THE BERRY AMENDMENT and the Newest Rules on Specialty Metals A Brief Overview Presented By: Jessica A. VanLeeuwen Ju

1. THE BERRY AMENDMENT and the Newest Rules on Specialty Metals A Brief Overview Presented By: Jessica A. VanLeeuwen June 2008

2. Opening Remarks Rules apply OCONUS but with many exceptions Rules are detailed & challenging New Specialty Metal provisions are helpful but complex This is a overview

3. Historical Notes • Pub. L. 110-181 §§ 804 & 884; 10 USC 2533b, as amended • 1941-1972 – Food, Clothing & Fabrics • 1972 – Metals added by FY1973 NDAA • 2006 – DoD endorses conditional acceptance & withhold for metals • 2006 – FY2007 NDAA: SM Amendment 10 USC 2533b and creates One-Time Waiver • 2007 – Class Deviation & DFARS Final Rule for Full COTS Item Exception • 2008 – FY2008 NDAA: Amends 2533b to address “concerns” and limit COTS Exception

4. Berry Basics – What is it? Statutory requirement (10 U.S.C. 2533a): Restricts the Department of Defense from using funds appropriated or otherwise available to DoD for procurement of specific items if not grown, reprocessed, reused, or produced in the U.S.

5. Fiscal Law Impact - ADA Violation Berry prohibits the purchase of certain items with “….funds appropriated or otherwise available to the Department….” It only applies to DoD, no other Federal Agencies It applies if DoD sends funds to another Federal Agency FMS funds are included It is a violation of the Berry Amendment if DoD pays for equipment that is non-compliant It may also be a violation of the Anti-Deficiency Act (31 U.S.C. 1341) which provides for: Fines up to $5000.00 Imprisonment up to 2 years (31 U.S.C. 1350) Adverse personnel actions

6. What items are restricted? Food Clothingand the materials and components thereof, … Tents/Tarpaulins/Covers Cotton and Other Natural Fiber Products Woven Silk or Woven Silk Blends Spun Silk Yarn for Cartridge Cloth Synthetic Fabric or Coated Synthetic Fabric Canvas Products Wool (including in manufactured articles) Any Item of Individual Equipment containing any of the restricted fibers, fabrics, yarns, or materials Hand or Measuring Tools (Specialty Metals) DFARS 225.7002-1(a)

7. Restricted Contracts Specialty Metals shall be melted or produced in United States or outlying areas (“the US”). • Mill Products • Specialty Metals in the form of bar, billet, slab, wire, plate and sheet • End Items of Six Types & their Components • Aircraft, Missile & Space Systems, Ships, Tank & Automotive, Weapon Systems, and Ammunition • Other Articles (“everything else”) • Major Program Articles that are not Big 6 End Items or Components • Non-Major Program Articles that are not Mill Products

8. Berry vs. Buy American Act Potential for confusion Berry only applies to DoD / BAA applies to all Fed agencies Berry covers specific items / BAA covers all supply purchases. Berry does not provide a commercial item exception* / BAA does Berry applies in addition to Buy American Act Berry must be flowed to all sub-tier suppliers Berry is more restrictive than the Buy American Act: Requires 100% domestic content / BAA requires greater than 50% domestic component cost No Qualifying Country exception*, except for chemical warfare protective clothing, and para-aramid fibers from the Netherlands No contractor “certification” required as with Buy American Act Vendor may be in compliance with Buy American Act yet be in violation of Berry Amendment

9. Biggest Concern – Specialty Metal Has arisen most often at sub level in programs where flow-down required: Aircraft; missile and space systems; ships, tank-auto; weapons; ammo (DFARs 225.7002-2) See also DFARS 252.244-7000 (subcontracts for commercial items) It’s still the Prime’s problem

10. Main Problems Prime didn’t flow down clause to subs Prime contract used confusing or inappropriate language Prime contract omitted required language – Christian Doctrine? (GAO reported 60% of contracts had “problems”) Prime not taking ownership (overseeing) sub compliance – getting a cert is not enough General lack of understanding of the requirement

11. Berry Exceptions Simplified Acquisitions Combat Operations - procurements made outside the US to support operations Contingency Operations -only acquisitions of food, specialty metals, hand/measuring tools Emergency Acquisitions –by activities located OCONUS for personnel of those activities Urgent & Compelling Acquisitions -for food or hand or measuring tools, not clothing, textiles, or related items Acquisitions of vessels in foreign Waters Commissary Retail items Qualifying Country – certain acquisitions in furtherance of an agreement with a qualifying country

12. Other Metal Exemptions Commercial off the Shelf (COTS) Market Basket Exemption –applies to commercial Item fasteners Electronic components 2% Minimum threshold –“de minimis” exception permits DoD to accept delivery of items if weight of non-compliant specialty metal does not exceed 2% of the total weight of all specialty metal in the item Nat’l Security Waiver -USD (AT&L) may approve acquisition of End Items (aircraft, ships, etc.) if necessary to US national security interests Qualifying Country -Acquisitions of End Items or their components from a qualifying country. Not specialty metal itself as an end product.

