[Federal Register Volume 77, Number 142 (Tuesday, July 24, 2012)]
[Proposed Rules]
[Pages 43474-43477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17590]



Federal Register / Vol. 77, No. 142 / Tuesday, July 24, 2012 / 
Proposed Rules

[[Page 43474]]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 252

RIN 0750-AH78


Defense Federal Acquisition Regulation Supplement; Specialty 
Metals--Definition of ``Produce'' (DFARS Case 2012-D041)

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

ACTION: Proposed rule.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to revise the definition of ``produce'' 
as it applies to specialty metals. The National Defense Authorization 
Act for Fiscal Year 2011 directed DoD to review the definition of 
``produce'' to ensure its compliance with the statutory restrictions on 
specialty metals and to determine if a revision to the current rule was 
necessary and appropriate.

DATES: Comment Date: Comments on the proposed rule should be submitted 
in writing to the address shown below on or before September 24, 2012, 
to be considered in the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2012-D041, using 
any of the following methods:
    [cir] Regulations.gov: http://www.regulations.gov. Submit comments 
via the Federal eRulemaking portal by entering ``DFARS Case 2012-D041'' 
under the heading ``Enter keyword or ID'' and selecting ``Search.'' 
Select the link ``Submit a Comment'' that corresponds with ``DFARS Case 
2012-D041.'' Follow the instructions provided at the ``Submit a 
Comment'' screen. Please include your name, company name (if any), and 
``DFARS Case 2012-D041'' on your attached document.
    [cir] Email: dfars@osd.mil. Include DFARS Case 2012-D041 in the 
subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Amy 
Williams, OUSD(AT&L)DPAP/DARS, Room 3B855, 3060 Defense Pentagon, 
Washington, DC 20301-3060.
    Comments received generally will be posted without change to http://www.regulations.gov, including any personal information provided. To 
confirm receipt of your comment(s), please check www.regulations.gov, 
approximately two to three days after submission to verify posting 
(except allow 30 days for posting of comments submitted by mail).

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition 
Regulations System, OUSD (AT&L) DPAP/DARS, Room 3B855, 3060 Defense 
Pentagon, Washington, DC 20301-3060. Telephone 571-372-6106; facsimile 
571-372-6101. Please cite DFARS Case 2012-D041.

SUPPLEMENTARY INFORMATION:

I. Background

    As required by section 823 of the National Defense Authorization 
Act (NDAA) for Fiscal Year (FY) 2011 (Pub. L. 111-383), DoD sought 
comments in the Federal Register (76 FR 18383) on July 25, 2011, 
regarding the definition of ``produce'' as it applies to the production 
of specialty metals. The final rule under DFARS Case 2008-D003 (74 FR 
37626 on July 29, 2009) defined ``produce'' to mean ``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.''
    Seventeen sources submitted comments in response to the request for 
comments in the 2011 Federal Register notice, focusing almost 
exclusively on whether such processes as quenching and tempering should 
continue to be considered as production of thin specialty metal steel 
armor plate. Some of the information provided was proprietary. DoD has 
reviewed and analyzed the comments received in response to the Federal 
Register notice. In addition, DoD considered current technologies for 
production of specialty metals other than titanium and analyzed the 
impact any change in the definition would have on DoD's ability to meet 
its mission requirements. As a result, DoD is proposing to amend the 
definition of ``produce'' to eliminate the phrase ``quenching and 
tempering'' of armor steel plate, and to expand the application of the 
other listed technologies, currently restricted just to titanium and 
titanium alloys, to any specialty metal that could be formed by such 
technologies.

II. Discussion and Analysis of Comments

A. General

    Two of seventeen respondents supported the current definition, and 
the other fifteen respondents opposed the current definition of 
``produce,'' because it includes processes in addition to melting 
regarding the production of steel armor plate, but they acknowledged 
that other processes are appropriate to the definition of ``produce'' 
for other specialty metals.

