([deg]C)        ([deg]C)
----------------------------------------------------------------------------------------------------------------
Steel...........................................             < 2             low           < 100
Co-Steels.......................................             1-8             < 1             100
Ferrites........................................            8-32             1-4             300             450
Alnico (AlNiCo).................................           11-72             1-9             550             860
Samarium-Cobalt (SmCo5).........................         130-210           16-25             300             750
Samarium-Cobalt (Sm2Co17).......................         160-260           20-32             550             825
Neodymium-Iron-Boron (Nd2Fe14B).................         200-450           25-50             150             315
----------------------------------------------------------------------------------------------------------------
(Data from MMPA Standard No. 0100-00).

    Of today's permanent magnets containing specialty metals, only 
samarium cobalt magnet materials possess the combination of properties 
necessary to be considered ``high performance magnets.'' The only other 
permanent magnets today that obtain a majority of their magnetic 
properties from rare earths are neodymium-iron-boron magnets. 
Neodymium-iron-boron magnets are high performance magnets, but normally 
do not contain specialty metals. Ferrites are not high performance 
magnets (as was erroneously stated in the preamble to the proposed 
rule), nor do they contain specialty metals.
    Representatives from permanent magnet suppliers asserted in 
discussions with DoD engineers that alnico magnets possessed superior 
toughness and calibration sensitivity qualities, and those qualities 
supported designating alnico magnets as high performance magnets. DoD 
engineers considered, but ultimately did not accept, that rationale.
    [cir] Mechanical strength and toughness generally are not employed 
as measures of merit for permanent magnets, because all permanent 
magnetic materials of interest (ferrites, rare-earths, and alnico) are 
hard and brittle. Section I, subsection 6.0, of Magnetic Materials 
Producers Association Standard No. 0100-00, Standard Specifications for 
Permanent Magnet Materials, states that most permanent magnet materials 
lack ductility and are inherently brittle. Such materials should not be 
utilized as structural components in a circuit. Measurement of 
properties such as hardness and tensile strength are not feasible on 
commercial materials with these inherent characteristics. Therefore, 
specifications of these properties are not acceptable.
    [cir] Finally, calibration sensitivity is an indication of 
precision but not of high performance.
    DoD technical experts agree that, in addition to maximum energy 
product, parameters such as temperature stability, temperature range, 
resistance to demagnetization, corrosion resistance, mechanical 
toughness, and machinability contribute to the decision as to which 
type of magnet to use for a military application. However, just because 
a particular magnetic material is most appropriate for a particular 
application does not mean that it is a high performance magnet. Not 
every application requires the use of a high performance magnet.
    Although DoD does not consider alnico magnets to be high 
performance magnets, regardless of the impact of this decision on the 
industry, DoD notes that representatives from permanent magnet 
suppliers further established in discussions with DoD technical experts 
that virtually all alnico and samarium cobalt magnets are made to 
unique customer specifications and are not COTS items. Accordingly, 
direct DoD purchase of such permanent magnets almost certainly would 
involve non-COTS magnets, which must comply with specialty metals 
provisions, whether or not the magnets are judged to be high 
performance magnets. With respect to permanent magnets incorporated 
into COTS subsystems or end items, such magnets, whether COTS or non-
COTS, high performance or not high performance, are by statute not 
required to utilize specialty metals melted or produced in the United 
States. Therefore, the definition of high performance magnet makes a 
difference only with regard to the 2 percent minimum content exception 
and has no significant impact on the use of alnico magnets for defense 
applications.
    To define ``high performance magnets'' as ``permanent magnets 
containing 10 percent or more by weight of materials such as cobalt, 
samarium, or nickel'' would be technically unsound and open-ended. 
Cobalt and nickel have been primary alloying elements for permanent 
magnet materials since exploration of these materials began over 100 
years ago. By this unbounded definition, almost all magnets would be 
covered.
    Therefore, no change has been made to the definition of high 
performance magnet.
    Comments: One respondent recommended a single, consistent, and 
narrow definition for high performance magnets. This respondent stated 
that it should mean only magnets that contain samarium cobalt. The 
respondent stated that the proposed rule used inconsistent definitions 
in the clause at 252.225-70X2 (now 252.225-7009) and in section 4.d. of 
the Background of the proposed rule. According to the respondent, 
section 4.d. stated that the restriction on acquisition of specialty

[[Page 37630]]

metals only impacts the acquisition of samarium cobalt high performance 
magnets; this is inconsistent with the clause, which provides an 
expanded definition of a high performance magnet as a permanent magnet 
that obtains a majority of its magnetic properties from rare earth 
metals (such as samarium).
    DoD Response: There is no inconsistency between the preamble to the 
proposed rule and the definition in the clause. Section 4.d. of the 
preamble clearly stated that the proposed rule defined ``high 
performance magnet'' to mean a permanent magnet that obtains a majority 
of its magnetic properties from rare earth metals (such as samarium). 
It then explained that, although the definition of ``high performance 
magnet'' includes various types of permanent magnets, samarium cobalt 
magnets are the only high performance magnets composed of specialty 
metal.
    The definition of ``high performance magnet'' is independent of the 
restriction on specialty metals. Therefore, it would be inappropriate 
to exclude neodymium-iron-boron magnets from the definition of high 
performance magnet because they do not consist of a specialty metal and 
are not impacted by this rule.

5. Definition of Produce

    Comments: Eight respondents expressed concern with the definition 
of ``produce'' in the proposed rule.
    [cir] Numerous respondents opposed the inclusion of any process 
other than melting, or its equivalent, in the definition of 
``produce,'' especially as applied to armor plate. One respondent 
stated that gas atomization, sputtering, and powder consolidation are 
production processes; the respondent did not object to their inclusion 
in the definition of ``produce,'' but the respondent would object to 
finishing processes, such as rolling, annealing, quenching, or 
tempering in the United States as sufficient to constitute production 
of titanium products in the United States (these processes apply only 
to armor plate in the proposed definition). Likewise, another 
manufacturer of titanium agreed that gas atomization, sputtering, or 
consolidation from powder using non-melt technology are the equivalent 
of production, but the definition should not be further expanded to 
secondary processes such as rolling and finishing processes.
    [cir] One respondent stated that the definition is contrary to law, 
indicating that the 1973 Specialty Metals Amendment required that 
specialty metals be melted in the United States. The respondent cited 
court cases that recognize a reasonable basis in the law for the DoD 
requirement that all specialty metals be melted in the United States.
    [cir] Various respondents stated that the words ``melted or 
produced'' in the statute were not intended to apply to secondary 
finishing processes such as quenching or tempering, which require a 
small percentage of the estimated investment for armor steel plate 
overall.
    [cir] One respondent stated that the definition is inappropriate 
because the processes of high performance magnets are completely 
unaddressed in the definition.
    [cir] Various respondents saw this as a dangerous precedent. 
Several respondents stated that the proposed rule's definition would 
encourage the use of foreign metals while discouraging investment in 
domestic industry. One respondent stated that, without a return to the 
emphasis on melting, this rule will be used to circumvent the intent of 
the law, importing melted products including high performance magnets, 
and conducting late-stage low-value finishing processes, such as 
magnetization, which the respondent considers to be a minor operation 
requiring little skill.
    [cir] Several respondents cited the additional restriction on armor 
plate in DFARS 252.225-7030, which requires armor plate to be melted 
and rolled in the United States. One respondent recommended that the 
rule define ``produce'' as melted or an equivalent process.
    [cir] While acknowledging DoD's critical need for armor steel plate 
for Mine Resistant Ambush Protection (MRAP) vehicles, several 
respondents suggested that DoD use other exceptions in the law, such as 
the availability or national security exception to procure armor steel 
plate. Several respondents stated that there is sufficient domestic 
capacity of armor steel plate melted, rolled and quenched, and tempered 
in the United States to meet DoD's demand.
    One respondent supported the inclusion of quenching and tempering 
in the definition of ``produce.'' This respondent stated that it 
converts slabs of alloy steel from Mexico to armored steel plates in 
the United States by altering the physical characteristics of the alloy 
steel through quenching and tempering.
    DoD Response: The law has never provided a definition of 
``produce'' with regard to the requirement to acquire domestic 
specialty metals. The 1973 DoD Appropriations Act (Pub. L. 92-570) 
added specialty metals to the annual Berry Amendment restrictions, 
requiring that restricted items be ``grown, reprocessed, reused, or 
produced in the United States.'' The Secretary of Defense at that time 
(Melvin Laird), in a memorandum setting forth DoD planned 
implementation of this restriction, interpreted this requirement to 
mean ``melted'' when applied to specialty metals, and the 
reasonableness of this interpretation was upheld in the courts. This 
does not mean that this is the only possible interpretation. When 
Congress created the new 10 U.S.C. 2533b, while following the Laird 
memo traditions in many respects, it reinstated ``or produced,'' 
allowing that melting was not the only acceptable process for creation 
of domestic specialty metal.
    According to DoD technical experts, quenching and tempering is not 
an insignificant process. Melting is only one stage in a multi-step 
process that is used to produce an item with properties that meet the 
requirements of an application, i.e., specifications. Melting for most 
metals accounts for about one third of the final price of a wrought 
product. Manufacturers have stated that the operations associated with 
forming and heat treating account for more than one-half of the price 
of a mill product such as plate. (The prices for mill products used by 
the military are typically higher than for commercial products due to 
more stringent military requirements.) Although alloying elements are 
added during ``melting,'' the primary casting (ingot, slab, bloom, 
etc.) does not possess the microstructures and/or phases that are 
required to produce desired properties. Using steel as an example, 
after primary casting, the metal is shaped and then heat treated to 
produce the desired properties in the final product. This is true for 
plate, wire, sheet, etc. Steel's versatility is primarily due to its 
extraordinary response to heat treatment. Heat treatment is used to 
control the microstructure and thus the properties of the steel. 
Different iron-carbon phases form at critical temperatures, and it is 
the combination and concentration of these phases that produce the 
desired mechanical properties in the steel. DoD experts believe that 
heat treatment may be the single most important stage in metals 
processing for DoD applications. The final properties of the metal are 
determined by the heat treat schedule. This is true for most if not all 
metals and their alloys. Heat treatment results in a product with 
properties that meet the specified requirements. The specifications for 
a material typically include not just chemistry but also the

