[Federal Register Volume 67, Number 81 (Friday, April 26, 2002)]
[Rules and Regulations]
[Pages 20693-20696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10095]


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DEPARTMENT OF DEFENSE

48 CFR Parts 225 and 252

[DFARS Case 2000-D020]


Defense Federal Acquisition Regulation Supplement; Balance of 
Payments Program

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

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SUMMARY: DoD has issued a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to add policy pertaining to 
the Balance of Payments Program. The DFARS policy replaces Federal 
Acquisition Regulation (FAR) policy on this subject that is being 
eliminated. The Balance of Payments Program provides a preference for 
the acquisition of domestic supplies and construction material for use 
outside the United States.

EFFECTIVE DATE: April 26, 2002.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition 
Regulations Council, OUSD(AT&L)DP(DAR), IMD 3C132, 3062 Defense 
Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0328; 
facsimile (703) 602-0350. Please cite DFARS Case 2000-D020.

SUPPLEMENTARY INFORMATION:

A. Background

    This DFARS rule provides policy pertaining to the Balance of 
Payments Program to replace FAR policy on this subject that has been 
proposed for elimination (65 FR 54936, September 11, 2000). The Balance 
of Payments Program applies to contracts for supplies to be used, and 
construction to be performed, outside the United States. Although the 
DFARS already contained policy that implemented the Balance of Payments 
Program for acquisition of supplies for use outside the United States, 
DoD used the FAR policy for construction contracts performed outside 
the United States. This final rule adds DFARS policy for application of 
the Balance of Payments Program to construction contracts.
    DoD published a proposed rule with request for comments at 66 FR 
47155 on September 11, 2001. DoD also requested comments on the 
advisability of discontinuing application of the Balance of Payments 
Program to DoD construction contracts.
    Seven sources submitted comments on the proposed rule. Four of the 
respondents expressed concerns regarding the potential impact of the 
rule on the American maritime industry. A summary of these comments and 
the DoD response is provided below:
     Comment: The Balance of Payments Program should be applied 
to purchases at or below the simplified acquisition threshold.
    DoD Response: Do not concur. The exception for purchases at or 
below the simplified acquisition threshold represents a continuation of 
the policy at FAR 25.303(a). DoD is not aware of any significant 
negative impact to domestic sources that has resulted from use of this 
exception.
     Comment: DoD should eliminate the policy that permits a 
contracting officer to make a pre-solicitation determination that a 
requirement can be filled only by a foreign product.
    DoD Response: Do not concur. The DFARS policy sufficiently 
identifies the situations where such a determination would be 
appropriate and, therefore, should not arbitrarily or adversely affect 
domestic sources.
     Comment: The rule grants wide discretionary authority to 
contracting officers and agency heads to avoid implementing the Balance 
of Payments Program.
    DoD Response: Do not concur. The authorities provided to 
contracting officers and agency heads are sufficiently defined to 
maintain proper compliance with the Balance of Payments Program.
     Comment: The rule exempts ``petroleum products'' and ``end 
items acquired for commissary resale'' from the Balance of Payments 
Program. These product descriptions are too generic and should be 
considered for deletion.
    DoD Response: Do not concur. These exemptions represent a 
continuation of the policy at FAR 25.303(d). DoD is not aware of any 
significant negative impact to domestic sources that has resulted from 
use of these exemptions.
    Three respondents submitted comments regarding administrative 
aspects of the rule. A summary of these comments and the DoD response 
is provided below:
     Comment: Any determination made by the contracting 
officer, that a requirement can best be filled by a foreign end product 
or construction material, and any determination made by the head of the 
agency, that it is not in the public interest to apply the restrictions 
of the Balance of Payments Program to an end product or construction 
material, should be in writing.
    DoD Response: Do not concur. Although such determinations are 
frequently in writing, DoD does not consider it necessary to specify a 
requirement for a written determination. The policy at FAR 25.303, 
pertaining to similar determinations, does not specify that the 
determinations be in writing. DoD is not aware of any implementation 
problems that have resulted from use of the FAR policy.
     Comment: The rule should clarify who has the authority to 
make the determination at 225.7501(a)(2)(ii), that a product or 
material can best be acquired in the geographic area concerned.
    DoD Response: Concur. This paragraph has been moved to 
225.7501(5)(ii) to clarify that the contracting officer has the 
authority to make this determination.
     Comment: The contracting officer's determination made in 
accordance with 225.7501(a)(1), that a particular construction material 
is at or below the simplified acquisition threshold, will be reflected 
in the contract clause at 252.225-7044(b)(2), in the list of excepted 
construction materials. This could cause a conflict if the contracting 
officer determines the construction material to be above the simplified 
acquisition threshold, but the offeror determines the material to be at 
or below the threshold.
    DoD Response: Do not concur. Exclusion of a particular construction 
material from the list of excepted materials at 252.225-7044(b)(2) does 
not necessarily mean the contracting officer has determined the 
material to be above the simplified acquisition threshold. Materials at 
or below the simplified acquisition threshold are covered by the 
blanket exception at 252.225-7044(b)(1). Materials excepted for other 
reasons would be listed at 252.225-7044(b)(2).
    DoD also received comments on the advisability of eliminating the 
Balance of Payments Program for DoD construction contracts. Several 
respondents expressed concerns regarding the impact that elimination of 
the program would have on the American maritime industry. Others 
favored elimination of the program, stating that the program has 
resulted in higher costs and longer lead times. DoD is continuing to 
study this issue.