B. Quenching or tempering of steel plate

1. Berry Amendment
    Comment: The majority of respondents contended that the current 
definition of ``produce'' is contrary to the Berry Amendment. Prior to 
enactment of 10 U.S.C. 2533b, the restriction on specialty metals was 
part of the domestic source restriction legislation commonly known as 
the Berry Amendment, included in annual defense appropriations act 
restrictions since 1973, and was eventually codified (with certain 
modifications) by section 832 of the NDAA for FY 2002 at 10 U.S.C. 
2533a. In the NDAA for FY 2007, Congress deleted the specialty metals 
restrictions from 10 U.S.C. 2533a and created a new section at 10 
U.S.C. 2533b to set forth the restrictions on specialty metals.
    The respondents contended that, since the Berry Amendment required 
products to be wholly manufactured in the United States, the specialty 
metals restrictions should be equally restrictive. They stated that 
``melted or produced'' means ``melted'' in the case of steel armor 
plate. These respondents averred that, although the legislation uses 
``melted or produced,'' it was not intended to weaken the requirement. 
However, some respondents did cite the report accompanying the Senate 
version of the bill, which indicated the intent to allow some 
flexibility in obtaining critical materials.
    DoD Response: The law has never included a definition of 
``produce'' regarding the requirement to acquire domestic specialty 
metals. When Congress created the new provisions on specialty metals in 
10 U.S.C. 2533b, it expressly eliminated the prior restrictions on 
specialty metals in 10 U.S.C. 2533a and created new provisions 
regarding specialty metals at 10 U.S.C. 2533b, one of which was the 
phrase ``melted or produced.'' DoD interprets this new phrase ``melted 
or produced'' as clearly permitting processes in addition to melting 
for the creation of specialty metals. One of the reasons for removing 
specialty metals from the rest of the Berry Amendment restrictions and 
enacting 10 U.S.C. 2533b was the need to differentiate the statutory 
restrictions for specialty metals from the statutory restrictions on 
other items covered by the Berry Amendment. The statement in the Senate 
report that 10 U.S.C. 2533b was

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intended to provide flexibility in obtaining critical materials 
provides support for DoD's definition of ``produce'' which gave DoD 
critical access to thin-gauge armor steel plate that was quenched or 
tempered in the United States, regardless of where the steel was 
melted.
2. Former Secretary of Defense Melvin Laird Memorandum
    Comment: Some respondents stated that the Laird Memorandum 
(November 20, 1972) used the term ``melted'' when the Secretary of 
Defense addressed DoD's implementation of the restriction in section 
724 of the DoD Appropriations Act for Fiscal Year 1973 (Pub. L. 92-570) 
that added specialty metals to the Berry Amendment list of items that 
must, with some exceptions, be ``grown, reprocessed, reused, or 
produced in the United States.''
    DoD Response: The comment is factually correct. The Laird 
memorandum represented the DoD implementation of the law as it existed 
at that time, which was upheld in the courts. However, the statute now 
uses the terms ``melted or produced,'' and it would be redundant to add 
the term ``produced'' unless it had a meaning different than 
``melted.''
3. Acme of Precision Surgical v. Weinberger
    Comment: According to some respondents, the U.S. District Court of 
the Eastern District of Pennsylvania, 580 F. Supp. 490, 504-07, 
concluded that there was a reasonable basis in law for DoD's 
requirement that ``all specialty metal products used in hardware by the 
military be formed from specialty metals melted in the United States.''
    DoD Response: In Acme of Precision Surgical v. Weinberger, the 
plaintiff alleged that DoD violated the Buy American Act because the 
``Buy American'' provisions required that all articles of ``specialty 
metals'' must be manufactured entirely in the United States, and not 
just ``melted'' in the United States. The court found on behalf of DoD, 
finding reasonable DoD's interpretation of the provisions as requiring 
only the melting in the United States of specialty metals rather than 
the performance in the United States of all processes associated with 
the manufacture of specialty metals. However, this decision was based 
on the law and implementing regulations as they existed at the time of 
the decision, not on the current statute and regulations.
4. Restriction on Acquisition of Carbon, Alloy, and Armor Steel Plate
    Comment: Some respondents cited the additional restriction on armor 
steel plate in DFARS 252.225-7030, which requires armor plate to be 
``melted and rolled in the United States or Canada'' to support their 
request to remove the terms ``quenching and tempering'' from the 
definition of ``produce.'' They cited the annual Defense appropriations 
acts that since 1972 have contained language that armor plate for DoD 
procurements must be ``melted and rolled in the United States or 
Canada.''
    DoD Response: The Defense appropriations act restriction on the 
acquisition of steel plate as an end product for use in a Government-
owned facility or a facility under the control of DoD is not pertinent 
to the interpretation of ``melted or produced'' for purposes of 
acquisition of specialty metals in accordance with 10 U.S.C. 2533b 
because 10 U.S.C. 2533b applies to manufactured products for all 
specialty metals in contrast to the DFARS clause restricting steel 
plate that is ``melted and rolled.''
5. The Federal Transit Administration (FTA) Buy America Restrictions, 
the American Recovery and Reinvestment Act of 2009 (ARRA), and the 
Customs and Border Protection Act
    Comment: Several respondents cited other acts that restrict use of 
foreign iron, steel, and manufactured products in Federally funded 
projects to those ``produced in the United States.''
    DoD Response: These acts are not germane to this definition, which 
is implementing 10 U.S.C. 2533b. The language and applicability of 
these statutes is very different from 10 U.S.C. 2533b. The FTA and 
Customs and Border Protection Act do not apply to DoD procurements. The 
ARRA only applies to construction material in acquisitions utilizing 
ARRA funds. Furthermore, the FTA and ARRA do not apply to specialty 
metals or armor steel plate but to iron and steel used in construction.
6. The Intent of Congress and Chevron USA, Inc. v. the National 
Resources Defense Council
    Comment: The majority of respondents claimed that including 
quenching and tempering in the definition of ``produce'' for steel 
armor plate is against the intent of Congress. One respondent cited 
Chevron USA, Inc. v. the National Resources Defense Council (Chevron 
USA, Inc.) that concluded that agency regulations such as the DFARS 
should be subject to a two-part test that first considers the intent of 
Congress.
    DoD Response: Chevron USA, Inc. applies only if the intent of 
Congress is not clear. DoD looks primarily to the language of the 
statutes enacted by Congress to determine the requirements of the law. 
Here, the statute does not define the term ``produce.'' As the court in 
Chevron USA, Inc. stated, ``if the statute is silent or ambiguous with 
respect to the specific issue,'' the question for the court is 
``whether the agency's answer is based on a permissible construction of 
the statute.'' Committee reports and letters from individual or groups 
of representatives or senators are not law and, in any event, do not 
necessarily reflect the intent of the majority of Congress. Moreover, 
although the House of Representatives' version of the specialty metals 
provision could have been interpreted as specifically excluding 
quenching and tempering from the definition of ``produce,'' this 
version of the bill was not enacted. Finally, although section 823 
requested a review of the definition by DoD, it did not direct a 
particular outcome of that review.
7. Sufficient Domestic Capacity
    Comment: Many respondents stated that there is sufficient domestic 
capacity of armor steel plate melted, rolled, quenched, and tempered in 
the United States to meet DoD's demand and that the number of specialty 
metal steel manufacturers has increased since 2006.
    DoD Response: One of the reasons for including quenching and 
tempering of armor steel plate in the definition of ``produce'' was an 
assessment that there was an insufficient amount of thin-gauge MIL-A 
grade steel armor to meet peak demand to satisfy critical need for Mine 
Resistant Ambush Protection (MRAP) vehicles for contingency operations. 
Since that time, the U.S. industrial base has grown (even with the 
current definition of ``produce''). In fact, both the number of 
specialty metal steel plate manufacturers and their overall production 
capacities have increased steadily since the current definition of 
``produce'' was introduced. Further, some of the manufacturers that 
were previously sourcing specialty metals melted in Mexico for 
quenching and tempering in the United States, are now obtaining steel 
melted in Canada (which is a qualifying country and part of the 
national technology and industrial base). DoD's assessment is that 
there is now sufficient capacity to meet DoD requirements, if DoD were 
to remove ``quenching and tempering'' from the definition of 
``produce.''