[[Page 37631]]

mechanical and physical properties as well as the condition of the 
product, i.e., surface finish, flatness, waviness. Forming and heat 
treatment processes are very important to producing an item that meets 
the requirements of an application. It is after heat treatment that the 
item possesses all of the attributes that are needed for the required 
application.
    The concern that magnetization can be considered production under 
this rule is unfounded. The definition of ``produce'' has not been left 
to open-ended interpretation. It has narrowly specified what processes 
other than melting are included, and does not include magnetization. 
DoD does not see any impact on the high performance magnet industry 
from the definition of ``produce,'' because tempering and quenching 
processes are specifically restricted to the production of steel plate, 
and gas atomization and sputtering are restricted to the production of 
titanium.
    DoD acknowledges the additional restriction on armor plate in DFARS 
252.225-7030, which requires that armor plate be melted and rolled in 
the United States. Therefore, any acquisition of armor plate by DoD 
must satisfy both statutory restrictions.
    DoD performed an industrial capabilities assessment in 2007 to 
support rapid production of the MRAP vehicles and other important 
defense programs relying on protective armor. The assessment found that 
availability of thin gauge MIL-A grade steel armor was the limiting 
factor in domestic production. The industrial capabilities assessment 
identified a total of four North American steel mills collectively 
capable of producing up to 12,000 tons per month of thin gauge armor 
steel plate. All four reported that quench and temper operations (not 
steel melting capacity or ingot/slab availability) were the limiting 
factor in their ability to produce the thin gauge armor needed to meet 
U.S. military demand. In contrast to the demonstrated maximum North 
American MIL-A grade thin gauge armor steel plate production capacity 
of 12,000 tons per month, the American Iron and Steel Institute (via 
its Web site) asserts that domestic raw steel melt production per week 
is usually in excess of 2 million tons (8 million tons per month). To 
meet peak MRAP and other DoD requirements, the four mills made capital 
investments and process improvements that enabled a 100 percent 
increase (to 24,000 tons per month) in thin gauge armor steel plate 
production capacity. However, two of the mills rely on ingot/slab 
melted outside the United States. If these mills had been excluded from 
participation, the sustained MRAP production rate would have been 
limited to about 600 vehicles per month (instead of the actual 
sustained rate of 1,100 vehicles per month); and it would have taken 
twice as long to deploy MRAP vehicles into Iraq and Afghanistan.
    DoD also notes that the specialty steel industry does not object to 
the other expansions DoD provided in the definition of ``produce,'' 
such as gas atomization, sputtering of titanium, or titanium alloy 
powder. None of these processes are melting processes. It is 
inconsistent to accept some non-melt processes, but not others.
    DoD considered processing a domestic nonavailability determination 
under the nonavailability exception or the national security exception, 
but both avenues represented significant obstacles, and were rejected 
as unsuitable options. A national security exception requires that the 
contractor become compliant. The availability exception was determined 
to be impracticable, time-consuming, and inefficient.

6. Exception for Electronic Components

    Comments: One respondent especially applauded DoD efforts to revise 
the domestic source exceptions for electronic components. Another 
respondent, while supporting DoD's application of the electronic 
component exception, was concerned that, in practice, it will be 
applied by the supply chain more broadly than intended. For example, 
the respondent has seen the item applied to higher level electronic 
subsystems, consisting of dozens of sub-components or elements such as 
alternators, pumps, and motors, which are not primarily ``electronic 
components'' like circuit cards or arrays of solid state devices.
    DoD Response: The definition of electronic component clearly 
excludes structural or mechanical parts of an assembly containing an 
electronic component.

7. Exception for COTS Items

    Comments: One respondent applauded DoD's efforts to revise the 
domestic source exceptions for COTS items. Another respondent stated 
that deconstruction of major equipment, such as green aircraft, should 
not be allowed under the COTS exception. In that instance, the 
respondent recommended use of the commercial derivative military 
article exception.
    DoD Response: DoD disagrees that green aircraft must be considered 
under the commercial derivative military article exception. Funding 
constraints on major defense programs require DoD to acquire items at 
best value. DoD uses a best value approach to competition, meaning that 
DoD sets the performance requirements, but does not dictate 
specifications. If a prime contractor chooses to start with a COTS end 
item in order to save development time and the costs associated with 
that development, that is a benefit of which DoD would like to take 
advantage. DoD does not think it is reasonable to force COTS suppliers 
of items to change their procurement systems for DoD if the items they 
provide to DoD prime contractors are truly COTS items at the point of 
purchase.
    Comments: Another respondent was concerned that the rule made the 
COTS exception inapplicable to large classes of COTS products unless 
they are incorporated into a higher level COTS end item, subsystem, 
assembly, or component. The respondent stated that the House Armed 
Services Committee endorsed a broader definition by stating that this 
exception applies to all COTS products incorporated in non-commercial 
end items.
    DoD Response: The law places certain restrictions on application of 
the COTS item exception to fasteners, high performance magnets, and 
castings and forgings, versus other COTS items. The rule implements 
these statutory restrictions.

8. Exception for Fasteners--50 Percent Market-Basket Rule

    Comments: One respondent expressed support of the rule with respect 
to fasteners, stating that the rule would provide fastener 
manufacturers and distributors with the needed flexibilities to provide 
compliant fasteners and remain globally competitive.
    Several other respondents believed that the rule does not provide 
enough flexibility and should be streamlined. These respondents stated 
that--
    [cir] The rule should be liberalized with respect to commercial 
item fasteners and should allow contractors to provide metals according 
to the new statute's language regarding ``melted or produced.''
    [cir] It is a source of concern that the fastener exceptions apply 
to specialty metals melted domestically and do not appear to extend to 
specialty metals from qualifying countries.
    [cir] The rule requires daunting recordkeeping and is difficult to 
enforce.
    [cir] The rule is unclear with respect to whether the 50 percent 
applies to weight, volume, or dollars.
    [cir] The law was flawed with respect to its intention to apply the 
Buy American

[[Page 37632]]

restriction to the component level of major defense projects and 
remains a primary obstacle to the completion of projects.
    [cir] DoD should add a dollar threshold for applicability of the 
clause.
    DoD Response: Although the statute does not include ``or produced'' 
with regard to the specific exception for fasteners or the commercial 
derivative military article market-basket approaches, DoD interprets 
the statute to include ``or produced.'' For some titanium items, 
melting is not even part of the production process. This interpretation 
was reflected in section 225.7003-3(b)(3) of the proposed rule. The 
words ``or produced'' were erroneously omitted from the corresponding 
contract clause in the proposed rule, but have been added in the final 
rule at 252.225-7009(c)(3).
    The statute specifically requires that the metals be domestically 
melted. It does not provide an exception for metals from qualifying 
countries in the market-basket approach provided for commercial 
fasteners.
    The rule applies the 50 percent fastener market-basket rule based 
on the precise language in the statute, while providing flexibility for 
prime contractors and sub-tier suppliers to develop their own 
certification process and to determine whether to apply the 50 percent 
by weight, dollars, or volume. The responsibility for ensuring 
compliance rests with industry, specifically with the prime contractor 
to monitor compliance throughout its supply chain.
    It is the responsibility of DoD to implement the law as written. 
The law does not allow application of the simplified acquisition 
threshold exception beyond the prime contract level.

9. Exception for Qualifying Countries

    Comments: One respondent stated that the qualifying country 
exception disfavors U.S. industry by allowing DoD to purchase products 
containing specialty metals that were melted in qualifying countries, 
while prohibiting U.S. manufacturers from doing the same.
    Another respondent stated that DoD should expand the definition of 
``produce'' in DFARS 252.225-70X2(a) (now 252.225-7009(a)) to eliminate 
the ``qualifying country'' exception and to make explicit that the 
``qualifying country loophole'' at DFARS 225.7003-3(b)(4) has been 
eliminated. The respondent suggested that the expanded scope of 10 
U.S.C. 2533b, permitting the purchase of specialty metals or products 
containing specialty metals that are melted or produced in the United 
States, may be sufficiently broad to level the playing field between 
industry in the United States and in qualifying countries.
    DoD Response: A U.S. contractor or subcontractor may rely on the 
qualifying country exception to the extent that the contractor or 
subcontractor is buying an item containing specialty metals that is 
manufactured in a qualifying country. This exception to the 
restrictions of 10 U.S.C. 2533b(a)(1) is provided at 10 U.S.C. 
2533b(d), where the acquisition furthers a reciprocal procurement 
agreement with a foreign government.
    An ``uneven playing field'' is created only with regard to use of 
specialty metals not melted or produced in the United States or a 
qualifying country. Items manufactured in a qualifying country can 
include specialty metals melted or produced in non-qualifying 
countries, whereas U.S. manufacturers cannot include metals melted or 
produced in a non-qualifying country, unless another exception applies.
    Except when using the market-basket approach for fasteners or 
commercial derivative military article, the only instance where a U.S. 
prime contractor cannot use the qualifying country exception to 
purchase specialty metals melted or produced in a qualifying country is 
when the acquisition is subject to the restriction at 10 U.S.C. 
2533b(a)(2) (i.e., the acquisition of the specialty metal, such as raw 
bar stock, is to be provided to the Government as the end product), in 
which case DoD also cannot directly acquire such items using the 
qualifying country exception. This is because the exception for 
qualifying countries does not apply to the restriction at 10 U.S.C. 
2533b(a)(2).
    There is nothing in the definition of ``produce'' that applies to 
the qualifying country exception. However, the words ``or produced'' 
were erroneously omitted from the qualifying country exception in 
section 225.7003-3(b)(4) of the proposed rule. This omission has been 
corrected in the final rule.