[[Page 20694]]

    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 certifies that this final rule will not 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 Balance of Payments Program requirements in this rule are 
transferred from existing FAR requirements, with administrative changes 
that are not expected to have a significant effect outside of the 
Government.

C. Paperwork Reduction Act

    This rule does not impose any additional information collection 
requirements that require the approval of the Office of Management and 
Budget (OMB) under 44 U.S.C. 3501, et seq. The information collection 
requirements associated with the clause at 252.225-7005, Identification 
of Expenditures in the United States, are approved under OMB Clearance 
Number 0704-0229 for use through March 31, 2004.

List of Subjects in 48 CFR Parts 225 and 252

    Government procurement.

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

    Therefore, 48 CFR parts 225 and 252 are amended as follows:
    1. The authority citation for 48 CFR parts 225 and 252 continues to 
read as follows:

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

PART 225--FOREIGN ACQUISITION

    2. Section 225.003 is amended by revising paragraph (3) to read as 
follows:


225.003  Definitions.

* * * * *
    (3) ``Domestic concern'' means--
    (i) A concern incorporated in the United States (including a 
subsidiary that is incorporated in the United States, even if the 
parent corporation is a foreign concern); or
    (ii) An unincorporated concern having its principal place of 
business in the United States.
* * * * *

Subpart 225.3 [Removed]

    3. Subpart 225.3 is removed.


225.1101  [Amended]

    4. Section 225.1101 is amended by removing the phrase ``--Balance 
of Payments Program'' in the following places:
    a. In paragraph (1), in the first sentence, the second time it 
appears;
    b. In paragraph (2) introductory text;
    c. In paragraph (12) introductory text the second time it appears; 
and
    d. In paragraph (13) introductory text, in the first sentence, the 
second time it appears.

    5. Section 225.1103 is amended by revising paragraph (1) to read as 
follows:


225.1103  Other provisions and clauses.

    (1) Unless the contracting officer knows that the prospective 
contractor is not a domestic concern, use the clause at 252.225-7005, 
Identification of Expenditures in the United States, in solicitations 
and contracts that--
    (i) Exceed the simplified acquisition threshold; and
    (ii) Are for the acquisition of--
    (A) Supplies for use outside the United States;
    (B) Construction to be performed outside the United States; or
    (C) Services to be performed primarily outside the United States.
* * * * *

    6. Subpart 225.75 is added to read as follows:

Subpart 225.75--Balance of Payments Program

Sec.
225.7500  Scope of subpart.
225.7501  Policy.
225.7502  Procedures.
225.7503  Contract clauses.


225.7500  Scope of subpart.

    This subpart provides policies and procedures implementing the 
Balance of Payments Program. It applies to contracts for the 
acquisition of--
    (a) Supplies for use outside the United States; and
    (b) Construction to be performed outside the United States.


