[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Proposed Rules]
[Pages 30832-30835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14625]


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DEPARTMENT OF DEFENSE

48 CFR Parts 245 and 252

[DFARS Case 92-D024]


Defense Federal Acquisition Regulation Supplement; 
Demilitarization

AGENCY: Department of Defense (DoD).

ACTION: Proposed rule with request for comments.

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SUMMARY: The Director of Defense Procurement is proposing to amend the 
Defense Federal Acquisition Regulation Supplement (DFARS) to address 
control of Munitions List items and Strategic List items and 
demilitarization of excess property under Government contracts.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before August 4, 1997 to be considered in 
the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
Defense Acquisition Regulations Council, Attn: Mr. Rick Layser, 
PDUSD(A&T)DP(DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 
20301-3062. Telefax number (703) 602-0350. Please cite DFARS Case 92-
D024 in all correspondence related to this issue.

FOR FURTHER INFORMATION CONTACT:
Rick Layser, (703) 602-0131.

SUPPLEMENTARY INFORMATION:

A. Background

    A proposed rule was published in the Federal Register on March 16, 
1994 (59 FR 12223). The rule proposed amendments to the DFARS to 
improve control of Munitions List and Strategic List items and 
demilitarization of excess contractor inventory. After evaluation of 
public comments, a second proposed rule was published in the Federal 
Register on March 23, 1995 (60 FR 15276). As a result of public 
comments received on the second proposed rule, additional changes have 
been made, including amendment of the clause at 252.245-7XXX to--
    (1) State that any adjustment in contract price incident to the 
contracting officer's direction to demilitarize excess Government 
property shall be made in accordance with the Changes clause of the 
contract;
    (2) Specify the terms and conditions that the contractor must 
include in any agreement for sale of items requiring demilitarization 
or trade security controls; and
    (3) Eliminate the requirement for inclusion of demilitarization 
codes on transfer documents when contractor-acquired property is 
transferred to a follow-on contract.

B. Regulatory Flexibility Act

    The proposed rule is not expected to have a significant economic 
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 vast 
majority of property requiring demilitarization or trade security 
controls is in the custody of contractors that are large business 
concerns. Additionally, contractor expenses incident to 
demilitarization are reimbursable contract costs. An initial regulatory 
flexibility analysis has therefore not been performed. Comments are 
invited from small businesses and other interested parties. Comments 
from small entities concerning the affected DFARS subparts also will be 
considered in accordance with 5 U.S.C. 610. Such comments should be 
submitted separately and should cite DFARS Case 92-D024 in 
correspondence.

C. Paperwork Reduction Act

    The information collection requirements in this proposed rule have 
been approved by the Office of Management and Budget under Clearance 
Number 0704-0363 through June 30, 1998.

List of Subjects in 48 CFR Parts 245 and 252

    Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.

    Therefore it is proposed that 48 CFR Parts 245 and 252 be amended 
as following:
    1. The authority citation for 48 CFR Parts 245 and 252 continues to 
read as follows:

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

PART 245--GOVERNMENT PROPERTY


245.601  [Amended]

    2. Section 245.601 is amended by removing paragraph (2), and by 
redesignating paragraphs (3) and (4) as paragraphs (2) and (3), 
respectively.
    3. Section 245.604 is revised to read as follows:


245.604  Restrictions on purchase or retention of contractor inventory.

    (1) Contractors authorized to sell contractor inventory (see FAR 
45.601) may not knowingly sell the inventory to any person or that 
person's agent, employee, or household member if that person--
    (i) Is a civilian employee of the DoD or the U.S. Coast Guard; or
    (ii) Is a member of the armed forces of the United States, 
including the U.S. Coast Guard; and
    (iii) Has any functional or supervisory responsibilities for or 
within the Defense Reutilization and Marketing Program, or for the 
disposal of contractor inventory.
    (2) (i) A contractor's authority to approve a subcontractor's sale, 
purchase, or retention at less than cost, and the subcontractor's 
authority to sell, purchase, or retain at less than cost if approved by 
a higher-tier contractor, does not include authority to approve--
    (A) a sale by a subcontractor to the next higher-tier contractor or 
to an affiliate of such contractor or of the subcontractor; or

