August 14, 2007
Specialty Metals - Rep. Hunter, Others Oppose DoD Proposal To Exempt COTS From Specialty Metal Rules
BNA Federal Contracts Report, Volume 88, Number 7, Page 155

Rep. Duncan Hunter (R-Calif.), the ranking Republican on the House Armed Services Committee, and two other House members Aug. 1 called on the Defense Department to abandon a proposed rule that would exempt commercially available off-the-shelf (COTS) items from the domestic source restrictions applicable to specialty metals, as codified by Congress last year. Not only would the proposed rule "gut the law" and result in "a de facto repeal" of significant portions of the specialty metals restrictions contained in 10 U.S.C. § 2533b, they said, but a COTS exemption "could easily be applied to textiles and other products" covered by the domestic source restrictions at 10 U.S.C. § 2533a, also known as the Berry Amendment.

"The Berry Amendment and 10 U.S.C. 2533b serve important roles in maintaining a strong U.S. industrial base, securing American jobs, and ensuring our national security. The Department of Defense, Congress, and industry should partner to find a means of compliance with this important law," the lawmakers wrote in comments addressed to the Defense Acquisition Regulations System.

The comments were signed by Hunter, HASC member Robin Hayes (R-N.C.), and House Appropriations Committee member Rep. Tim Ryan (D-Ohio).
Congressional Action Pending
Further, the three lawmakers pointed out that Congress last year rejected legislative language to provide a COTS exemption for specialty metals. Also, they noted that the matter is the subject of pending legislation--the fiscal year 2008 defense authorization bill (H.R. 1585)--that will be taken up in conference between the House and Senate Armed Services Committees, assuming that the Senate passes its version of the bill when it returns from August recess.

"We believe it is inappropriate and inefficient for DOD to consider this rule while legislative action is pending," the congressmen said.

The House version of the bill reflects the view of some HASC members that DOD is misinterpreting the specialty metals changes made last year, while language in the Senate Armed Services Committee report on its version of the bill endorses the department's efforts to implement the changes.

The bill as passed by the House May 17 includes language (Section 809) that would "clarify" 10 U.S.C. 2533b and tighten the requirements to be met by DOD when issuing determinations of domestic nonavailability (DNADs) for specialty metals. In contrast, the SASC report language accompanying the bill approved by the committee May 25 encourages DOD to take advantage of the flexibilities under Section 2533b, and specifically refers to DOD's April 10 DNAD allowing the purchase of fasteners containing non-domestic specialty metals (87 FCR 683, 06/19/07 ).

Lawmakers Cite Existing COTS Exemption

Hunter, Hayes, and Ryan further commented that the legislation enacted last year contained a COTS exemption pertaining to electronic components, which they said "was intended to address 85 percent of the problems encountered by DOD."

This exemption, included in 10 U.S.C. 2533b, applies to specialty metals contained in commercially available electronic components that meet a de minimis standard--that is, their noncompliant specialty metal content is worth less than 10 percent of the component's value.

DOD "has continued to ignore this tool that would eliminate the majority of compliance issues," the three argued. While "Congress is working to address legitimate cases where compliance is impossible," such instances are "extraordinarily rare," they asserted.

Warning that the proposed rule also could be applied to items covered by the Berry Amendment, the three said it is "inappropriate" for DOD "to consider a COTS exemption for specialty metals without taking into account the broader implications of such a precedent."

The proposed rule, which would amend the Defense Federal Acquisition Regulation Supplement, was published for public comment July 2 (88 FCR 4, 7/3/07 ).

Swords Now Drawn

"I hate to admit it, but the letter makes some good points," an industry observer told BNA. The observer agreed with the lawmakers that the rule, if adopted, "would gut a significant part of the law for specialty metals and set a precedent where a similar waiver could be issued for COTS items for the commodities covered under the Berry Amendment."

"The swords are now drawn," the observer said of the differences between the House lawmakers and contractors.

Various contractor groups commenting on the proposed DFARS rule have expressed their strong support for the exemption, arguing that source restrictions that require manufacturers to track the specialty metal content of COTS items included in products delivered to DOD add significant costs to the department and drive some manufacturers out of the defense marketplace (88 FCR 131, 8/7/07 ).

The same contractor groups argued that the DNAD process that allows DOD to purchase certain noncompliant specialty metals is excessively time-consuming and burdensome.

In contrast, Jeff Green, formerly a HASC staff member and now head of J.A. Green & Co., which represents members of the specialty metals industry, told BNA that a COTS exemption like that proposed in the rule could set "a dangerous precedent" that could be applied to items covered by the Berry Amendment, such as shoes and clothing.

"I question DOD's legal authority to exempts COTS" under the existing statute, Green said. "I just don't think the legal basis is there."

Further, given the pending congressional action pertaining to specialty metals restrictions, Green asked, "Does it make sense to go forward with a rule that will be overcome by events in the near future?"