225.7501  Policy.

    Acquire only domestic end products for use outside the United 
States, and use only domestic construction material for construction to 
be performed outside the United States, including end products and 
construction material for foreign military sales, unless--
    (a) Before issuing the solicitation--
    (1) The estimated cost of the acquisition or the value of a 
particular construction material is at or below the simplified 
acquisition threshold;
    (2) The end product or particular construction material is--
    (i) Listed in FAR 25.104 or 225.104(a)(iii);
    (ii) A petroleum product;
    (iii) A spare part for foreign-manufactured vehicles, equipment, 
machinery, or systems, provided the acquisition is restricted to the 
original manufacturer or its supplier in accordance with DoD 
standardization policy (see DoD Directive 4120.3, Defense 
Standardization and Specification Program);
    (iv) An industrial gas; or
    (v) A brand drug specified by the Defense Medical Materiel Board;
    (3) The acquisition of foreign end products or construction 
material is required by a treaty or executive agreement between 
governments;
    (4) The end product is acquired for commissary resale; or
    (5) The contracting officer determines that a requirement can best 
be filled by a foreign end product or construction material, including 
determinations that--
    (i) A subsistence product is perishable and delivery from the 
United States would significantly impair the quality at the point of 
consumption;
    (ii) An end product or construction material, by its nature or as a 
practical matter, can best be acquired in the geographic area 
concerned, e.g., ice or books; or bulk material, such as sand, gravel, 
or other soil material, stone, concrete masonry units, or fired brick;
    (iii) A particular domestic construction material is not available;
    (iv) The cost of domestic construction material would exceed the 
cost of foreign construction material by more than 50 percent, 
calculated on the basis of--
    (A) A particular construction material; or
    (B) The comparative cost of application of the Balance of Payments 
Program to the total acquisition; or
    (v) Use of a particular domestic construction material is 
impracticable;
    (b) After receipt of offers--
    (1) The evaluated low offer (see subpart 225.5) is an offer of an 
end product that--
    (i) Is a qualifying country end product;
    (ii) Is an eligible product subject to the Trade Agreements Act or 
NAFTA;
    (iii) For acquisitions subject to the Trade Agreements Act, is an 
information technology product in Federal Supply Group 70 or 74 that is 
substantially transformed in the United States; or
    (iv) Is a nonqualifying country end product, but application of the 
Balance of Payments Program evaluation factor would not result in award 
on a domestic offer; or

[[Page 20695]]

    (2) The construction material is designated country construction 
material or NAFTA country construction material, and the acquisition is 
subject to the Trade Agreements Act or NAFTA respectively; or
    (c) At any time during the acquisition process, the head of the 
agency determines that it is not in the public interest to apply the 
restrictions of the Balance of Payments Program to the end product or 
construction material.


225.7502  Procedures.

    (a) Solicitation of offers. Identify, in the solicitation, supplies 
and construction material known in advance to be exempt from the 
Balance of Payments Program.
    (b) Evaluation of offers. (1) Supplies. Unless the entire 
acquisition is exempt from the Balance of Payments Program, evaluate 
offers for supplies that are subject to the Balance of Payments Program 
using the evaluation procedures in subpart 225.5. However, treatment of 
duty may differ when delivery is overseas.
    (i) Duty may not be applicable to nonqualifying country offers.
    (ii) The U.S. Government cannot guarantee the exemption of duty for 
components or end products imported into foreign countries.
    (iii) Foreign governments may impose duties. Evaluate offers 
including such duties as offered.
    (2) Construction. Because the contracting officer evaluates the 
estimated cost of foreign and domestic construction material in 
accordance with 225.7501(a)(5)(iv) before issuing the solicitation, no 
special procedures are required for evaluation of construction offers.
    (c) Postaward. For construction contracts, the procedures at FAR 
25.206, for noncompliance under the Buy American Act, also apply to 
noncompliance under the Balance of Payments Program.


225.7503  Contract clauses.

    Unless the entire acquisition is exempt from the Balance of 
Payments Program--
    (a) Use the clause at 252.225-7044, Balance of Payments Program--
Construction Material, in solicitations and contracts for construction 
to be performed outside the United States with a value greater than the 
simplified acquisition threshold but less than $6,806,000.
    (b) Use the clause at 252.225-7045, Balance of Payments Program--
Construction Material Under Trade Agreements, in solicitations and 
contracts for construction to be performed outside the United States 
with a value of $6,806,000 or more. For acquisitions with a value of 
$6,806,000 or more, but less than $7,068,419, use the clause with its 
Alternate I.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    7. Section 252.225-7005 is revised to read as follows:


252.225-7005  Identification of Expenditures in the United States.

