06-2645. Defense Federal Acquisition Regulation Supplement; Incentive Program for Purchase of Capital Assets Manufactured in the United States

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

DoD has adopted as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 822 of the National Defense Authorization Act for Fiscal Year 2004. Section 822 requires the Secretary of Defense to establish an incentive program for contractors to purchase capital assets manufactured in the United States, and to provide consideration for offerors with eligible capital assets in source selections for major defense acquisition programs.

DATES:

Effective March 21, 2006.

FOR FURTHER INFORMATION CONTACT:

Ms. Amy Williams, Defense Acquisition Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone [phone]; facsimile [phone]. Please cite DFARS Case 2005-D003.

SUPPLEMENTARY INFORMATION:

A. Background

DoD published an interim rule at 70 FR 29643 on May 24, 2005, to implement Section 822 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136). Section 822 added 10 U.S.C. 2436, which requires the Secretary of Defense to (1) establish an incentive program for contractors to purchase capital assets manufactured in the United States under contracts for major defense acquisition programs; and (2) provide consideration for offerors with eligible capital assets in source selections for major defense acquisition programs.

Six respondents submitted comments on the interim rule. A discussion of the comments is provided below.

1. Comment: Some respondents expressed concern about the future of the U.S. machine tool industry and its ability to help in the defense of the United States. They discussed the severe pressure from foreign competition and asserted that the machine tool industry in particular is essential to the military industrial and critical infrastructure base of the United States.

DoD Response: DoD recognizes these concerns and considers that the incentive program in this DFARS rule provides sufficient motivation for vendors to consider the purchase of U.S. machine tools for major defense acquisition programs as well as for other defense requirements.

2. Comment: One respondent stated that the use of U.S. machine tools for fulfilling defense contracts should be mandatory.

DoD Response: The mandatory use of U.S. machine tools would severely affect DoD's ability to manage its contracts in terms of cost, schedule, and performance and would negatively impact DoD's ability to meet warfighter needs. Such an approach could deny DoD the ability to select the contractor that is most likely to provide the most effective solution to DoD needs, simply because that contractor did not possess all U.S. machine tools. Further, if defense contractors were forced to acquire U.S. machine tools in order to be responsive to DoD's needs, the expense of acquiring those tools (estimated to be in the billions) would be passed on to DoD and would diminish resources available to meet defense requirements.

3. Comment: One respondent stated that, at a minimum, the U.S. machine suppliers should be given the opportunity to match any competitive quote for foreign machine tools being procured by a defense contractor.

DoD Response: In most instances, defense contractors already have the tooling required to fulfill DoD's requirements. In those instances where additional tooling is required, the consideration to be provided during source selection/evaluation and the use of award fees should provide ample incentive to the contractor to consider U.S.-made machine tooling instead of foreign tooling and give U.S. machine tool makers the opportunity to match offers of foreign manufacturers.

4. Comment: Several respondents objected to the inclusion of the phrase “when pertinent to the best value determination” in the direction to consider the purchase and use of capital assets (including machine tools) manufactured in the United States, believing that the phrase is too vague and leaves too much discretion to the contractor or the DoD evaluator in deciding whether there is an advantage to purchasing U.S. machine tools. The respondents stated that such consideration should be an integral part of the evaluation.

DoD Response: The phrase “when pertinent to the best value determination” has been excluded from the final rule.

5. Comment: One respondent requested that the scope of the benefit be clarified, i.e., better defined for prospective purchasers of machine tools.

DoD Response: DoD's defense suppliers are aware of the concerns expressed by the U.S. machine tool industry and the provisions of Section 822 of the National Defense Authorization Act for Fiscal Year 2004. DoD has structured the incentive program so that the purchase of capital assets (including machine tools) is an integral part of the evaluation and source selection. The benefit of purchasing U.S.-made tooling has been made evident to DoD's suppliers by including U.S. tooling purchase as a consideration in source selection. Additionally, the Government's desire to motivate and reward a contractor for purchase of capital assets (including machine tools) is unmistakable in the wording of the award fee application in DFARS 216.470(a). The financial benefit associated with an award fee is clear.

6. Comment: Several respondents wanted DoD to assign objective, quantifiable, and meaningful credits or points, or measurable standards, for the evaluation of capital assets (including machine tooling) in source selection.

DoD Response: The factors and subfactors used in evaluating offerors during source selection reflect the specific procurement being undertaken and, therefore, vary from procurement to procurement. Specific credits or points are not assigned to any of these factors/subfactors. Rather, they are weighted to reflect their importance.

As stated in FAR 15.101, Best value continuum:

“An agency can obtain best value in negotiated acquisitions by using any one or a combination of source selection approaches. In different types of acquisitions, the relative importance of cost or price may vary. For example, in acquisitions where the requirement is clearly definable and the risk of unsuccessful contract performance is minimal, cost or price may play a dominant role in source selection. The less definitive the requirement, the more development work required, or the greater the performance risk, the more technical or past performance considerations may play a dominant role in source selection.”

In major weapons systems acquisition, past performance will obviously be a factor, as will technical expertise, cost, and schedule. Other elements such as small business goals and purchase of U.S. machine tools will also be factors for consideration. The relative weights for these factors will vary. None will be assigned a specific “credit” or “measurable standard.”

In addition to the change described in the response to Comment 4, the final rule excludes the phrase “and use” from the text at 215.304(c)(ii) and 216.470(a)(1) to more closely conform to the language of Section 822 of the National Defense Authorization Act for Fiscal Year 2004.

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:

The objective of the rule is to increase the purchase of capital assets (including machine tools) manufactured in the United States. The rule implements 10 U.S.C. 2436, as added by Section 822 of the National Defense Authorization Act for Fiscal Year 2004. Most prime contractors for major defense acquisition programs are large business concerns. However, the rule is expected to have a positive impact on small business manufacturers of machine tools and other capital assets used in major defense acquisition programs, as their sales to DoD prime contractors should increase. There were no issues raised by the public comments in response to the initial regulatory flexibility analysis. As a result of public comments received in response to the interim rule, the final rule contains changes that strengthen the requirement for consideration of the purchase of capital assets manufactured in the United States under contracts for major defense acquisition programs.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply, because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 215 and 216

• Government procurement

Michele P. Peterson,

Editor, Defense Acquisition Regulations System.

Accordingly, the interim rule amending 48 CFR parts 215 and 216, which was published at 70 FR 29643 on May 24, 2005, is adopted as a final rule with the following changes:

1. The authority citation for 48 CFR parts 215 and 216 continues to read as follows:

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

PART 215—CONTRACTING BY NEGOTIATION

2. Section 215.304 is amended by revising paragraph (c)(ii) to read as follows:

215.304

Evaluation factors and significant subfactors.

(c) * * *

(ii) In accordance with 10 U.S.C. 2436, consider the purchase of capital assets (including machine tools) manufactured in the United States, in source selections for all major defense acquisition programs as defined in 10 U.S.C. 2430.

PART 216—TYPES OF CONTRACTS

3. Section 216.470 is amended by revising paragraph (a)(1) to read as follows:

216.470

Other applications of award fees.

* * * * *

(a) * * *

(1) Purchase of capital assets (including machine tools) manufactured in the United States, on major defense acquisition programs; or

* * * * *