[[Page 30833]]

    (B) A sale, purchase, or retention at less than cost, by a 
subcontractor affiliated with the next higher-tier contractor.
    (ii) The written approval of the plant clearance officer is 
required for each excluded sale, purchase, or retention at less than 
cost.
    (3) Classified inventory. Classified contractor inventory shall be 
disposed of in accordance with applicable security regulations or as 
directed by the contracting officer.
    (4) Dangerous inventory. Contractor inventory dangerous to public 
health or safety shall not be donated or otherwise disposed of unless 
rendered innocuous or until adequate safeguards have been provided.
    4. Section 245.604-70 is added to read as follows:


Sec. 245.604-70  Demilitarization and trade security controls.

    (a) Definitions. ``Munitions List item,'' ``Strategic List item,'' 
and ``trade security controls'' are defined in the clause at 252.245-
7XXX, Demilitarization and Trade Security Controls.
    (b) General. Demilitarization requires total or key point 
destruction of property to preclude further use for its originally 
intended military or lethal purpose (see DoD 4160.21-M-1, Defense 
Demilitarization Manual).
    (c) Procedures--(1) Solicitations and contracts. When Government-
furnished property will be furnished to the contractor, the contracting 
officer shall include in the solicitation and contract a 
demilitarization code, provided by the inventory/technical manager, for 
each property item.
    (2) Inventory schedules. (i) For Government-furnished property, the 
contractor is required to enter demilitarization codes in the item 
description on inventory schedules that report excess Government 
property requiring demilitarization and/or trade security controls.
    (ii) For other excess Government property, the contractor is 
required to assign and enter appropriate demilitarization codes (see 
DoD 4160.21-M-1, Defense Demilitarization Manual, Appendix 3) in the 
item description of inventory schedules that report excess Government 
property requiring demilitarization and/or trade security controls.
    (3) The plant clearance officer is responsible for monitoring 
contractor inclusion of appropriate demilitarization codes for items 
requiring demilitarization and/or trade security controls on inventory 
schedules that report excess Government property.
    (4) When excess Government property is to be demilitarized as a 
condition of sale, plant clearance officers shall ensure that the 
agreement between the contractor and the purchaser contains specific 
guidance to the purchaser on how the property is to be demilitarized, 
including (when applicable) the identification of specific equipment 
that must be furnished/used by the purchaser to perform the 
demilitarization. Upon the sale of items that are subject to trade 
security controls, plant clearance officers, shall, prior to approving 
the contractor's release of the Munitions List items or Strategic List 
items to the purchaser, conduct a preaward check in accordance with 
Defense Logistics Agency Regulation (DLAR) 2030.1, Trade Security 
Control Procedures Applicable to Department of Defense Surplus Property 
and Foreign Excess Personal Property. Additionally, prior to release of 
such items to a purchaser, the plant clearance officer shall ensure 
that all documentation required by DLAR 2030.1 and the sales terms and 
conditions identified in the clause at 252.245-7XXX are forwarded to 
the Defense Logistics Agency Trade Security Control Resident Office--
Memphis, Bldg. 210, Bay 5, 2163 Airways Blvd., Memphis, TN 38114, for 
follow-up checks/consent.
    (d) Contract clause. Use the clause at 252.245-7XXX, 
Demilitarization and Trade Security Controls, in solicitations and 
contracts when Government property will be furnished to the contractor, 
or when the contractor will acquire or fabricate property that might 
become Government property under the contract.


245.7310-1  [Removed and reserved]

    5. Section 245.7310-1 is removed and reserved.
    6. Section 252.245-7XXX is added to read as follows:


252.245-7XXX  Demilitarization and Trade Security Controls.

