[Federal Register Volume 74, Number 246 (Thursday, December 24, 2009)]
[Rules and Regulations]
[Pages 68384-68386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-30294]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Part 252


Defense Federal Acquisition Regulations Supplement; Statutory 
Waiver for Commercially Available Off-the-Shelf Items (DFARS Case 2008-
D009)

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

ACTION: Final rule.

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SUMMARY: DoD has adopted as final, without change, an interim rule 
amending the Defense Federal Acquisition Regulation Supplement (DFARS) 
to conform to the FAR changes implementing the waiver of the component 
test of the Buy American Act to contracts and subcontracts. The Federal 
Acquisition Regulation (FAR) Case 2000-305 implemented 41 U.S.C. 431 
with respect to the inapplicability of certain laws to contracts and 
subcontracts for the acquisition of commercially available off-the-
shelf (COTS) items.

DATES: Effective Date: December 24, 2009.

[[Page 68385]]


FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition 
Regulations System, OUSD(AT&L) DPAP(DARS), IMD 3D139, 3062 Defense 
Pentagon, Washington, DC 20301-3062. Telephone 703-602-0328; facsimile 
703-602-7887. Please cite DFARS Case 2008-D009.

SUPPLEMENTARY INFORMATION: 

A. Background

    The Buy American Act (41 U.S.C. 10a-10b) uses a two-part test to 
define a ``domestic end product'' (manufactured in the United States 
and a formula based on cost of domestic components) (see FAR 
25.001(c)(1) and definition of ``domestic end products'' at 25.003). 
The second part of this test is referred to as the ``component test.''
    DoD published an interim rule on January 15, 2009 (74 FR 2422), to 
amend the Defense Federal Acquisition Regulation Supplement (DFARS) to 
conform to the FAR changes implementing the waiver of the component 
test of the Buy American Act for the acquisition of commercially 
available off-the-shelf (COTS) items (FAR Case 2000-305), published as 
a final rule in the Federal Register on January 15, 2009 (74 FR 2713), 
and effective February 17, 2009.
    The comment period on the DFARS interim rule closed on March 16, 
2009.
    DoD received two responses, both representing the view of 
manufacturers of specialty metals.
    1. The rule has been promulgated and justified based on circular 
logic.
    One respondent objects that the final rule under FAR Case 2000-305 
and the interim rule under DFARS Case 2008-D009 employ circular 
reasoning in changing the definition of COTS item. The respondent 
states that ``each of the two rules is justified by pointing to the 
other.'' The respondent objects that GSA and DoD have adopted a rule 
without meaningfully addressing comments on the new COTS definition 
submitted in response to DoD's proposed rule 2008-D003.
    Response: This case was not based on circular logic but on a 
progression from the DFARS proposed rule 2008-D003 to the FAR Case 
2000-305 and to the interim rule under this DFARS Case 2008-D009. The 
comments submitted in response to the proposed rule were thoroughly 
reviewed and analyzed prior to the decision to incorporate this 
definition in the FAR rule and this DFARS rule and were then addressed 
in the Federal Register when the final rule 2008-D003 was subsequently 
published on July 29, 2009 (74 FR 52895).
    2. Definition of COTS item should not allow modification to COTS 
items at higher tiers in the supply chain.
    Both respondents opposed the definition of ``commercially available 
off-the-shelf (COTS) item'' because they consider it inconsistent with 
the statutory definition of COTS item (41 U.S.C. 431(c)) to allow 
modifications to occur at the next higher tier in the supply chain.
    The respondents were concerned that an item could be substantially 
modified by downstream contractors prior to delivery to the Government.
     One respondent stated that under this definition, a COTS 
item can be modified in any way and still retain its character as a 
COTS item.
     The respondent further stated that this definition of COTS 
items results in the COTS exception applying to all commercial items.
     The respondent is concerned that contractors may opt to 
deconstruct major equipment end items such as green aircraft with the 
expectation that this approach would leave them with just a very small 
set of items requiring compliance. The respondent considered that the 
use of the commercial derivative military article exception would be 
more appropriate.
     The respondents cited language from the House Armed 
Services Committee report which stated that the exception for COTS 
items and components generally applies to items incorporated in non-
commercial end items. The Committee also stated that if a contractor is 
using COTS items with more substantial modifications, it must use the 
de minimis or commercial derivative military article (CDMA) exceptions.
     The respondents requested that DoD allow only 
modifications that are incidental to installation, joining, or 
incorporation into the non-commercial end item.
    Response: The arguments of these respondents are not pertinent to 
this DFARS rule and this DFARS rule has no impact on these respondents. 
This case implements a waiver of the component test under the Buy 
American Act for end items that are COTS items. The concern of these 
respondents relates to treatment of components containing specialty 
metals as COTS items. Their rationale is applicable to the restrictions 
of 10 U.S.C. 2533b on acquisition of specialty metals, but not to the 
Buy American Act.
    The comments relating to the House Report that accompanied the FY-
09 Duncan Hunter National Defense Authorization Act are inapplicable to 
this case, as are the comments regarding exceptions for commercial 
derivative military articles and de minimis amounts of specialty 
metals, as these apply only to the specialty metals restriction at 10 
U.S.C. 2533b.
    The comments with regard to treatment of components as COTS items 
were addressed in more detail in the preamble to the final rule under 
DFARS Case 2008-D003 (74 FR 52895). However, the statement that, under 
this definition, COTS items that have been substantially modified are 
still considered to be COTS items is not accurate. The item must be 
provided to the next higher tier of the supply chain without 
modification. Whether it is a COTS item is determined at the time of 
transfer. DoD considers it reasonable to view COTS items that are 
provided from the global supply chain to the next higher tier supplier, 
without any modifications, to be ``delivered to the Government'' by 
those suppliers without modification. If DoD were not to view such 
items in this way, these COTS suppliers would not be able to provide 
globally available COTS items to the Government without burdensome 
investigations to track the eventual use of the COTS item to the end of 
the final assembly. Further, the COTS item definition, unlike the 
definition of ``commercial item'', requires that the item must be sold 
in substantial quantities in the commercial marketplace.
    This rule was subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1933.

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. Under 
the rule, all offerors and contractors (including small businesses) 
that provide U.S.-made items will no longer have to track the origin of 
the components in order to determine whether the items qualify as 
domestic end products or domestic construction material under the Buy 
American Act. While beneficial in acquisitions subject to the Buy 
American Act, the impact of this change is not considered to be a 
significant economic impact on small businesses, because DoD has 
already waived the component test for U.S.-made items in acquisitions 
that are subject to the World Trade Organization Government Procurement 
Agreement (WTO GPA), and contractors generally pass on to the 
Government the administrative costs incurred in complying with 
burdensome

[[Page 68386]]

Government regulations such as the component test under the Buy 
American Act, or decline to sell to the Government. No comments were 
received with regard to impact on small business.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 104-13) applies, because this 
rule will result in some reduced burdens under OMB Control number 0704-
0229, DFARS Part 225 and associated clauses. A Paperwork Burden Act 
Change to pertinent existing burdens has been submitted to the Office 
of Management and Budget under 44 U.S.C. 2502, et seq.

List of Subjects in 48 CFR Part 252

    Government procurement.

Amy G. Williams,
Executive Editor, Defense Acquisition Regulations System.

PART 252--[AMENDED]

Interim Rule Adopted as Final Without Change

0
Accordingly, the interim rule amending 48 CFR Part 252, which was 
published at 74 FR 2422 on January 15, 2009, is adopted as a final rule 
without change.

[FR Doc. E9-30294 Filed 12-23-09; 8:45 am]
BILLING CODE 5001-08-P