10. Domestic Nonavailability Determinations (DNADs)

    Comments: Various respondents stated that the final rule should 
allow reliance on the Fastener DNAD, approved by the Under Secretary of 
Defense (Acquisition, Technology, and Logistics) on April 10, 2007, in 
cases where a supplier, at any tier, procured fasteners prior to July 
26, 2008, even if the DoD contract is awarded after that date. One 
respondent stated that many contractors purchased fasteners pursuant to 
the DNAD in good faith in order to fulfill existing and anticipated 
contracts and contract modifications. The respondents stated that this 
approach would allow use of current inventories without the need to 
segregate and track separately while ensuring no interruption in supply 
to DoD.
    DoD Response: The Fastener DNAD, along with three other broad DNADs 
approved by the Under Secretary of Defense (Acquisition, Technology, 
and Logistics) expired for use on new contracts after July 26, 2008, in 
accordance with DoD Class Deviation 2008-O0002 dated January 29, 2008. 
The decision to cancel these DNADs was based on the requirement in 
Section 804(h) of the Fiscal Year 2008 National Defense Authorization 
Act that, by July 26, 2008, any domestic nonavailability determination 
made under 10 U.S.C. 2533b must be reviewed and amended as necessary to 
comply with the changes made by Section 804.
    DoD performed market research and found sufficient quantity and 
satisfactory quality of fasteners of all types available that complied 
with the new exception.
    Additionally, in discussions with industry associations, DoD found 
consensus that Section 804 provided enough flexibilities, as noted in 
the comments received to this rule, including the fastener exception 
based on a commingling approach, the COTS item exception applicable to 
fasteners delivered in COTS items, the commercial derivative military 
article exception, and the minimum content exception, to suggest that 
the previous high concern regarding fasteners was no longer an issue. 
DoD asked industry to identify any items that were not available, but 
none were identified. Therefore, a determination was made to allow 
reliance on the DNADs until the expiration of the time period specified 
in the statute. DoD sees no evidence to delay the expiration of the 
fastener DNAD. Any contract awarded prior to July 26, 2008, that relied 
on the fastener DNAD can continue to rely upon it until the contract is 
complete.
    DoD notes that, based on the new definition of ``required form'' 
provided in Section 804, it is more difficult to justify 
nonavailability of an item such as a fastener, since the 
nonavailability of the specialty metal itself must be justified. Unless 
a fastener manufacturer or distributor can confirm the nonavailability 
of a specialty metal, a DNAD can no longer be approved under this 
exception.

11. Fair and Reasonable Price Criterion

    Comments: Two respondents stated that the ``fair and reasonable 
price''

[[Page 37633]]

criterion, included in section 225.7003-3(b)(5) of the proposed rule, 
was not supported by the statute; has the potential of distorting the 
market place; and was not the intent of Congress, because Congress 
eliminated the price criterion from the statute in the Fiscal Year 2007 
National Defense Authorization Act.
    DoD Response: DoD recognizes that the language in the availability 
exception at 10 U.S.C. 2533b(b) does not address price reasonableness; 
however, this does not eliminate the need for DoD to make fiscally 
prudent decisions. Section 15.402 of the Federal Acquisition Regulation 
establishes a fundamental requirement for the Government to purchase 
supplies at fair and reasonable prices. In the event that DoD found 
itself in a position where the cost of acquiring domestic specialty 
metal was deemed to be excessive when compared with the alternative, 
and all reasonable alternatives were researched and found to be 
unacceptable technically or otherwise, the fair and reasonable price 
criterion at 225.7003-3(b)(5) reminds contracting officers of their 
responsibility to be prudent with taxpayer money. This DFARS policy is 
provided with the understanding that some additional cost may be 
necessary when acquiring domestic specialty metals versus foreign; 
however, DoD cannot ignore its fiduciary responsibility entirely.

12. Minimum Content Exception

    Comments: One respondent noted appreciation for the recognition of 
the specialty metals minimum content exception. Another respondent was 
concerned that determining whether the minimum content exception in the 
proposed rule at 225.7003-3(b)(6) and 252.225-70X2(c)(6) (now 252.225-
7009(c)(6)) applies will be a time-consuming process. The respondent 
requested detailed guidance on how companies should determine whether 
they qualify for this exception. Several respondents believed that the 
proposed rule was unclear with respect to flowdown of the minimum 
content requirement.
    DoD Response: DoD concurs that implementation of the exception will 
be difficult. Therefore, the rule allows contractors to make a good 
faith estimate. DoD considers it preferable to provide contractors the 
flexibility to develop the methodology best suited to their own 
processes. The proposed rule provided for optional inclusion of the 
clause at 252.225-70X2 (now 252.225-7009) in subcontracts. The final 
rule requires contractors to include the substance of the clause in 
subcontracts for items containing specialty metals, to the extent 
necessary to ensure compliance of the end products that the contractor 
will deliver to the Government. Since the prime contractor is 
ultimately responsible for compliance with the specialty metals 
restriction, the language in the final rule was constructed to allow 
the prime contractor flexibility in applying and controlling the 
minimum content exception. The prime contractor may need to retain 
control of the application of the 2 percent threshold in the event some 
sub-tier parts exceed that threshold. Alternatively, the prime 
contractor may choose to flow down control of this exception to every 
level in its supply chain so that no supplier can exceed the 2 percent 
threshold. Regardless of which path the prime contractor chooses, the 
end product cannot exceed the 2 percent minimum content threshold at 
the end product level when relying on that exception.
    Comments: Several respondents recommended the following changes for 
consistency with the language at 10 U.S.C. 2533b(i):
    [cir] Revision of the initial phrase of the exception, from ``A 
minimal amount of otherwise noncompliant specialty metals * * *.'' to 
``Items containing a minimal amount of otherwise noncompliant specialty 
metals * * *''
    [cir] Revision of the statement ``This exception does not apply to 
the specialty metals in high performance magnets'' to ``This exception 
does not apply to high performance magnets containing specialty 
metals.''
    In addition, these respondents recommended revision of the 
parenthetical at 225.7003-6(b)(6), from ``(* * * specialty metals not 
melted or produced in the United States, that * * *)'' to ``(* * * 
specialty metals not melted or produced in the United States, an 
outlying area, or a qualifying country, that * * *)'' for consistency 
with the wording at 252.225-70X2(c)(6) (now 252.225-7009(c)(6)).
    DoD Response: DoD has revised the exceptions at 225.7003-3(b)(6) 
and 252.225-7009(c)(6) to begin with the phrase ``End items containing 
a minimal amount of otherwise noncompliant specialty metals * * *.'' 
The law makes it clear that the exception is for an item to be 
delivered to DoD. The 2 percent minimum content threshold is based on 
the total specialty metal in the end item.
    In addition, DoD has revised the statement regarding high 
performance magnets at 225.7003-3(b)(6) and 252.225-7009(c)(6) to read 
``This exception does not apply to high performance magnets containing 
specialty metals.''
    DoD did not adopt the recommendation to revise the wording at 
225.7003-3(b)(6) to address outlying areas and qualifying countries. 
The term ``United States,'' as used within DFARS Part 225, includes 
outlying areas, in accordance with the definition of ``United States'' 
at FAR 25.003. Further, at 225.7003-3, specialty metals melted or 
produced in a qualifying country is an exception covered in paragraph 
(b)(4); whereas in the clause at 252.225-7009, the exception for 
specialty metals melted or produced in a qualifying country has been 
built into the restriction in paragraph (b).

13. Commercial Derivative Military Article Market-Basket Approach

    Comments: Two respondents found the implementation of the 
commercial derivative military article exception impractical or 
unclear. One respondent requested additional guidance in either DFARS 
or the PGI on how to apply the 50 percent and 120 percent thresholds. 
Another respondent recommended alternative language for the regulation 
and the clause, because it was unlikely that a prime contractor and all 
of its subcontractors would or could enter into the agreements required 
by this provision due to the complexity and number of subcontractors 
involved on these major systems. The following is the recommended 
alternative language:
    DFARS 225.7003-3(c)(1)(i): ``The offeror must demonstrate that a 
sufficient quantity of domestic specialty metals has been or will be 
purchased by the combination of offeror and subcontracts as provided in 
offeror's certification''.
    DFARS 252.225-70X3(c) (now 252.225-7010)(c)): ``The offeror and its 
subcontractor(s) will demonstrate that individually or collectively 
they have entered into agreements to purchase an amount of domestic 
metals.''
    DoD Response: DoD has revised the commercial derivative military 
article exception based on the respondents' recommendations. However, 
DoD has retained the requirement for the offeror to certify that the 
offeror and its subcontractor(s) will enter into a contractual 
agreement or agreements to purchase a sufficient quantity of 
domestically melted or produced specialty metal, consistent with 10 
U.S.C. 2533b(j)(1)(B). The rule does not include specific procedures 
for application of this exception, to provide maximum flexibility for 
prime contractors.

[[Page 37634]]

14. National Security Waiver and One-Time Waiver

    One respondent stated appreciation for the national security waiver 
and codification of the one-time waiver.

15. Contingency Operations

    10 U.S.C. 2533b(c) contains an exception to the specialty metals 
restrictions for procurements outside the United States in support of 
combat or contingency operations. The proposed rule implemented this 
exception as two separate exceptions for--
    [cir] Acquisitions outside the United States in support of combat 
operations; and
    [cir] Acquisitions in support of contingency operations.
    Comments: One respondent considered this interpretation of the law 
to be grammatically incorrect and in conflict with the underlying logic 
of the exception. The respondent stated that--
    [cir] Grammatically, the prepositional phrase ``outside the United 
States'' contained in the statute follows immediately after the noun 
``procurement'' and so modifies the noun with respect to both of the 
subsequent prepositional phrases.
    [cir] The logic of the exception is to make it easier for DoD to 
acquire supplies locally when it is operating outside the United 
States. The same logic would not support an exception for contingency 
operations conducted in the United States.
    DoD Response: While acknowledging that grammatically the law could 
be read as recommended by the respondent, DoD notes that the exceptions 
for acquisitions outside the United States in support of combat 
operations and acquisitions in support of contingency operations are 
pre-existing exceptions implemented at DFARS 225.7002-2(d) and (f)(1). 
These exceptions are consistent with the exception at 10 U.S.C. 
2533a(d)(1) which, prior to the establishment of 10 U.S.C. 2533b, 
applied to specialty metals as well as food and hand or measuring 
tools, and was worded as follows: ``Procurements outside the United 
States in support of combat operations or procurements of any item 
listed in subsection (b)(1)(A) [food], (b)(2) [specialty metals], or 
(b)(3) [hand or measuring tools] in support of contingency 
operations.'' Although the new exception for specialty metals at 10 
U.S.C. 2533b does not repeat the words ``procurements of'', there is no 
indication of any intent by Congress to change the exception for 
contingencies to apply only outside the United States. Urgent 
requirements for contingency operations exist both inside and outside 
the United States.