    As prescribed in 245.604-70(d), use the following clause:

DEMILITARIZATION AND TRADE SECURITY CONTROLS (DATE)

    (a) Definitions. As used in this clause:
    (1) Munitions List item means any item contained in the United 
States Munitions List (22 CFR part 121).
    (2) Strategic List item means any commodity, software and/or 
technology the Department of Commerce, Bureau of Export 
Administration, has determined requires licensing prior to export 
from the United States. Strategic List items are listed in 15 CFR 
part 774, Supplement 1, Commerce Control List, and Supplement 2, 
General Technology and Software Notes.
    (3) Trade security controls means control procedures designed to 
preclude the sale or shipment of Munitions List or Strategic List 
property to any entity whose interests are inimical to those of the 
United States. These controls are also applicable to such other 
selected property as may be designated by the Deputy Under Secretary 
of Defense (Trade Security Policy).
    (b) Inventory schedules. (1) For items that were furnished to 
the Contractor by the Government, the Contractor shall enter 
demilitarization codes (see DoD 4160.21-M-1, Defense 
Demilitarization Manual, Appendix 3) in the item description on 
inventory schedules that report excess Government property requiring 
demilitarization and/or trade security controls.
    (2) For other excess Government property, the Contractor shall 
assign and enter demilitarization codes (see DoD 4160.21-M-1, 
Defense Demilitarization Manual, Appendix 3) in the item description 
on inventory schedules that report excess Government property 
requiring demilitarization and/or trade security controls.
    (c) Demilitarization. (1) Demilitarization requires total or key 
point destruction of property to preclude further use for its 
originally intended military or lethal purpose (see DoD 4160.21-M-1, 
Appendix 2). When directed by the Contracting Officer, the 
Contractor shall demilitarize excess Government property. Any 
adjustment in contract price incident to such direction shall be 
made in accordance with the procedures of the Changes clause of the 
contract.
    (2) Trade security controls required by the Arms Export Control 
Act and 22 CFR parts 120-130, the International Traffic in Arms 
Regulations; the Export Administration Act of 1979 and 15 CFR parts 
700-774, the Export Administration Regulations; and Defense 
Logistics Agency Regulation (DLAR) 2030.1, Trade Security Control 
Procedures Applicable to Department of Defense Surplus Property and 
Foreign Excess Personal Property, apply to all Munitions List items 
and Strategic List items the Contractor is authorized to sell.
    (3) The Contractor, when authorized to sell excess Government 
property requiring demilitarization, is responsible for ensuring 
that demilitarization is accomplished properly.
    (d) Required terms and conditions for sales. (1) If the 
Contractor is authorized to offer for sale excess Government 
property that requires demilitarization by the Purchaser, then the 
Contractor shall include in the agreement between the Contractor and 
the Purchaser the following terms and conditions. The Contractor 
also shall include these terms and conditions in any solicitations 
for excess Government property requiring demilitarization or trade 
security controls.
    (i) DEMILITARIZATION.
    Item(s) ________ require demilitarization by the Purchaser in a 
manner and to the degree set forth in the Defense Demilitarization 
Manual, DoD 4160.21-M-1, Appendix 4, and in accordance with any 
contract requirement. Title shall not pass to

[[Page 30834]]