    As prescribed in 225.1103(1), use the following clause:

Identification of Expenditures in the United States (Apr 2002)

    (a) This clause applies only if the Contractor is--
    (1) A concern incorporated in the United States (including a 
subsidiary that is incorporated in the United States, even if the 
parent corporation is not incorporated in the United States); or
    (2) An unincorporated concern having its principal place of 
business in the United States.
    (b) On each invoice, voucher, or other request for payment under 
this contract, the Contractor shall identify that part of the 
requested payment that represents estimated expenditures in the 
United States. The identification--
    (1) May be expressed either as dollar amounts or as percentages 
of the total amount of the request for payment;
    (2) Should be based on reasonable estimates; and
    (3) Shall state the full amount of the payment requested, 
subdivided into the following categories:
    (i) U.S. products--expenditures for material and equipment 
manufactured or produced in the United States, including end 
products, components, or construction material, but excluding 
transportation;
    (ii) U.S. services--expenditures for services performed in the 
United States, including all charges for overhead, other indirect 
costs, and profit under construction or service contracts;
    (iii) Transportation on U.S. carriers--expenditures for 
transportation furnished by U.S. flag, ocean, surface, and air 
carriers; and
    (iv) Expenditures not identified under paragraphs (b)(3)(i) 
through (iii) of this clause.
    (c) Nothing in this clause requires the establishment or 
maintenance of detailed accounting records or gives the U.S. 
Government any right to audit the Contractor's books or records.

(End of clause)


    8. Sections 252.225-7044 and 252.225-7045 are added to read as 
follows:


252.225-7044  Balance of Payments Program--Construction Material.

    As prescribed in 225.7503(a), use the following clause:

Balance of Payments Program--Construction Material (Apr 2002)

    (a) Definitions. As used in this clause'
    ``Component'' means any article, material, or supply 
incorporated directly into construction material.
    ``Construction material'' means an article, material, or supply 
brought to the construction site by the Contractor or a 
subcontractor for incorporation into the building or work. The term 
also includes an item brought to the site preassembled from 
articles, materials, or supplies. However, emergency life safety 
systems, such as emergency lighting, fire alarm, and audio 
evacuation systems, that are discrete systems incorporated into a 
public building or work and that are produced as complete systems, 
are evaluated as a single and distinct construction material 
regardless of when or how the individual parts or components of 
those systems are delivered to the construction site. Materials 
purchased directly by the Government are supplies, not construction 
material.
    ``Cost of components'' means--
    (1) For components purchased by the Contractor, the acquisition 
cost, including transportation costs to the place of incorporation 
into the end product (whether or not such costs are paid to a 
domestic firm), and any applicable duty (whether or not a duty-free 
entry certificate is issued); or
    (2) For components manufactured by the Contractor, all costs 
associated with the manufacture of the component, including 
transportation costs as described in paragraph (1) of this 
definition, plus allocable overhead costs, but excluding profit. 
Cost of components does not include any costs associated with the 
manufacture of the end product.
    ``Domestic construction material'' means--
    (1) An unmanufactured construction material mined or produced in 
the United States; or
    (2) A construction material manufactured in the United States, 
if the cost of its components mined, produced, or manufactured in 
the United States exceeds 50 percent of the cost of all its 
components. Components of foreign origin of the same class or kind 
for which nonavailability determinations have been made are treated 
as domestic.
    ``United States'' means the 50 States and the District of 
Columbia, U.S. territories and possessions, Puerto Rico, the 
Northern Mariana Islands, and any other place subject to U.S. 
jurisdiction, but does not include leased bases.
    (b) Domestic preference. This clause implements the Balance of 
Payments Program by providing a preference for domestic construction 
material. The Contractor shall use only domestic construction 
material in performing this contract, except for--
    (1) Construction material valued at or below the simplified 
acquisition threshold in part 2 of the Federal Acquisition 
Regulation; or
    (2) The construction material or components listed by the 
Government as follows:


[[Page 20696]]


[Contracting Officer to list applicable excepted materials or 
indicate ``none'']

(End of clause)


252.225-7045  Balance of Payments Program--Construction Material Under 
Trade Agreements.

    As prescribed in 225.7503(b), use the following clause:

Balance of Payments Program--Construction Material Under Trade 
Agreements (Apr 2002)

    (a) Definitions. As used in this clause--
    ``Component'' means any article, material, or supply 
incorporated directly into construction material.
    ``Construction material'' means an article, material, or supply 
brought to the construction site by the Contractor or a 
subcontractor for incorporation into the building or work. The term 
also includes an item brought to the site preassembled from 
articles, materials, or supplies. However, emergency life safety 
systems, such as emergency lighting, fire alarm, and audio 
evacuation systems, that are discrete systems incorporated into a 
public building or work and that are produced as complete systems, 
are evaluated as a single and distinct construction material 
regardless of when or how the individual parts or components of 
those systems are delivered to the construction site. Materials 
purchased directly by the Government are supplies, not construction 
material.
    ``Cost of components'' means--
    (1) For components purchased by the Contractor, the acquisition 
cost, including transportation costs to the place of incorporation 
into the end product (whether or not such costs are paid to a 
domestic firm), and any applicable duty (whether or not a duty-free 
entry certificate is issued); or
    (2) For components manufactured by the Contractor, all costs 
associated with the manufacture of the component, including 
transportation costs as described in paragraph (1) of this 
definition, plus allocable overhead costs, but excluding profit. 
Cost of components does not include any costs associated with the 
manufacture of the end product.
    ``Designated country'' means any of the following countries:

