Specialty Metals Provisions of the 2007 NDAA

1. 1 Specialty Metals Provisionsof the 2007 NDAA Trey Hodgkins, CAE Sr. Director Defense & Intelligence Programs Public Sector Group March 14, 2007 WelcomeWelcome

2. 2 Trade Association Public Sector � Companies that face the government marketplaceTrade Association Public Sector � Companies that face the government marketplace

3. 3 Traditionally applied to large specialty metals items DCMA reinterpreted the application with guidance in March 2006 Included �electronics� in their application and began to flow requirements down the supply chain Intel and Texas Instruments both self report that their products are not compliant with specialty metals requirements. Intel adds that they will not change their global supply chain for DoD market. About ITAA Efforts on Specialty Metals ITAA became involved in the effort because our members products became ensnared in enforcement of the new DCMA guidance. The new guidance included all amounts of specialty metals, including trace amounts For the first time, applied to the small amounts of specialty metals, like connectors, pins, solder, wires and screws used as components in electronics. Application covered everything that included components like transistors, resistors, capacitors, CPU chips and motherboards ITAA became involved in the effort because our members products became ensnared in enforcement of the new DCMA guidance. The new guidance included all amounts of specialty metals, including trace amounts For the first time, applied to the small amounts of specialty metals, like connectors, pins, solder, wires and screws used as components in electronics. Application covered everything that included components like transistors, resistors, capacitors, CPU chips and motherboards

4. 4 Industry Coalition Defense Industrial Base trade associations formed coalition to seek relief through legislationDefense Industrial Base trade associations formed coalition to seek relief through legislation

5. 5 Proposals introduced in House and Senate versions of the National Defense Authorization Act Industry Coalition advocated to adopt DoD endorsed language in Senate version Congress adopted a blend of the proposals, providing flexibility to DoD for guidance Congressional Action The House and Senate both sought to modify the Berry Amendment related to Specialty Metals The House sought more protectionists measures The Senate sought to address the concerns raised by DoD and industryThe House and Senate both sought to modify the Berry Amendment related to Specialty Metals The House sought more protectionists measures The Senate sought to address the concerns raised by DoD and industry

6. 6 Specialty Metals Are� Steel alloys with: Manganese Silicon Copper Aluminum Chromium Cobalt Molybdenum Titanium Nickel Tungsten Vanadium Metals defined as specialty metals Includes Stainless SteelMetals defined as specialty metals Includes Stainless Steel

7. 7 Specialty Metals Are� Alloys with Nickel, Iron-Nickel or Cobalt Titanium or Titanium-alloys Zirconium or Zirconium-alloy Also includes titanium or titanium alloysAlso includes titanium or titanium alloys

8. 8 Applies to: Aircraft Missile and space systems Ships Tank and automotive items Weapons systems Ammunition Specialty Metal in Bulk or Raw Form Language Adopted Section 842 of FY07 National Defense Authorization Act PL 109-364 Coverage is limited to the end items or components of these six major systems Section 842 of FY07 National Defense Authorization Act PL 109-364 Coverage is limited to the end items or components of these six major systems

9. 9 Language Adopted Exceptions Provided: Non-Availability (DNAD) In support of deployed troops Outside U.S. Foreign Governments Existing Agreements MOU Nations Small Purchases Electronic Components Commercial Items DoD given flexibility to narrow application even further, based upon these delineated exceptions Exclusions include test equipment and related items and COTS items DoD given flexibility to narrow application even further, based upon these delineated exceptions Exclusions include test equipment and related items and COTS items

10. 10 Language Adopted Prime contracts and subcontracts at any tier Repeal of Previous Provision One-time Waiver of Requirements Allows for the acceptance of existing withholds Allows for the exhaustion of existing inventories This new law applies to prime contracts and subcontracts at any tier Responsibility for compliance falls to the Prime Currently only prime allowed to seek DNAD The changes did not amend the previous provisions, but actually repealed the specialty metal provisions of the Berry AmendmentThis new law applies to prime contracts and subcontracts at any tier Responsibility for compliance falls to the Prime Currently only prime allowed to seek DNAD The changes did not amend the previous provisions, but actually repealed the specialty metal provisions of the Berry Amendment

11. 11 Electronic Component Exception Commercially Available De Minimis Content First DNAD defined de minimis to mean 10% Outstanding concerns include: No coverage for racks, panels and enclosures � titanium hardened cases No current DNAD coverage for the large percentage of components in electronics, including hard drive, media drives, power transformers and supplies, wires, connectors No definition of commercially available Applies to electronic components contained in an end product are required to be compliant �lowest level electronic component� as part of the de minimis measure is unclear No defined way to assess value of the item for de minimis determinationFirst DNAD defined de minimis to mean 10% Outstanding concerns include: No coverage for racks, panels and enclosures � titanium hardened cases No current DNAD coverage for the large percentage of components in electronics, including hard drive, media drives, power transformers and supplies, wires, connectors No definition of commercially available Applies to electronic components contained in an end product are required to be compliant �lowest level electronic component� as part of the de minimis measure is unclear No defined way to assess value of the item for de minimis determination

12. 12 DoD Implementation All previous withholds removed with adoption of new law DPAP Memo on Class Deviation (Dec. 6, 2006) DPAP Memo on DNADs (Jan. 17, 2007) USD-ATL DNAD on Circuit Card Assemblies SAE�s grant DNAD authority to DCMA

13. 13 Pending Action DFAR proposed rule Guidance on Commercial Items DNAD on fasteners OFPP Guidance on FAR Part 35 application DNAD�s on other specialty metals items A DFAR Proposed Rule is expected in the next few months Much of the application of this new provision is reliant on the guidance on commercial items � industry believes that a large proportion of covered items can be addressed in that exception OFPP may issue additional guidance for the commercial item exception once DoD has released the DFAR Proposed Rule A DNAD on fasteners is pending now at USD-ATL and should provide an exception for up to 85% of fasteners These pending actions leave much to interpretationA DFAR Proposed Rule is expected in the next few months Much of the application of this new provision is reliant on the guidance on commercial items � industry believes that a large proportion of covered items can be addressed in that exception OFPP may issue additional guidance for the commercial item exception once DoD has released the DFAR Proposed Rule A DNAD on fasteners is pending now at USD-ATL and should provide an exception for up to 85% of fasteners These pending actions leave much to interpretation

14. 14 Standards Specialty Metals provisions impact standardization in two ways Requires that items in the supply chain be compliant or have a DNAD or other exception Many potential changes in supply chains for prime contractors Outstanding guidance and DFAR means that full implementation is incomplete and unknown Industry would like to know what problems you anticipate with the new Specialty Metals provisions?

15. 15 Questions/Contacts Trey Hodgkins Sr. Director Defense and Intelligence Programs Public Sector Group ITAA 703-284-5310 thodgkins@itaa.org