13. Qualifying Countries Exception • Broad exception applies to: • Items manufactured in a QC, regardless of the source of metals • Metals melted or produced in a QC • However, FY2008 NDAA & forward: • Basic clause no longer provides an exception for QC melted metals • Mill product deliveries directly to DoD must be US domestic melted • Implemented 29 Jan 2008

14. Qualifying Country Exception For Berry (other than Specialty Metals), applies only to: Chemical Warfare Protective Clothing Para-Aramid fibers and yarns from the Netherlands For Specialty Metals, applies to: Acquisitions of the following items, or their components: aircraft, missile or space system, tank or automotive item, weapon system, or ammunition. Not specialty metal as an end product

15. Qualifying Countries DoD has entered into reciprocal defense procurement memoranda of understanding with the following countries. They are treated equally with “domestic” sources for items containing specialty metals and some Berry restrictions (see DFARS 225.872-1): Australia France Netherlands Austria Germany Norway Belgium Greece Portugal Canada Israel Spain Denmark Italy Sweden Egypt Luxembourg Switzerland Finland Portugal Turkey United Kingdom

16. Host Nation Agreements Reciprocal agreement that make inapplicable the “buy national” laws do not affect the application of the Berry Amendment Domestic Specialty Metals clause independent from the “qualifying country” under 225.872

17. Availability (DNAD) Exception • SM melted or produced in US cannot be acquired as and when needed: • in a satisfactory quality; • in a sufficient quantity; and • in the required form. • “Required form” was added by FY2007 NDAA and defined by FY2008 NDAA • Quality and Quantity part of standard since FY1973

18. Availability (DNAD) Exception • “In the required form” means a mill product suitable for producing the finished end item or component. • Existing DNADs must be reviewed and amended as necessary to comply with the FY2008 rules • DNADs are PCO and Program Office actions, before or after award

19. Availability (DNAD) Exception • Approval must be USD(AT&L) or Service Secretary, no delegation permitted • Multi-contract DNADs have greater limits: • Publish notice of intent in FedBizOpps.gov • Solicit information from interested parties including specialty metal mill producers • USD(AT&L) decides, including consideration of submitted and other relevant information • Transparency: Publication of determination and rationale to maximum extent practical

20. Availability (DNAD) Exception • Class DNADs expire for use on new contracts 26 July 2008: • Populated Circuit Card Assemblies, Fasteners, Needle Roller Bearings, & Caterpillar COTS Diesel Engine Parts • PCOs may apply FY2008 rules to existing contracts • Applying FY2008 rules could eliminate the need for the above DNADs

21. One-Time Waiver (OTW) FY2007 NDAA “get well” provision • Contracting officer determines: • Not practical to remove, replace, substitute • Prime and subcontractor have effective plans to ensure future compliance • Inadvertent non-compliance • Non-compliant SM incorporated in item at any level PMA in US before 17 OCT 2006 • Final acceptance occurs after 17 OCT 2006 but before 30 SEP 2010 (continued)

22. One-Time Waiver (OTW) • (continued) • Contracting officer determination approved by USD(AT&L), Service Acquisition Executive, or designee (e.g. DCMA) • Contracting officer publishes fedbizopps.gov notice within 15 days after approval • Final acceptance occurs after 17 OCT 2006 but before 30 SEP 2010 • Contact DCMA specialty metals team if contractor seeks/submits OTW request

23. Corrective Action Plan (CAP) • DCMA is responsible for processing broad-based CAPs • Required within 180 days of conditional acceptance and withhold • Required as the “effective plan to ensure compliance” in OTW process • Contact DCMA specialty metals team before approving CAP

24. Conditional Acceptance & Withhold • Disposition of prior withholds • Delegated to DCMA where we approve OTW and broad-based CAP • Normally release withholds where article: • Falls within approved DNAD applied to contract • Determined to be compliant after withhold taken • PMA prior to 17 OCT 2006 & falls within OTW • Falls within applicable Exception to restrictions • Removed and replaced by compliant article • If not above, DCMA believes contract price reduction is proper

25. Good News – Bad News FY08 NDAA introduces new Specialty Metal Exceptions DoD Class Deviation 2008-O0002 implements the FY08 changes with specific authority for PCOs to apply a single standard to all contracts. If 2008-O0002 is not applied by PCO, may need to administer 5 different sets of restrictions at a single contractor location.

26. Appropriate Consideration • PCOs may apply CD 2008-O0002, with appropriate consideration, to existing Ks • After deciding to apply, may delegate consideration decision to ACO • Generally no savings from non-compliance • Efficiency of contract administration is enhanced by single set of (FY2008) rules • CAP and/or related efforts enhance contract compliance • Administrative cost of processing mod

27. Near Term Issues • Are Fabric and Fiber issues on the rise? • Will PCOs apply FY2008 standards to all? • Should we rely on Prime contractors to manage their subcontractors and suppliers? • Will industry establish Certification process for Fastener manufacturers market basket?

28. Questions