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8. Provide Protection and an Incentive to U.S. Manufacturers and Create 
Jobs
    Comment: Many respondents addressed the need to protect and 
incentivize U.S. industry and to create U.S. jobs. Some respondents 
stated that the current definition encourages the use of foreign 
metals, while discouraging investment in domestic industry. These 
respondents also stated that excluding quenching and tempering 
processes would provide a more financially secure market and provide an 
incentive for U.S. manufacturers to innovate. Many respondents 
indicated that changing the definition would increase specialty metal 
steel production and increase the number of jobs in the United States.
    DoD Response: Melting is only one stage in a multi-step process 
that is used to produce a product with properties that meet the 
requirements of an application, i.e., specifications. Quenching and 
tempering are not considered as ``low-value finishing processes'' (see 
preamble to final rule under DFARS Case 2008-D003, 74 FR 37630, July 
29, 2009). The proposed change to the definition of ``produced'' may 
provide a more financially secure market to large specialty metals 
steel manufacturers, but the large, complex, and highly segmented 
specialty metal industry has many other stakeholders. The specialty 
steel industry appears to be thriving. Therefore, although not required 
by the law, for the reasons stated in section II.B.7. of this preamble, 
DoD is proposing to eliminate quenching and tempering of steel armor 
plate from the definition of ``produce.''
9. Other Ways to Meet Shortages
    Comment: While acknowledging DoD's critical need for armor steel 
plate for MRAP vehicles, a number of respondents suggested that DoD 
could have used other exceptions in the law, such as the domestic 
nonavailability exception or national security waiver to procure armor 
steel plate or use of the Defense Priorities and Allocation System 
(DPAS) to meet demands through domestic production.
    DoD Response: The Defense Priorities and Allocation System is 
designed to provide priority production and shipment for ongoing 
production lines, but it does not increase overall production capacity 
when urgently needed. At the time of issuance of the final DFARS rule 
under DFARS Case 2008-D003, DoD considered the options of processing a 
domestic nonavailability determination or a national security 
exception, but found both options to be unsuitable (see 74 FR 37631).
10. Impact on Price
    Comment: Several respondents stated that changing the definition to 
eliminate quenching and tempering would raise prices, because it would 
reduce competition. Another respondent claimed that changing the 
definition would not raise the price of specialty metal steel armor 
plate.
    DoD Response: DoD considers that there are now sufficient sources 
of steel armor plate melted in the United States or Canada that a 
change to the definition would not seriously impact the level of 
competition, or the price of specialty metal steel armor plate.