16. Prescription for Clause at DFARS 252.225-7009, Restriction on 
Acquisition of Certain Articles Containing Specialty Metals

    Comments: One respondent questioned why the clause prescription 
limits the exceptions to use of the clause to those specified at 
225.7003-3(a) and (d), rather than all exceptions in 225.7003-3(a) 
through (d).
    Another respondent stated that the clause should not be included in 
contracts for electronic components, since the Defense Priorities and 
Allocations System (DPAS) rating DO-A7 applies to orders for electronic 
and communications equipment.
    DoD Response: DoD concluded that the exceptions at 225.7003-3(a) 
and (d) describe situations that would apply to the entire acquisition; 
therefore, inclusion of the clause would be unnecessary. The exceptions 
in paragraph 225.7003-3(b) are more likely to apply only to certain 
items or components of items within an acquisition. Electronic or 
communications equipment would likely include parts that were not 
covered by the narrow definition of electronic component at 252.225-
7009; therefore, the clause would be applicable to those parts. With 
regard to exclusion of the clause from all contracts rated DO-A7, there 
is no statutory basis for such as exception.
    The clause at 252.225-7009 is applicable to acquisitions that use 
the exception at 225.7003-3(c) for commercial derivative military 
articles, as the procedures for use of this exception are addressed 
within the clause in paragraph (d).

17. Flowdown of the Clause at 252.225-70X2 (Now 252.225-7009)

    Paragraph (e) of the clause at 252.225-70X2 in the proposed rule 
permitted, but did not require, inclusion of the clause in subcontracts 
for items containing specialty metals.
    Comments: A number of respondents were concerned with the lack of 
mandatory flowdown of the clause to subcontracts.
    [cir] One respondent stated that the lack of mandatory flowdown 
would essentially remove the requirements of the specialty metals 
provisions for high performance magnets, due to the fact that high 
performance magnets are typically supplies in tier three to tier six.
    [cir] One respondent stated that, while prime contractors generally 
prefer flexibility in their subcontracts, in this instance, it is 
preferable to have a mandatory flowdown to help all parties comply and 
ensure greater consistency.
    [cir] Another respondent stated that subcontractors may refuse to 
accept the clause since flowdown is not mandatory.
    [cir] One respondent found it unclear as to when the clause is to 
be included in subcontracts. This respondent stated that if the prime 
contractor is delivering an item that meets an exception in paragraph 
(c)(1) of the clause, the clause should not be required in subcontracts 
with lower tier subcontractors.
    [cir] One respondent recommended that the clause only flow down to 
subcontracts for components exceeding a certain dollar value.
    DoD Response: It is incorrect to assume that the specialty metals 
requirements will not apply to high performance magnets at lower tiers 
if the clause does not flow down to subcontracts. It is always the 
responsibility of the prime contractor to comply with the requirements 
imposed by the Government in the contract. However, DoD has reworded 
paragraph (e) of the clause at 252.225-7009 to make it clear that 
flowdown is required to the extent necessary to comply with contract 
requirements. In addition, paragraph (e) has been amended to direct the 
contractor to modify paragraph (c)(6) of the clause as necessary for 
subcontracts, to facilitate management of the 2 percent minimum content 
exception addressed in paragraph (c)(6). Only the contractor can 
determine the application of the 2 percent minimum content exception, 
because it applies to the end product. Therefore, the contractor will 
determine what percentage a subcontractor must meet to satisfy contract 
requirements.
    Likewise, if the contractor, or a subcontractor, is providing an 
item that meets an exception in (c)(1) (e.g., manufactured in a 
qualifying country), the clause should not be flowed down beyond that 
point. Lower tier subcontractors would not need to comply if a higher 
tier subcontractor was going to use their items in a product 
manufactured in a qualifying country. Therefore, in such circumstances, 
the contractor or subcontractor does not need to flow down the clause 
to meet the contractual requirement and should not do so.
    Limiting flowdown to components that exceed a certain dollar 
threshold would not meet the statutory requirement, which specifies 
application to all components of any of the 6 major product categories.

[[Page 37635]]

18. Contractor Reporting Requirement

    Comments: Four respondents described the proposed implementation of 
the statutory reporting requirement at 225.7003-3(b)(2)(iii) and 
252.225-70X4 (now 252.225-7029) as unnecessary and burdensome and 
suggested deletion or simplification. The respondents stated the 
following:
    [cir] The information is already available to DoD and any 
unavailable data needed can be obtained through an industry survey.
    [cir] A dollar threshold should be provided to make it more 
manageable, such as an exemption for items with a unit cost of less 
than $100.
    [cir] It is unclear whether commercial fasteners acquired under the 
rules of DoD Class Deviation 2008-O0002 are excluded.
    [cir] The contract-by-contract reporting requirement should be 
eliminated.
    [cir] The statute does not require reporting of the dollar value of 
the non-commercial item or the dollar value of the COTS item to which 
the exception applies.
    [cir] The statute does not require reporting the NAICS code.
    [cir] The rule should clarify that the reporting requirement 
applies only to prime contractors, because fastener manufacturers and 
distributors would not know whether the fastener was going to be 
provided in a COTS item (and therefore would be excepted), or whether 
it would be provided directly into a noncommercial end item.
    One respondent pointed out that the Federal Register notice was 
incorrect in stating that the law required reporting of information 
regarding the acquisition of noncommercial end items incorporating COTS 
items containing non-domestic specialty metal. The respondent stated 
that neither the statute, nor the proposed DFARS text, require the 
reporting of the type of specialty metal in COTS items incorporated 
into a non-COTS end item (i.e., no requirement to identify only those 
COTS items with non-domestic specialty metal).
    DoD Response: The intent of the clause at 252.225-7029 is to obtain 
information on COTS items incorporated into noncommercial end products, 
only if those COTS items were acquired using the exception authority 
provided at 10 U.S.C. 2533b(h) (as implemented in paragraph (c)(2) of 
the clause at DFARS 252.225-7009). It would not be necessary to use 
this exception if a COTS item is known to contain specialty metals 
melted or produced in the United States. However, the exception could 
be used if the source of the specialty metals in a COTS item is known 
to be non-domestic or is unknown.
    The report required by the clause at 252.225-7029 is designed to 
collect consistent data on the description of the types of items being 
acquired as COTS items under the exception in paragraph (c)(2) of the 
clause at DFARS 252.225-7009. To alleviate the burden on prime 
contractors, who are ultimately responsible for reporting this 
information to DoD, and to ensure consistency in the data reported, a 
point and click reporting tool is provided for reporting this data at: 
http://www.acwq.osd.mil/dpap/cpic/ic/restrictions_on_specialty_metals_10_usc_2533b.html.
    DoD cannot eliminate the contractor reporting requirement, because 
DoD has no other way to obtain meaningful information to prepare the 
report to Congress required by Section 804(i) of Public Law 110-181. An 
industry survey is not possible in the time allowed for this report.
    After reviewing the comments, DoD has amended the reporting 
requirement as follows:
    [cir] Inclusion of a threshold of $100 per item value. Although the 
statute does not provide a dollar threshold, inclusion of a threshold 
eliminating the requirement to report COTS items of $100 or less 
appears to be a reasonable interpretation of the requirement.
    [cir] Clarification that commercial fasteners acquired under a 
domestic non-availability determination, or any exception other than 
COTS, need not be reported.
    [cir] Elimination of the collection of the information on a 
contract-by-contract basis.
    [cir] Elimination of the requirement for contractors to provide 
dollar values, recognizing that this requirement was not specified by 
statute and could be a burden to contractors and subcontractors.
    DoD did not eliminate the use of NAICS codes, as their use permits 
organization of the data and allows DoD to provide a point-and-click 
Web reporting system that requires the contractor to make limited 
choices from a menu of finite options.
    DoD agrees that the prime contractor is responsible for this 
reporting requirement. This is clear in that the clause at 252.225-7029 
does not include any flowdown requirement. The report applies to any 
COTS items incorporated in non-commercial items when the COTS exception 
was relied upon. Implicit in this requirement is the prime contractor's 
responsibility to work with its supply chain as necessary to determine 
which items are relying on this exception.

19. Internal DoD Reporting Requirement

    Comment: One respondent opposed the requirement for DoD buying 
activities to report use of the exception for COTS end items valued at 
$5 million or more per COTS item.
    DoD Response: DoD wants to ensure that the COTS item exception is 
used only where appropriate and, therefore, has adopted this internal 
reporting requirement to monitor its use.

20. Procedures, Guidance, and Information (PGI)

    Comment: One respondent stated that the PGI sections that accompany 
proposed rules should be published, even though the PGI does not 
require public comment.
    DoD Response: The draft PGI coverage associated with a proposed 
rule is available in the corresponding change notice published on the 
DPAP Web site at http://www.acq.osd.mil/dpap/dars/change_notices.html.


    Note: The amendments to the clause at 252.212-7001, that add 
252.247-7003 and revise the dates of 252.225-7021 and 252.225-7036, 
are shown with the amendments to this rule for administrative 
purposes only. The addition of 252.247-7003 to 252.212-7001 is part 
of the interim rule for DFARS Case 2008-D040 published elsewhere in 
this edition of the Federal Register. The revision of the dates of 
252.225-7021 and 252.225-7036 is part of the interim rule for DFARS 
Case 2008-D046 also published elsewhere in this edition of the 
Federal Register. Revision of the date of 252.225-7036, Alternate I, 
is a result of a DFARS technical amendment published elsewhere in 
this edition of the Federal Register.