the Purchaser until the Seller or a representative has verified that 
the Purchaser has demilitarized the property properly.
    (ii) FAILURE TO DEMILITARIZE.
    If, for any reason, the Purchaser fails to accomplish the 
required demilitarization, the Seller reserves the right to demand 
return of the property, or repossess the property, for purposes of 
completing the required demilitarization.
    (2) If authorized to offer Munitions List items or Strategic 
List items for sale, the Contractor shall include in the agreement 
between the Seller and the Purchaser the following terms and 
conditions and will provide the documentation required by DLAR 
2030.1:
    (i) MUNITIONS LIST ITEMS.
    (A) Except as permitted by this clause, none of the Munitions 
List items identified in this agreement between the Seller and the 
Purchaser will be directly or indirectly used or disposed of for 
military use or exported without a full disclosure of the origin of 
the property (by reference to this agreement) to the appropriate 
export licensing department or agency.
    (B) Notwithstanding the provisions of paragraph (2)(i)(A) of 
this agreement, Munitions List items that do not require 
demilitarization may be sold for military or other use to the United 
States Government, its designees, and to foreign governments or 
international organizations, subject to the issuance of an export 
license by the United States Department of State under the 
International Traffic In Arms Regulations (see 22 CFR subchapter M, 
part 121. et seq.).
    (ii) STRATEGIC LIST ITEMS.
    (A) None of the Strategic List items identified in this 
agreement between the Seller and the Purchaser will be directly or 
indirectly used or disposed of for military use.
    (B) Property purchase in the United States, Puerto Rico, 
American Samoa, Guam, the Trust Territories of the Pacific Islands, 
or the U.S. Virgin Islands may not be exported without a full 
disclosure of the origin of the property, by reference to this 
agreement between the Seller and the Purchaser, being made to: 
Office of Export Administration, P.O. Box 273, Washington, DC 20044.
    (C) It is understood that the Office of Export Administration 
may require the Purchaser to mutilate the property to the extent 
necessary to preclude its use for its originally intended purpose, 
and/or require the Purchaser to have or obtain an export license 
before the property may be exported outside of the United States, 
Puerto, Rico, American Samoa, Guam, the Trust Territories of the 
Pacific Islands, or the U.S. Virgin Islands.
    (iii) DISPOSTIONS AND USE OF PROPERTY.
    (A) The Purchaser agrees to submit documentation regarding 
disposition and use of property in the form prescribed in DLAR 
2030.1, Enclosure 1.
    (B) The ultimate destination, use, and disposition of the 
property shall be in accordance with the documentation submitted to 
the Seller.
    (C) Any changes in the specified destination, use, or 
disposition of the property prior to the release to the Purchaser, 
will require the written approval of the Seller in coordination with 
the plant clearance officer.
    (D) Any changes in the specified destination, use, or 
disposition of the property after release to the Purchaser, will 
require the prior written consent of the Trade Security Control 
Resident Office identified as follows:
    (1) For all sales of property in the Continental United States, 
Hawaii, and all Pacific, Far East, Southeast Asian, South American, 
and Caribbean locations, the Purchaser shall forward the changes to: 
DLA Trade Security Control Resident Office--Memphis, Bldg. 210, Bay 
5, 2163 Airways Blvd, Memphis, TN 38114.
    (2) For all sales of property in all European, Middle Eastern, 
and African countries, the Purchaser shall forward the changes to: 
DCIA-E, Trade Security Control Resident Office, CMR-443, Box 131, 
APO AE 09096.
    (E) The Purchaser further agrees to notify in writing any and 
all subsequent purchasers or receivers of this property of the 
provisions of the sales agreement including: the authorized 
destination; the requirement for consent by the Trade Security 
Control Resident Office of any change of such destination prior to 
exportation thereto; the specific United States restrictions on 
exports and re-exports directly and indirectly to denied areas or 
other prohibited destinations that may have been specified in this 
contract; the documentation (e.g., Import Certificate/Delivery 
Verification (IC/DV) documents, lading certificates, answers to 
follow-up requests) that may be required; and United States 
sanctions against violators. Subsequent purchasers and receivers 
also must agree to make similar notification to purchasers and 
receivers from them. Any unauthorized disposition of the property by 
a subsequent purchaser or subsequent received of the property shall 
be the responsibility of such purchaser or receiver and, where at 
fault, of the original buyer.
    (F) When property purchased under this agreement between the 
Seller and the Purchaser is intended for more than one destination 
and/or consignee, the Purchaser agrees to submit a listing of those 
items specifying quantities intended for each destination and 
consignee. The Purchaser further agrees to furnish the listing 
referred to in this paragraph with each request for approval of a 
change in destination.
    (G) Whenever requested by the Trade Security Control Resident 
Office to furnish information regarding the actual disposition of 
the property, the Purchaser agrees to furnish the requested 
information within 30 calendar days after the date of the request.
    (H) On those items requiring resale consent, the Purchaser 
agrees to maintain detailed records of their disposition and to 
provide such records to the Trade Security Control Resident Office 
whenever requested to do so.
    (I) The trade control actions required by paragraphs (1) through 
(4) of these terms and conditions apply to all items included in the 
original sale. Resale breakdowns of such sales will be subject to 
the same control requirements applicable to the original sale.
    (iv) EXPORT OF PROPERTY FROM THE UNITED STATES.
    The property sold under this agreement between the Seller and 
the Purchaser may or may not be authorized for export from the 
United States. It is the sole responsibility of the Purchaser to 
obtain any necessary export clearances or approvals from the United 
States Department of State and/or Department of Commerce for any 
property purchased under this agreement between the Seller and the 
Purchaser that is subject to export control.
    (v) MUNITIONS LIST AND STRATEGIC LIST ITEMS.
    The use, disposition, export and re-export of this property is 
subject to all applicable United States Laws and Regulations. This 
includes, but is not limited to, the Export Administration Act of 
1979 (50 U.S.C., Appx. 2401, et seq.), the Arms Export Control Act 
(22 U.S.C. 2751, et seq.), the International Traffic in Arms 
Regulation (22 CFR part 121), and the Export Administration 
Regulation (15 CFR subchapter C).
    (vi) DENIED AREAS.
    The Purchaser understands and agrees that the ultimate 
destination of the property purchased under this agreement between 
the Seller and the Purchaser shall not be--
    (A) A denied area or prohibited area or prohibited destination 
identified in 22 CFR parts 120-130, the International Traffic in 
Arms Regulations; 15 CFR parts 700-774, Export Administration 
Regulations; 31 CFR parts 500-585, Foreign Assets Control 
Regulation; and Defense Security Assistance Agency, Security 
Assistance Management Manual, DoD 5105.38-M; or
    (B) Any other prohibited destination that may be specified in 
this agreement between the Seller and the Purchaser.
    (3) The Contractor also shall include the following terms and 
conditions in the agreement between the Seller and the Purchaser for 
the sale of any property located outside of the United States, 
American Samoa, Guam, Puerto Rico, the Trust Territories of the 
Pacific Islands, and the U.S. Virgin Islands:
    (i) COMPLIANCE WITH LAWS, RESTRICTIONS, AND REGULATIONS.
    The Purchaser is responsible for compliance with all applicable 
foreign laws and regulations that may apply to this transaction and 
shall pay all custom duties, taxes, and similar charges that may be 
levied by respective governments against a purchaser of United 
States Government property. The United States Government shall not 
be liable for taxes, duties, or other assessments imposed by any 
government as a result of this transaction or imposed on any 
property transferred under this contract.
    (ii) IMPORT CERTIFICATE AND DELIVERY VERIFICATION.
    (A) Prior to removal of the property the Purchaser agrees to 
submit an Import Certificate, issued by the government of the 
country into which the property or any part of the property is to be 
imported, to the Seller who in turn will forward it, via the plant 
clearance officer, to the Trade Security Control Resident Office (as 
identified in the terms and conditions of this sale, disposition, 
and use of property) for consent. A triangular Import Certificate 
(stamped with a triangular symbol) to indicate that the importer is