Aruba
Austria
Bangladesh
Belgium
Benin
Bhutan
Botswana
Burkina Faso
Burundi
Canada
Cape Verde
Central African Republic
Chad
Comoros
Denmark
Djibouti
Equatorial Guinea
Finland
France
Gambia
Germany
Greece
Guinea
Guinea-Bissau
Haiti
Hong Kong
Iceland
Ireland
Israel
Italy
Japan
Kiribati
Korea, Republic of
Lesotho
Liechtenstein
Luxembourg
Malawi
Maldives
Mali
Mozambique
Nepal
Netherlands
Niger
Norway
Portugal
Rwanda
Sao Tome and Principe
Sierra Leone
Singapore
Somalia
Spain
Sweden
Switzerland
Tanzania U.R.
Togo
Tuvalu
Uganda
United Kingdom
Vanuatu
Western Samoa
Yemen

    ``Designated country construction material'' means a 
construction material that--
    (1) Is wholly the growth, product, or manufacture of a 
designated country; or
    (2) In the case of a construction material that consists in 
whole or in part of materials from another country, has been 
substantially transformed in a designated country into a new and 
different construction material distinct from the material from 
which it was transformed.
    ``Domestic construction material'' means--
    (1) An unmanufactured construction material mined or produced in 
the United States; or
    (2) A construction material manufactured in the United States, 
if the cost of its components mined, produced, or manufactured in 
the United States exceeds 50 percent of the cost of all its 
components. Components of foreign origin of the same class or kind 
for which nonavailability determinations have been made are treated 
as domestic.
    ``North American Free Trade Agreement (NAFTA) country'' means 
Canada or Mexico.
    ``North American Free Trade Agreement (NAFTA) country 
construction material'' means a construction material that--
    (1) Is wholly the growth, product, or manufacture of a NAFTA 
country; or
    (2) In the case of a construction material that consists in 
whole or in part of materials from another country, has been 
substantially transformed in a NAFTA country into a new and 
different construction material distinct from the material from 
which it was transformed.
    ``United States'' means the 50 States and the District of 
Columbia, U.S. territories and possessions, Puerto Rico, the 
Northern Mariana Islands, and any other place subject to U.S. 
jurisdiction, but does not include leased bases.
    (b) This clause implements the Balance of Payments Program by 
providing a preference for domestic construction material. In 
addition, the Contracting Officer has determined that the Trade 
Agreements Act and the North American Free Trade Agreement (NAFTA) 
apply to this acquisition. Therefore, the Buy American Act and 
Balance of Payments Program restrictions are waived for designated 
country and NAFTA country construction materials.
    (c) The Contractor shall use only domestic, designated country, 
or NAFTA country construction material in performing this contract, 
except for--
    (1) Construction material valued at or below the simplified 
acquisition threshold in part 2 of the Federal Acquisition 
Regulation; or
    (2) The construction material or components listed by the 
Government as follows:

[Contracting Officer to list applicable excepted materials or 
indicate ``none''.]

(End of clause)

    Alternate I (APR 2002). As prescribed in 225.7503(b), delete the 
definitions of ``North American Free Trade Agreement country'' and 
``North American Free Trade Agreement country construction 
material'' from the definitions in paragraph (a) of the basic clause 
and substitute the following paragraphs (b) and (c) for paragraphs 
(b) and (c) of the basic clause:
    (b) This clause implements the Balance of Payments Program by 
providing a preference for domestic construction material. In 
addition, the Contracting Officer has determined that the Trade 
Agreements Act applies to this acquisition. Therefore, the Balance 
of Payments Program restrictions are waived for designated country 
construction material.
    (c) The Contractor shall use only domestic or designated country 
construction material in performing this contract, except for--
    (1) Construction material valued at or below the simplified 
acquisition threshold in part 2 of the Federal Acquisition 
Regulation; or
    (2) The construction material or components listed by the 
Government as follows:

[Contracting Officer to list applicable excepted materials or 
indicate ``none''.]

[FR Doc. 02-10095 Filed 4-25-02; 8:45 am]
BILLING CODE 5001-08-P