    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 has prepared a final regulatory flexibility analysis consistent 
with 5 U.S.C. 604. A copy of the analysis may be obtained from the 
point of contact specified herein. The analysis is summarized as 
follows:
    This final rule amends the Defense Federal Acquisition Regulation 
Supplement to implement 10 U.S.C. 2533b, as established by Section 842 
of the National Defense Authorization Act for Fiscal Year 2007 (Pub. L. 
109-364) and Sections 804 and 884 of the National Defense Authorization 
Act for Fiscal Year 2008 (Pub. L. 110-181). 10 U.S.C. 2533b places 
restrictions on DoD acquisition of specialty metals not melted or 
produced in the United States. Two respondents disagreed with

[[Page 37636]]

the statement in the Initial Regulatory Flexibility Analysis that 
producers of specialty metals are generally large businesses. One of 
the two respondents stated that specialty metals manufacturers are 
often small businesses that are employee or family owned. The second 
respondent stated that ``our entire industry employs less than 600 
people, yet it remains a competitive and critical member of the DoD 
supply-chain.'' However, these respondents are magnet producers, not 
specialty metals producers. According to information available to DoD, 
most specialty metals producers are large businesses. There is a high 
capitalization requirement to establish a business that can melt or 
produce specialty metals. The small business size standard for primary 
metal manufacturing ranges from 500 to 1,000 employees. All the 
specialty metals producers reviewed by DoD had more than 1,000 
employees. The rule provides special protection for high performance 
magnets containing domestic specialty metals, as provided in the law.

C. Paperwork Reduction Act

    The provision at 252.225-7010, Commercial Derivative Military 
Article--Specialty Metals Compliance Certificate, and the clause at 
252.225-7029, Reporting of Commercially Available Off-the-Shelf Items 
that Contain Specialty Metals and are Incorporated into Noncommercial 
End Items, contain new information collection requirements. The Office 
of Management and Budget has approved the information collection 
requirements for use through June 30, 2012, under Control Number 0704-
0459.

List of Subjects in 48 CFR Parts 202, 212, 225, and 252

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Therefore, 48 CFR Parts 202, 212, 225, and 252 are amended as follows:
0
1. The authority citation for 48 CFR Parts 202, 212, 225, and 252 
continues to read as follows:

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

PART 202--DEFINITIONS OF WORDS AND TERMS


202.101  [Amended]

0
2. Section 202.101 is amended by removing the definition of 
``Commercially available off-the-shelf item''.

PART 212--ACQUISITION OF COMMERCIAL ITEMS

0
3. Section 212.301 is amended by adding paragraph (f)(xiii) to read as 
follows:


212.301  Solicitation provisions and contract clauses for the 
acquisition of commercial items.

    (f) * * *
    (xiii) Use the provision at 252.225-7010, Commercial Derivative 
Military Article--Specialty Metals Compliance Certificate, as 
prescribed in 225.7003-5(b).

0
4. Section 212.570 is revised to read as follows:


212.570  Applicability of certain laws to contracts and subcontracts 
for the acquisition of commercially available off-the-shelf items.

    Paragraph (a)(1) of 10 U.S.C. 2533b, Requirement to buy strategic 
materials critical to national security from American sources, is not 
applicable to contracts and subcontracts for the acquisition of 
commercially available off-the-shelf items, except as provided at 
225.7003-3(b)(2)(i).

PART 225--FOREIGN ACQUISITION

0
5. Section 225.7001 is amended by revising paragraph (b) and removing 
paragraph (d). The revised text reads 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.
* * * * *

0
6. Section 225.7002 is added to read as follows:


225.7002  Restrictions on food, clothing, fabrics, and hand or 
measuring tools.


225.7002-1  [Amended]

0
7. Section 225.7002-1 is amended by removing paragraph (b) and 
redesignating paragraph (c) as paragraph (b).

0
8. Section 225.7002-2 is amended as follows:
0
a. In paragraph (b), in the first sentence, by removing ``or (b)'';
0
b. By adding paragraph (b)(1)(v);
0
c. By revising paragraphs (b)(3) and (b)(4);
0
d. By removing paragraph (b)(5);
0
e. In paragraph (f) introductory text, by removing ``, specialty 
metals,'';
0
f. By removing paragraphs (m) and (n);
0
g. By redesignating paragraphs (o) and (p) as paragraphs (m) and (n) 
respectively; and
0
h. By removing paragraph (q). The added and revised text reads as 
follows:


225.7002-2  Exceptions.

* * * * *
    (b) * * *
    (1) * * *
    (v) The Director of the Defense Logistics Agency.
* * * * *
    (3) Defense agencies other than the Defense Logistics Agency shall 
follow the procedures at PGI 225.7002-2(b)(3) when submitting a request 
for a domestic nonavailability determination.
    (4) Follow the procedures at PGI 225.7002-2(b)(4) for reciprocal 
use of domestic nonavailability determinations.
* * * * *


225.7002-3  [Amended]

0
9. Section 225.7002-3 is amended by removing paragraph (b) and 
redesignating paragraph (c) as paragraph (b).

0
10. Section 225.7003 is revised to read as follows:


225.7003  Restrictions on acquisition of specialty metals.

0
11. Sections 225.7003-1 through 225.7003-5 are added to read as 
follows:


225.7003-1  Definitions.

    As used in this section--
    (a) Assembly, commercial derivative military article, commercially 
available off-the-shelf item, component, electronic component, end 
item, high performance magnet, required form, and subsystem are defined 
in the clause at 252.225-7009, Restriction on Acquisition of Certain 
Articles Containing Specialty Metals.
    (b) Automotive item--
    (1) Means a self-propelled military transport tactical vehicle, 
primarily intended for use by military personnel or for carrying cargo, 
such as--
    (i) A high-mobility multipurpose wheeled vehicle;
    (ii) An armored personnel carrier; or
    (iii) A troop/cargo-carrying truckcar, truck, or van; and
    (2) Does not include--
    (i) A commercially available off-the-shelf vehicle; or
    (ii) Construction equipment (such as bulldozers, excavators, lifts, 
or loaders) or other self-propelled equipment (such as cranes or 
aircraft ground support equipment).
    (c) Produce and specialty metal are defined in the clauses at 
252.225-7008,

[[Page 37637]]

Restriction on Acquisition of Specialty Metals, and 252.225-7009, 
Restriction on Acquisition of Certain Articles Containing Specialty 
Metals.


225.7003-2  Restrictions.

    The following restrictions implement 10 U.S.C. 2533b. Except as 
provided in 225.7003-3--
    (a) Do not acquire the following items, or any components of the 
following items, unless any specialty metals contained in the items or 
components are melted or produced in the United States (also see 
guidance at PGI 225.7003-2(a)):
    (1) Aircraft.
    (2) Missile or space systems.
    (3) Ships.
    (4) Tank or automotive items.
    (5) Weapon systems.
    (6) Ammunition.
    (b) Do not acquire a specialty metal (e.g., raw stock, including 
bar, billet, slab, wire, plate, and sheet; castings; and forgings) as 
an end item, unless the specialty metal is melted or produced in the 
United States. This restriction applies to specialty metal acquired by 
a contractor for delivery to DoD as an end item, in addition to 
specialty metal acquired by DoD directly from the entity that melted or 
produced the specialty metal.


225.7003-3  Exceptions.

    Procedures for submitting requests to the Under Secretary of 
Defense (Acquisition, Technology, and Logistics) (USD(AT&L)) for a 
determination or approval as required in paragraph (b)(5), (c), or (d) 
of this subsection are at PGI 225.7003-3.
    (a) Acquisitions in the following categories are not subject to the 
restrictions in 225.7003-2:
    (1) Acquisitions at or below the simplified acquisition threshold.
    (2) Acquisitions outside the United States in support of combat 
operations.
    (3) Acquisitions in support of contingency operations.
    (4) Acquisitions for which the use of other than competitive 
procedures has been approved on the basis of unusual and compelling 
urgency in accordance with FAR 6.302-2.
    (5) Acquisitions of items specifically for commissary resale.
    (6) Acquisitions of items for test and evaluation under the foreign 
comparative testing program (10 U.S.C. 2350a(g)). However, this 
exception does not apply to any acquisitions under follow-on production 
contracts.
    (b) One or more of the following exceptions may apply to an end 
item or component that includes any of the following, under a prime 
contract or subcontract at any tier. The restrictions in 225.7003-2 do 
not apply to the following:
    (1) Electronic components, unless the Secretary of Defense, upon 
the recommendation of the Strategic Materials Protection Board pursuant 
to 10 U.S.C. 187, determines that the domestic availability of a 
particular electronic component is critical to national security.
    (2)(i) Commercially available off-the-shelf (COTS) items containing 
specialty metals, except the restrictions do apply to contracts or 
subcontracts for the acquisition of--
    (A) Specialty metal mill products, such as bar, billet, slab, wire, 
plate, and sheet, that have not been incorporated into end items, 
subsystems, assemblies, or components. Specialty metal supply contracts 
issued by COTS producers are not subcontracts for the purposes of this 
exception;
    (B) Forgings or castings of specialty metals, unless the forgings 
or castings are incorporated into COTS end items, subsystems, or 
assemblies;
    (C) Commercially available high performance magnets that contain 
specialty metal, unless such high performance magnets are incorporated 
into COTS end items or subsystems (see PGI 225.7003-3(b)(6) for a table 
of applicability of specialty metals restrictions to magnets); and
    (D) COTS fasteners, unless--
    (1) The fasteners are incorporated into COTS end items, subsystems, 
or assemblies; or
    (2) The fasteners qualify for the commercial item exception in 
paragraph (b)(3) of this subsection.
    (ii) If this exception is used for an acquisition of COTS end items 
valued at $5 million or more per item, the acquiring department or 
agency shall submit an annual report to the Director, Defense 
Procurement and Acquisition Policy, in accordance with the procedures 
at PGI 225.7003-3(b)(2).
    (iii) During fiscal year 2009, contractors are required to report 
use of this exception to acquire COTS items containing specialty metal 
that are incorporated into a noncommercial end item (see 252.225-7029).
    (3) Fasteners that are commercial items and are acquired under a 
contract or subcontract with a manufacturer of such fasteners, if the 
manufacturer has certified that it will purchase, during the relevant 
calendar year, an amount of domestically melted or produced specialty 
metal, in the required form, for use in the production of fasteners for 
sale to DoD and other customers, that is not less than 50 percent of 
the total amount of the specialty metal that the manufacturer will 
purchase to carry out the production of such fasteners for all 
customers.
    (4) Items listed in 225.7003-2(a), manufactured in a qualifying 
country or containing specialty metals melted or produced in a 
qualifying country.
    (5) Specialty metal in any of the items listed in 225.7003-2 if the 
USD(AT&L), or an official authorized in accordance with paragraph 
(b)(5)(i) of this subsection, determines that specialty metal melted or 
produced in the United States cannot be acquired as and when needed at 
a fair and reasonable price in a satisfactory quality, a sufficient 
quantity, and the required form (i.e., a domestic nonavailability 
determination). See guidance in PGI 225.7003-3(b)(5).
    (i) The Secretary of the military department concerned is 
authorized, without power of redelegation, to make a domestic 
nonavailability determination that applies to only one contract.
    The supporting documentation for the determination shall include--
    (A) An analysis of alternatives that would not require a domestic 
nonavailability determination; and
    (B) Written documentation by the requiring activity, with 
specificity, why such alternatives are unacceptable.
    (ii) A domestic nonavailability determination that applies to more 
than one contract (i.e., a class domestic nonavailability 
determination), requires the approval of the USD(AT&L).
    (A) At least 30 days before making a domestic nonavailability 
determination that would apply to more than one contract, the USD(AT&L) 
will, to the maximum extent practicable, and in a manner consistent 
with the protection of national security and confidential business 
information--
    (1) Publish a notice on the Federal Business Opportunities Web site 
(http://www.FedBizOpps.gov or any successor site) of the intent to make 
the domestic nonavailability determination; and
    (2) Solicit information relevant to such notice from interested 
parties, including producers of specialty metal mill products.
    (B) The USD(AT&L)--
    (1) Will take into consideration all information submitted in 
response to the notice in making a class domestic nonavailability 
determination;
    (2) May consider other relevant information that cannot be made 
part of the public record consistent with the protection of national 
security information and confidential business information; and