[[Page 30835]]

uncertain about the ultimate destination of the property will not be 
accepted.
    (B) Prior to release of the property for import into a country 
that does not issue an Import Certificate or Delivery Verification, 
the Purchaser agrees to submit a notification of consignee to the 
Seller who in turn will forward it, via the plant clearance officer, 
to the Trade Security Resident Office for approval of the 
destination and consignee.
    (C) Within 60 calendar days after release of the property, the 
Purchaser agrees to submit to the Trade Security Control Resident 
Office a Delivery Verification issued by the government that issued 
the Import Certificate.
    (D) Within 90 calendar days after release of the property for 
import into a country that does not issue an Import Certificate or 
Delivery Verification, the Purchaser agrees to submit to the Trade 
Security Control Resident Office evidence of the arrival of the 
property at the approved destination and delivery to the approved 
consignee. Such evidence may consist of a receipted copy of the bill 
of lading, a Landing Certificate issued by the country of import, or 
other valid documentary evidence identifying the final destination 
and consignee.
    (E) Failure of the Purchaser or any subsequent purchaser to 
submit a required Delivery Verification or other documentary 
evidence of the arrival and delivery may be cause for administrative 
action to be taken against the Purchaser or subsequent purchaser 
which could result in the denial of future contracts with the United 
States Government.
    (e) Subcontracts. The Contractor shall include this clause in 
all contracts with its subcontractors or suppliers at any tier, 
except contracts for commercial items, when Government property will 
be furnished to the subcontractor, or when the subcontractor will 
acquire or fabricate property that might become Government property 
under the subcontract. The clause shall not be modified other than 
to identify the contracting parties.

(End of clause)

[FR Doc. 97-14625 Filed 6-4-97; 8:45 am]
BILLING CODE 5000-04-M