C. Processes for Titanium Products

    Comment: None of the respondents objected to production processes 
for titanium products such as gas atomization, sputtering, and powder 
consolidation production processes for titanium products in the 
definition of ``produce.''
    DoD Response: The proposed rule expands the application of these 
newer technologies to any types of specialty metals that might utilize 
such processes in their production.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD does not expect this rule to have a significant economic impact 
on a substantial number of small entities within the meaning of the 
Regulatory Flexibility Act, 5 U.S.C. 601. However, an initial 
regulatory flexibility analysis has been performed and is summarized as 
follows:
    The proposed rule affects primarily producers of specialty metal 
steel armor plate, and manufacturers that supply steel armor plate that 
will be incorporated into end items to be acquired by DoD. Producers of 
specialty metals are generally 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 had more than 500 employees. There 
are numerous manufacturers of products containing specialty metals, 
either as prime contractors or subcontractors. DoD does not have the 
data to determine the total number of these manufacturers, or the 
number that are small businesses, because the Federal Procurement Data 
System only collects data on prime contractors and end items, not 
subcontractors and components of end items.
    There are no projected reporting, recordkeeping, or other 
compliance requirements. The rule does not duplicate, overlap, or 
conflict with any other Federal rules.
    DoD did not identify any significant alternatives to the rule which 
would minimize any impact of the rule on small entities and still meet 
the requirements of the statute 10 U.S.C. 2533b.
    DoD invites comments from small businesses and other interested 
parties on the expected impact of this rule on small entities.
    DoD will also consider comments from small entities concerning the 
existing regulations in subparts affected by this rule in accordance 
with 5 U.S.C. 610. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 610 (DFARS Case 2012-D041), in 
correspondence.

V. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Part 252

    Government procurement.

Ynette R. Shelkin,
Editor, Defense Acquisition Regulations System.
    Therefore, 48 CFR part 252 is proposed to be amended as follows:

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    1. The authority citation for 48 CFR part 252 continues to read as 
follows:

    Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.

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252.212-7001  [Amended]

    2. Section 252.212-7001 is amended--
    a. By removing the clause date ``(JUN 2012)'' and adding ``(DATE)'' 
in its place;
    b. In paragraph (b)(7), by removing the clause date ``(JUL 2009)'' 
and adding ``(DATE)'' in its place; and
    c. In paragraph (b)(8), by removing the clause date ``(JUN 2012)'' 
and adding ``(DATE)'' in its place.
    3. Section 252.225-7008 is amended--
    a. By removing the clause date ``(JUL 2009)'' and adding ``(DATE)'' 
in its place; and
    b. In paragraph (a), by removing the numerical designations (1) 
through (4) from the definitions and revising the definition of 
``produce'' to read as follows:


252.225-7008  Restriction on Acquisition of Specialty Metals.

* * * * *
    (a) * * *
    Produce means the gas atomization, sputtering, or final 
consolidation of non-melt derived metal powders.
* * * * *
    4. Section 252.225-7009 is amended--
    a. By removing the clause date ``(JUN 2012)'' and adding ``(DATE)'' 
in its place; and
    b. In paragraph (a), by removing the numerical designations (1) 
through (14) from the definitions and revising the definition of 
``produce'' to read as follows:


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

* * * * *
    (a) * * *
    Produce means the gas atomization, sputtering, or final 
consolidation of non-melt derived metal powders.
* * * * *


252.244-7000  [Amended]

    5. Section 252.244-7000 is amended by removing the clause date 
``(JUN 2012)'' and adding ``(DATE)'' in its place and in paragraph (b), 
removing the clause date ``(JUN 2012)'' and adding ``(DATE)'' in its 
place.

[FR Doc. 2012-17590 Filed 7-23-12; 8:45 am]
BILLING CODE 5001-06-P