[[Page 37638]]

    (3) Will ensure that any such domestic nonavailability 
determination and the rationale for the determination are made publicly 
available to the maximum extent consistent with the protection of 
national security and confidential business information.
    (6) End items containing a minimal amount of otherwise noncompliant 
specialty metals (i.e., specialty metals not melted or produced in the 
United States that are not covered by another exception listed in this 
paragraph (b)), if the total weight of noncompliant specialty metal 
does not exceed 2 percent of the total weight of all specialty metal in 
the end item. This exception does not apply to high performance magnets 
containing specialty metals. See PGI 225.7003-3(b)(6) for a table of 
applicability of specialty metals restrictions to magnets.
    (c) Compliance for commercial derivative military articles. The 
restrictions at 225.7003-2(a) do not apply to an item acquired under a 
prime contract if--
    (1) The offeror has certified, and subsequently demonstrates, that 
the offeror and its subcontractor(s) will individually or collectively 
enter into a contractual agreement or agreements to purchase a 
sufficient quantity of domestically melted or produced specialty metal 
in accordance with the provision at 252.225-7010; and
    (2) The USD(AT&L), or the Secretary of the military department 
concerned, determines that the item is a commercial derivative military 
article (defense agencies see procedures at PGI 225.7003-3). The 
contracting officer shall submit the offeror's certification and a 
request for a determination to the appropriate official, through agency 
channels, and shall notify the offeror when a decision has been made.
    (d) National security waiver. The USD(AT&L) may waive the 
restrictions at 225.7003-2 if the USD(AT&L) determines in writing that 
acceptance of the item is necessary to the national security interests 
of the United States (see procedures at PGI 225.7003-3). This authority 
may not be delegated.
    (1) The written determination of the USD(AT&L)--
    (i) Shall specify the quantity of end items to which the national 
security waiver applies;
    (ii) Shall specify the time period over which the national security 
waiver applies; and
    (iii) Shall be provided to the congressional defense committees 
before the determination is executed, except that in the case of an 
urgent national security requirement, the determination may be provided 
to the congressional defense committees up to 7 days after it is 
executed.
    (2) After making such a determination, the USD(AT&L) will--
    (i) Ensure that the contractor or subcontractor responsible for the 
noncompliant specialty metal develops and implements an effective plan 
to ensure future compliance; and
    (ii) Determine whether or not the noncompliance was knowing and 
willful. If the USD(AT&L) determines that the noncompliance was knowing 
and willful, the appropriate debarring and suspending official shall 
consider suspending or debarring the contractor or subcontractor until 
such time as the contractor or subcontractor has effectively addressed 
the issues that led to the noncompliance.
    (3) Because national security waivers will only be granted when the 
acquisition in question is necessary to the national security interests 
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.


225.7003-4  One-time waiver.

    DoD may accept articles containing specialty metals that are not in 
compliance with the specialty metals clause of the contract if--
    (a) Final acceptance takes place before September 30, 2010;
    (b) The specialty metals were incorporated into items (whether end 
items or components) produced, manufactured, or assembled in the United 
States before October 17, 2006;
    (c) The contracting officer determines in writing that--
    (1) It would not be practical or economical to remove or replace 
the specialty metals incorporated in such items or to substitute items 
containing compliant materials;
    (2) The contractor and any subcontractor responsible for providing 
items containing non-compliant specialty metals have in place an 
effective plan to ensure compliance with the specialty metals clause of 
the contract for future items produced, manufactured, or assembled in 
the United States; and
    (3) The non-compliance was not knowing or willful;
    (d) The determination is approved by--
    (1) The USD(AT&L); or
    (2) The service acquisition executive of the military department 
concerned; and
    (e) Not later than 15 days after approval of the determination, the 
contracting officer posts a notice on the Federal Business 
Opportunities Web site at http://www.FedBizOpps.gov, stating that a 
waiver for the contract has been granted under Section 842(b) of the 
National Defense Authorization Act for Fiscal Year 2007 (Pub. L. 109-
364).


225.7003-5  Solicitation provision and contract clauses.

    (a) Unless the acquisition is wholly exempt from the specialty 
metals restrictions at 225.7003-2 because the acquisition is covered by 
an exception in 225.7003-3(a) or (d) (but see paragraph (d) of this 
subsection)--
    (1) Use the clause at 252.225-7008, Restriction on Acquisition of 
Specialty Metals, in solicitations and contracts that--
    (i) Exceed the simplified acquisition threshold; and
    (ii) Require the delivery of specialty metals as end items.
    (2) Use the clause at 252.225-7009, Restriction on Acquisition of 
Certain Articles Containing Specialty Metals, in solicitations and 
contracts that--
    (i) Exceed the simplified acquisition threshold; and
    (ii) Require delivery of any of the following items, or components 
of the following items, if such items or components contain specialty 
metal:
    (A) Aircraft.
    (B) Missile or space systems.
    (C) Ships.
    (D) Tank or automotive items.
    (E) Weapon systems.
    (F) Ammunition.
    (b) Use the provision at 252.225-7010, Commercial Derivative 
Military Article--Specialty Metals Compliance Certificate, in 
solicitations--
    (1) That contain the clause at 252.225-7009; and
    (2) For which the contracting officer anticipates that one or more 
offers of commercial derivative military articles may be received.
    (c) Use the clause at 252.225-7029, Reporting of Commercially 
Available Off-the-Shelf Items that Contain Specialty Metals and are 
Incorporated into Noncommercial End Items, in solicitations and 
contracts that--
    (1) Contain the clause at 252.225-7009;
    (2) Are for the acquisition of noncommercial end items; and
    (3) Are awarded in fiscal year 2009.
    (d) If an agency cannot reasonably determine at time of acquisition 
whether some or all of the items will be used in support of combat 
operations or in support of contingency operations, the contracting 
officer should not rely on the exception at 225.7003-3(a)(2) or (3), 
but should include the appropriate specialty metals clause or provision 
in the solicitation and contract.

[[Page 37639]]

    (e) If the solicitation and contract require delivery of a variety 
of contract line items containing specialty metals, but only some of 
the items are subject to domestic specialty metals restrictions, 
identify in the Schedule those items that are subject to the 
restrictions.


225.7004-4  [Amended]

0
12. Section 225.7004-4 is amended by removing ``225.7003'' and adding 
in its place ``225.7008''.


225.7005-3  [Amended]

0
13. Section 225.7005-3 is amended by removing ``225.7003'' and adding 
in its place ``225.7008''.


225.7006-3  [Amended]

0
14. Section 225.7006-3 is amended in paragraph (a), and in the second 
sentence of paragraph (b), by removing ``225.7003'' and adding in its 
place ``225.7008''.

