2011-25234. Defense Federal Acquisition Regulation Supplement; Definition of “Qualifying Country End Product” (DFARS Case 2011-D028)

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to revise the definition of “qualifying country end product.” This final rule eliminates the component test for qualifying country end products that are commercially available off-the-shelf items.

DATES:

Effective date: October 4, 2011.

FOR FURTHER INFORMATION CONTACT:

Amy G. Williams, telephone [phone].

SUPPLEMENTARY INFORMATION:

I. Background

DoD published a proposed rule in the Federal Register at 76 FR 32845 on June 6, 2011, to amend the definition of qualifying country end product. One comment was received in response to the proposed rule.

II. Discussion and Analysis of Public Comment

Comment: The respondent stated that we need to define “commercially available off-the-shelf item” or reference the definition in the FAR, because there is nothing that says that the definitions in the FAR necessarily apply to the DFARS.

Response: The DFARS implements and supplements the FAR (see FAR subpart 1.3). Unless the DFARS specifically makes a statement to the contrary, everything in the FAR is the basis upon which the DFARS is built. No change to the rule is necessary on the basis of this comment.

III. Other Changes

As a technical update, the more recent definition of “qualifying country” in 225.003 is incorporated in two of the clauses changed by the final rule, rather than citing to the list of qualifying countries at 225.872-1. This has no practical impact, because the two lists contain the same countries. The definition was added to DFARS 225.003 to reduce confusion, because the list at DFARS 225.872-1 is split into two paragraphs, (a) and (b), which sometimes leads to misinterpretation of the status of countries that are listed in paragraph (b).

IV. 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.

V. Regulatory Flexibility Act

DoD certifies that this rule will not have a significant impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule only affects manufacturers of COTS items in qualifying countries, removing an administrative burden for the qualifying country manufacturer and the Government personnel acquiring the items. No domestic entities will be impacted by this rule. For the definition of “small business,” the Regulatory Flexibility Act refers to the Small Business Act, which in turn allows the U.S. Small Business Administration (SBA) Administrator to specify detailed definitions or standards (5 U..S.C 601(3) and 15 U.S.C. 632(a)). The SBA regulations at 13 CFR 121.105 discuss who is a small business: “(a)(1) Except for small agricultural cooperatives, a business concern eligible for assistance from SBA as a small business is a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.”

The comparable change has already been enacted for the benefit of U.S. manufacturers of COTS items.

VI. Paperwork Reduction Act

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. (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 amended as follows:

PART 252—SOLICITATION PROVISIONS AND CONTRACT CLAUSES

1. The authority citation for

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

252.212-7001

[Amended]

2. Amend section 252.212-7001 as follows:

a. Remove the clause date “(SEP 2011)” and add in its place “(OCT 2011)”;

b. In paragraph (b)(6)(i), remove the clause date “(JAN 2009)” and add in its place “(OCT 2011)” and in paragraph (b)(6)(ii), remove the clause date “(DEC 2010)” and add in its place “(OCT 2011)”;

c. In paragraph (b)(12)(i), remove the clause date “(JUN 2011)” and add in its place “(OCT 2011)”, in paragraph (b)(12)(ii), remove the clause date “(SEP 2008)” and add in its place “(OCT 2011)”, and in paragraph (b)(12)(iii), remove the clause date “(DEC 2010)” and add in its place “(OCT 2011)”; and

d. In paragraph (b)(15)(i), remove the clause date “(DEC 2010)” and add in its

3. Amend section 252.225-7001 as follows:

a. Remove the clause date “(SEP 2011)” and add in its place “(OCT 2011)”;

b. In paragraph (a), remove the number preceding each definition and revise the definitions for “Qualifying country” and “Qualifying country end product;

c. In Alternate I, remove the clause date “(DEC 2010)” and add in its place “(OCT 2011)” and in paragraph (a), remove the numbers preceding each definition.

252.225-7001

Buy American Act and Balance of Payments Program.

* * * * *

(a) * * *

Qualifying country means a country with a reciprocal defense procurement memorandum of understanding or international agreement with the United States in which both countries agree to remove barriers to purchases of supplies produced in the other country or services performed by sources of the other country, and the memorandum or agreement complies, where applicable, with the requirements of section 36 of the Arms Export Control Act (22 U.S.C. 2776) and with 10 U.S.C. 2457. Accordingly, the following are qualifying countries:

Australia, Austria, Belgium, Canada, Denmark, Egypt, Finland, France, Germany, Greece, Israel, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom of Great Britain and Northern Ireland.