0
15. Section 225.7008 is added to read as follows:


225.7008  Waiver of restrictions of 10 U.S.C. 2534.

    (a) When specifically authorized by reference elsewhere in this 
subpart, the restrictions on certain foreign purchases under 10 U.S.C. 
2534(a) may be waived as follows:
    (1)(i) The Under Secretary of Defense (Acquisition, Technology, and 
Logistics) (USD(AT&L)), without power of delegation, may waive a 
restriction for a particular item for a particular foreign country upon 
determination that--
    (A) United States producers of the item would not be jeopardized by 
competition from a foreign country, and that country does not 
discriminate against defense items produced in the United States to a 
greater degree than the United States discriminates against defense 
items produced in that country; or
    (B) Application of the restriction would impede cooperative 
programs entered into between DoD and a foreign country, or would 
impede the reciprocal procurement of defense items under a memorandum 
of understanding providing for reciprocal procurement of defense items 
under 225.872, and that country does not discriminate against defense 
items produced in the United States to a greater degree than the United 
States discriminates against defense items produced in that country.
    (ii) A notice of the determination to exercise the waiver authority 
shall be published in the Federal Register and submitted to the 
congressional defense committees at least 15 days before the effective 
date of the waiver.
    (iii) The effective period of the waiver shall not exceed 1 year.
    (iv) For contracts entered into prior to the effective date of a 
waiver, provided adequate consideration is received to modify the 
contract, the waiver shall be applied as directed or authorized in the 
waiver to--
    (A) Subcontracts entered into on or after the effective date of the 
waiver; and
    (B) Options for the procurement of items that are exercised after 
the effective date of the waiver, if the option prices are adjusted for 
any reason other than the application of the waiver.
    (2) The head of the contracting activity may waive a restriction on 
a case-by-case basis upon execution of a determination and findings 
that any of the following applies:
    (i) The restriction would cause unreasonable delays.
    (ii) Satisfactory quality items manufactured in the United States 
or Canada are not available.
    (iii) Application of the restriction would result in the existence 
of only one source for the item in the United States or Canada.
    (iv) Application of the restriction is not in the national security 
interests of the United States.
    (v) Application of the restriction would adversely affect a U.S. 
company.
    (3) A restriction is waived when it would cause unreasonable costs. 
The cost of an item of U.S. or Canadian origin is unreasonable if it 
exceeds 150 percent of the offered price, inclusive of duty, of items 
that are not of U.S. or Canadian origin.
    (b) In accordance with the provisions of paragraphs (a)(1)(i) 
through (iii) of this section, the USD(AT&L) has waived the 
restrictions of 10 U.S.C. 2534(a) for certain items manufactured in the 
United Kingdom, including air circuit breakers for naval vessels (see 
225.7006). This waiver applies to--
    (1) Procurements under solicitations issued on or after August 4, 
1998; and
    (2) Subcontracts and options under contracts entered into prior to 
August 4, 1998, under the conditions described in paragraph (a)(1)(iv) 
of this section.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
16. Section 252.212-7001 is amended as follows:
0
a. By revising the clause date to read ``(JUL 2009)'';
0
b. By removing paragraph (b)(7);
0
c. By redesignating paragraphs (b)(6), (b)(8) through (20), (b)(21), 
and (b)(22), as paragraphs (b)(8), (b)(9) through (21), (b)(23), and 
(b)(24), respectively;
0
d. By adding new paragraphs (b)(6), (b)(7), and (b)(22);
0
e. In newly designated paragraph (b)(11) by removing ``(NOV 2008)'' and 
adding in its place ``(JUL 2009)'';
0
f. In newly designated paragraph (b)(14)(i) by removing ``(JAN 2009)'' 
and adding in its place ``(JUL 2009)'';
0
g. In newly designated paragraph (b)(14)(ii) by removing ``(OCT 2006)'' 
and adding in its place ``(JUL 2009)'';
0
h. By removing paragraph (c)(1);
0
i. By redesignating paragraph (c)(2) as paragraph (c)(1); and
0
j. By adding a new paragraph (c)(2) to read as follows:


252.212-7001  Contract Terms and Conditions Required to Implement 
Statutes or Executive Orders Applicable to Defense Acquisitions of 
Commercial Items.

* * * * *
    (b) * * *
    (6) ------ 252.225-7008, Restriction on Acquisition of Specialty 
Metals (JUL 2009) (10 U.S.C. 2533b).
    (7) ------ 252.225-7009, Restriction on Acquisition of Certain 
Articles Containing Specialty Metals (JUL 2009) (10 U.S.C. 2533b).
* * * * *
    (22) ------ 252.247-7003, Pass-Through of Motor Carrier Fuel 
Surcharge Adjustment to the Cost Bearer (JUL 2009) (Section 884 of 
Public Law 110-417).
* * * * *
    (c) * * *
    (2) 252.247-7003, Pass-Through of Motor Carrier Fuel Surcharge 
Adjustment to the Cost Bearer (JUL 2009) (Section 884 of Public Law 
110-417).
* * * * *

0
17. Sections 252.225-7008, 252.225-7009, and 252.225-7010 are added to 
read as follows:


252.225-7008  Restriction on Acquisition of Specialty Metals.

    As prescribed in 225.7003-5(a)(1), use the following clause:

RESTRICTION ON ACQUISITION OF SPECIALTY METALS (JUL 2009)

    (a) Definitions. As used in this clause--
    (1) Alloy means a metal consisting of a mixture of a basic 
metallic element and one or more metallic, or non-metallic, alloying 
elements.
    (i) For alloys named by a single metallic element (e.g., 
titanium alloy), it means that the alloy contains 50 percent or more 
of the named metal (by mass).
    (ii) If two metals are specified in the name (e.g., nickel-iron 
alloy), those metals are the two predominant elements in the alloy, 
and together they constitute 50 percent or more of the alloy (by 
mass).
    (2) Produce means the application of forces or processes to a 
specialty metal to create the

[[Page 37640]]

desired physical properties through quenching or tempering of steel 
plate, gas atomization or sputtering of titanium, or final 
consolidation of non-melt derived titanium powder or titanium alloy 
powder.
    (3) Specialty metal means--
    (i) Steel--
    (A) With a maximum alloy content exceeding one or more of the 
following limits: Manganese, 1.65 percent; silicon, 0.60 percent; or 
copper, 0.60 percent; or
    (B) Containing more than 0.25 percent of any of the following 
elements: Aluminum, chromium, cobalt, molybdenum, nickel, niobium 
(columbium), titanium, tungsten, or vanadium;
    (ii) Metal alloys consisting of--
    (A) Nickel or iron-nickel alloys that contain a total of 
alloying metals other than nickel and iron in excess of 10 percent; 
or
    (B) Cobalt alloys that contain a total of alloying metals other 
than cobalt and iron in excess of 10 percent;
    (iii) Titanium and titanium alloys; or
    (iv) Zirconium and zirconium alloys.
    (4) Steel means an iron alloy that includes between .02 and 2 
percent carbon and may include other elements.
    (b) Any specialty metal delivered under this contract shall be 
melted or produced in the United States or its outlying areas.
(End of clause)

252.225-7009  Restriction on Acquisition of Certain Articles Containing 
Specialty Metals.

    As prescribed in 225.7003-5(a)(2), use the following clause:

Restriction on Acquisition of Certain Articles Containing Specialty 
Metals (Jul 2009)

    (a) Definitions. As used in this clause--
    (1) Alloy means a metal consisting of a mixture of a basic 
metallic element and one or more metallic, or non-metallic, alloying 
elements.
    (i) For alloys named by a single metallic element (e.g., 
titanium alloy), it means that the alloy contains 50 percent or more 
of the named metal (by mass).
    (ii) If two metals are specified in the name (e.g., nickel-iron 
alloy), those metals are the two predominant elements in the alloy, 
and together they constitute 50 percent or more of the alloy (by 
mass).
    (2) Assembly means an item forming a portion of a system or 
subsystem that--
    (i) Can be provisioned and replaced as an entity; and
    (ii) Incorporates multiple, replaceable parts.
    (3) Commercial derivative military article means an item 
acquired by the Department of Defense that is or will be produced 
using the same production facilities, a common supply chain, and the 
same or similar production processes that are used for the 
production of articles predominantly used by the general public or 
by nongovernmental entities for purposes other than governmental 
purposes.
    (4) Commercially available off-the-shelf item--
    (i) Means any item of supply that is--
    (A) A commercial item (as defined in paragraph (1) of the 
definition of ``commercial item'' in section 2.101 of the Federal 
Acquisition Regulation);
    (B) Sold in substantial quantities in the commercial 
marketplace; and
    (C) Offered to the Government, under this contract or a 
subcontract at any tier, without modification, in the same form in 
which it is sold in the commercial marketplace; and
    (ii) 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.
    (5) Component means any item supplied to the Government as part 
of an end item or of another component.
    (6) Electronic component means an item that operates by 
controlling the flow of electrons or other electrically charged 
particles in circuits, using interconnections of electrical devices 
such as resistors, inductors, capacitors, diodes, switches, 
transistors, or integrated circuits. The term does not include 
structural or mechanical parts of an assembly containing an 
electronic component, and does not include any high performance 
magnets that may be used in the electronic component.
    (7) End item means the final production product when assembled 
or completed and ready for delivery under a line item of this 
contract.
    (8) High performance magnet means a permanent magnet that 
obtains a majority of its magnetic properties from rare earth metals 
(such as samarium).
    (9) Produce means the application of forces or processes to a 
specialty metal to create the desired physical properties through 
quenching or tempering of steel plate, gas atomization or sputtering 
of titanium, or final consolidation of non-melt derived titanium 
powder or titanium alloy powder.
    (10) Qualifying country means any country listed in section 
225.003(9) of the Defense Federal Acquisition Regulation Supplement 
(DFARS).
    (11) Required form means in the form of mill product, such as 
bar, billet, wire, slab, plate, or sheet, and in the grade 
appropriate for the production of--
    (i) A finished end item to be delivered to the Government under 
this contract; or
    (ii) A finished component assembled into an end item to be 
delivered to the Government under this contract.
    (12) Specialty metal means--
    (i) Steel--
    (A) With a maximum alloy content exceeding one or more of the 
following limits: Manganese, 1.65 percent; silicon, 0.60 percent; or 
copper, 0.60 percent; or
    (B) Containing more than 0.25 percent of any of the following 
elements: Aluminum, chromium, cobalt, molybdenum, nickel, niobium 
(columbium), titanium, tungsten, or vanadium;
    (ii) Metal alloys consisting of--
    (A) Nickel or iron-nickel alloys that contain a total of 
alloying metals other than nickel and iron in excess of 10 percent; 
or
    (B) Cobalt alloys that contain a total of alloying metals other 
than cobalt and iron in excess of 10 percent;
    (iii) Titanium and titanium alloys; or
    (iv) Zirconium and zirconium alloys.
    (13) Steel means an iron alloy that includes between .02 and 2 
percent carbon and may include other elements.
    (14) Subsystem means a functional grouping of items that combine 
to perform a major function within an end item, such as electrical 
power, attitude control, and propulsion.
    (b) Restriction. Except as provided in paragraph (c) of this 
clause, any specialty metals incorporated in items delivered under 
this contract shall be melted or produced in the United States, its 
outlying areas, or a qualifying country.
    (c) Exceptions. The restriction in paragraph (b) of this clause 
does not apply to--
    (1) Electronic components.
    (2)(i) Commercially available off-the-shelf (COTS) items, other 
than--
    (A) Specialty metal mill products, such as bar, billet, slab, 
wire, plate, or sheet, that have not been incorporated into COTS end 
items, subsystems, assemblies, or components;
    (B) Forgings or castings of specialty metals, unless the 
forgings or castings are incorporated into COTS end items, 
subsystems, or assemblies;
    (C) Commercially available high performance magnets that contain 
specialty metal, unless such high performance magnets are 
incorporated into COTS end items or subsystems; and
    (D) COTS fasteners, unless--
    (1) The fasteners are incorporated into COTS end items, 
subsystems, assemblies, or components; or
    (2) The fasteners qualify for the commercial item exception in 
paragraph (c)(3) of this clause.
    (ii) A COTS item is considered to be ``without modification'' if 
it is not modified prior to contractual acceptance by the next 
higher tier in the supply chain.
    (A) Specialty metals in a COTS item that was accepted without 
modification by the next higher tier are excepted from the 
restriction in paragraph (b) of this clause, 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).
    (B) Specialty metals that were not contained in a COTS item upon 
acceptance, but are added to the COTS item after acceptance, are 
subject to the restriction in paragraph (b) of this clause (e.g., a 
special reinforced handle made of specialty metal is added to a COTS 
item).
    (C) 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 
restriction in paragraph (b) of this clause (e.g., a COTS aircraft 
is outfitted with a COTS engine that is not the COTS engine normally 
provided with the aircraft).
    (D) 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

[[Page 37641]]

subject to the restriction in paragraph (b) of this clause (e.g.--An 
aircraft is normally sold to the public with an option for 
installation kits. The Department of Defense requests a military-
unique kit. The aircraft is still a COTS item, but the military-
unique kit is not a COTS item and must comply with the restriction 
in paragraph (b) of this clause unless another exception applies).
    (3) Fasteners that are commercial items, if the manufacturer of 
the fasteners certifies it will purchase, during the relevant 
calendar year, an amount of domestically melted or produced 
specialty metal, in the required form, for use in the production of 
fasteners for sale to the Department of Defense and other customers, 
that is not less than 50 percent of the total amount of the 
specialty metal that it will purchase to carry out the production of 
such fasteners for all customers.
    (4) Items manufactured in a qualifying country.
    (5) Specialty metals for which the Government has determined in 
accordance with DFARS 225.7003-3 that specialty metal melted or 
produced in the United States, its outlying areas, or a qualifying 
country cannot be acquired as and when needed in--
    (i) A satisfactory quality;
    (ii) A sufficient quantity; and
    (iii) The required form.
    (6) End items containing a minimal amount of otherwise 
noncompliant specialty metals (i.e., specialty metals not melted or 
produced in the United States, an outlying area, or a qualifying 
country, that are not covered by one of the other exceptions in this 
paragraph (c)), if the total weight of such noncompliant metals does 
not exceed 2 percent of the total weight of all specialty metals in 
the end item, as estimated in good faith by the Contractor. This 
exception does not apply to high performance magnets containing 
specialty metals.
    (d) Compliance for commercial derivative military articles.
    (1) As an alternative to the compliance required in paragraph 
(b) of this clause, the Contractor may purchase an amount of 
domestically melted or produced specialty metals in the required 
form, for use during the period of contract performance in the 
production of the commercial derivative military article and the 
related commercial article, if--
    (i) The Contracting Officer has notified the Contractor of the 
items to be delivered under this contract that have been determined 
by the Government to meet the definition of ``commercial derivative 
military article''; and
    (ii) For each item that has been determined by the Government to 
meet the definition of ``commercial derivative military article,'' 
the Contractor has certified, as specified in the provision of the 
solicitation entitled ``Commercial Derivative Military Article--
Specialty Metals Compliance Certificate'' (DFARS 252.225-7010), that 
the Contractor and its subcontractor(s) will enter into a 
contractual agreement or agreements to purchase an amount of 
domestically melted or produced specialty metal in the required 
form, for use during the period of contract performance in the 
production of each commercial derivative military article and the 
related commercial article, that is not less than the Contractor's 
good faith estimate of the greater of--
    (A) An amount equivalent to 120 percent of the amount of 
specialty metal that is required to carry out the production of the 
commercial derivative military article (including the work performed 
under each subcontract); or
    (B) An amount equivalent to 50 percent of the amount of 
specialty metal that will be 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.
    (2) For the purposes of this alternative, the amount of 
specialty metal that is required to carry out production of the 
commercial derivative military article includes specialty metal 
contained in any item, including COTS items.
    (e) Subcontracts. The Contractor shall insert the substance of 
this clause in subcontracts for items containing specialty metals, 
to the extent necessary to ensure compliance of the end products 
that the Contractor will deliver to the Government. When inserting 
the substance of this clause in subcontracts, the Contractor shall--
    (1) Modify paragraph (c)(6) of this clause as necessary to 
facilitate management of the minimal content exception;
    (2) Exclude paragraph (d) of this clause; and
    (3) Include this paragraph (e).
(End of clause)

252.225-7010  Commercial Derivative Military Article--Specialty Metals 
Compliance Certificate.

    As prescribed in 225.7003-5(b), use the following provision:

Commercial Derivative Military Article--Specialty Metals Compliance 
Certificate (Jul 2009)

    (a) Definitions. Commercial derivative military article, 
commercially available off-the-shelf item, produce, required form, 
and specialty metal, as used in this provision, have the meanings 
given in the clause of this solicitation entitled ``Restriction on 
Acquisition of Certain Articles Containing Specialty Metals'' (DFARS 
252.225-7009).
    (b) The offeror shall list in this paragraph any commercial 
derivative military articles it intends to deliver under any 
contract resulting from this solicitation using the alternative 
compliance for commercial derivative military articles, as specified 
in paragraph (d) of the clause of this solicitation entitled 
``Restriction on Acquisition of Certain Articles Containing 
Specialty Metals'' (DFARS 252.225-7009). The offeror's designation 
of an item as a ``commercial derivative military article'' will be 
subject to Government review and approval.
-----------------------------------------------------------------------
-----------------------------------------------------------------------
    (c) If the offeror has listed any commercial derivative military 
articles in paragraph (b) of this provision, the offeror certifies 
that, if awarded a contract as a result of this solicitation, and if 
the Government approves the designation of the listed item(s) as 
commercial derivative military articles, the offeror and its 
subcontractor(s) will demonstrate that individually or collectively 
they have entered into a contractual agreement or agreements to 
purchase an amount of domestically melted or produced specialty 
metal in the required form, for use during the period of contract 
performance in the production of each commercial derivative military 
article and the related commercial article, that is not less than 
the Contractor's good faith estimate of the greater of--
    (1) An amount equivalent to 120 percent of the amount of 
specialty metal that is required to carry out the production of the 
commercial derivative military article (including the work performed 
under each subcontract); or
    (2) An amount equivalent to 50 percent of the amount of 
specialty metal that will be 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.
    (d) For the purposes of this provision, the amount of specialty 
metal that is required to carry out the production of the commercial 
derivative military article includes specialty metal contained in 
any item, including commercially available off-the-shelf items, 
incorporated into such commercial derivative military articles.

(End of provision)

252.225-7014  [Removed and Reserved]

0
18. Section 252.225-7014 is removed and reserved.


252.225-7015  [Amended]

0
19. Section 252.225-7015 is amended in the introductory text by 
removing ``225.7002-3(c)'' and adding in its place ``225.7002-3(b)''.

0
20. Section 252.225-7029 is added to read as follows:


252.225-7029  Reporting of Commercially Available Off-the-Shelf Items 
that Contain Specialty Metals and are Incorporated into Noncommercial 
End Items.

    As prescribed in 225.7003-5(c), use the following clause:

Reporting of Commercially Available Off-the-Shelf Items that Contain 
Specialty Metals and Are Incorporated Into Noncommercial End Items (Jul 
2009)

    (a) Definitions. Commercially available off-the-shelf item, and 
specialty metal, as used in this clause, have the meanings given in 
the clause of this solicitation entitled ``Restriction on 
Acquisition of Certain Articles Containing Specialty Metals'' (DFARS 
252.225-7009).
    (b) If the exception in paragraph (c)(2) of the clause at DFARS 
252.225-7009, Restriction on Acquisition of Certain Articles 
Containing Specialty Metals, is used for a commercially available 
off-the-shelf (COTS) item, valued at more than $100 per item, to be 
incorporated into a noncommercial end

[[Page 37642]]

item to be delivered under this contract, the Contractor shall--
    (1) Follow the instructions on the Defense Procurement and 
Acquisition Policy Web site at http://www.acq.osd.mil/dpap/cpic/ic/restrictions_on_specialty_metals_10_usc_2533b.html to report 
information required by the contract as follows:

------------------------------------------------------------------------
          Contract awarded                         Report by
------------------------------------------------------------------------
Before July 31, 2009................  August 31, 2009.
August 1-31, 2009...................  September 30, 2009.
September 1-30, 2009................  October 31, 2009.
------------------------------------------------------------------------

     (2) In accordance with the procedures specified at the Web 
site, provide the following information:
    (i) Company Name.
    (ii) Product category of acquisition (i.e., Aircraft, Missiles 
and Space Systems, Ships, Tank--Automotive, Weapon Systems, or 
Ammunition).
    (iii) The 6-digit North American Industry Classification System 
(NAICS) code of the COTS item, contained in the non-commercial 
deliverable item, to which the exception applies.
    (c) The Contractor shall not report COTS items that are 
incorporated into the end product under an exception other than 
paragraph (c)(2) of the clause at DFARS 252.225-7009, such as 
electronic components, commercial item fasteners, qualifying 
country, non-availability, or minimal amounts of specialty metal.

(End of clause)

[FR Doc. E9-17967 Filed 7-28-09; 8:45 am]
BILLING CODE 5001-08-P