* * * * *

Qualifying country end product means—

(i) An unmanufactured end product mined or produced in a qualifying country; or

(ii) An end product manufactured in a qualifying country if—

(A) The cost of the following types of components exceeds 50 percent of the cost of all its components:

(1) Components mined, produced, or manufactured in a qualifying country.

(2) Components mined, produced, or manufactured in the United States.

(3) Components of foreign origin of a class or kind for which the Government has determined that sufficient and reasonably available commercial quantities of a satisfactory quality are not mined, produced, or manufactured in the United States; or

(B) The end product is a COTS item.

* * * * *

4. Amend section 252.225-7021 as follows:

a. Remove the clause date “(JUN 2011)” and add in its place “(OCT 2011)”;

b. In paragraph (a), remove the number preceding each definition, add in alphabetical order the definition for “Commercially available off-the-shelf (COTS) item”, and revise the definitions for “Qualifying country” and “Qualifying country end product;

c. In Alternate I, revise the clause date, revise the introductory text, and, in paragraph (a), remove the number preceding the definition;

d. In Alternate II, remove the clause date “(DEC 2010)” and add in its place “(OCT 2011)” and, in paragraph (a), remove the numbers preceding the definitions.

252.225-7021

Trade Agreements.

* * * * *

(a) * * *

Commercially available off-the-shelf (COTS) item. (i) Means any item of supply (including construction material) that is—

(A) A commercial item (as defined in paragraph (1) of the definition of “commercial item” in section 2.101 of the Federal Acquisition Regulation);

(B) Sold in substantial quantities in the commercial marketplace; and

(C) Offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial marketplace; and

(ii) Does not include bulk cargo, as defined in section 4 of the Shipping Act of 1984 (46 U.S.C. 40102), such as agricultural products and petroleum products.

* * * * *

Qualifying country means a country with a reciprocal defense procurement memorandum of understanding or international agreement with the United States in which both countries agree to remove barriers to purchases of supplies produced in the other country or services performed by sources of the other country, and the memorandum or agreement complies, where applicable, with the requirements of section 36 of the Arms Export Control Act (22 U.S.C. 2776) and with 10 U.S.C. 2457. Accordingly, the following are qualifying countries:

Australia, Austria, Belgium, Canada, Denmark, Egypt, Finland, France, Germany, Greece, Israel, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom of Great Britain and Northern Ireland.

Qualifying country end product means—

(i) An unmanufactured end product mined or produced in a qualifying country; or

(ii) An end product manufactured in a qualifying country if—

(A) The cost of the following types of components exceeds 50 percent of the cost of all its components:

(1) Components mined, produced, or manufactured in a qualifying country.

(2) Components mined, produced, or manufactured in the United States.

(3) Components of foreign origin of a class or kind for which the Government has determined that sufficient and reasonably available commercial quantities of a satisfactory quality are not mined, produced, or manufactured in the United States; or

(B) The end product is a COTS item.

* * * * *

ALTERNATE I (OCT 2011)

As prescribed in 225.1101(6)(ii), add the following definition to paragraph (a) of the basic clause and substitute the following paragraph (c) for paragraph (c) of the basic clause:

* * * * *

5. Amend section 252.225-7036 as follows:

a. Remove the clause date “(DEC 2010)” and add in its place “(OCT 2011)”;

b. In paragraph (a), remove the numbers preceding the definitions and revise the definition for “Qualifying country end product”;

c. In Alternate I, revise the clause date, revise the introductory text, and, in paragraph (a), remove the number preceding the definition; and

d. In Alternates II and III, remove the clause date “(DEC 2010)” and add in its place “(OCT 2011)” and in paragraph (a), remove the numbers preceding the definitions.

252.225-7036

Buy American Act—Free Trade Agreements—Balance of Payments Program.

* * * * *

(a) * * *

Qualifying country end product means—

(i) An unmanufactured end product mined or produced in a qualifying country; or

(ii) An end product manufactured in a qualifying country if—

(A) The cost of the following types of components exceeds 50 percent of the cost of all its components:

(1) Components mined, produced, or manufactured in a qualifying country.

(2) Components mined, produced, or manufactured in the United States.

(3) Components of foreign origin of a class or kind for which the Government has determined that sufficient and reasonably available commercial quantities of a satisfactory quality are not mined, produced, or manufactured in the United States; or

(B) The end product is a COTS item.

* * * * *

ALTERNATE I (OCT 2011)

As prescribed in 225.1101(11)(i)(B), add the following definition to paragraph (a) and substitute the following paragraph (c) for paragraph (c) of the basic clause:

* * * * *