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Published on November 28, 2007

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Slide1:  Berry Amendment Presented By: Dave Riley Deputy District Counsel, DCMAW Berry Amendment Outline:  Berry Amendment Outline Background General Application and Exceptions DoD Implementation Areas of Concern Disclaimer: The views I express are purely my own. OSD leadership may not share my opinion. Policy in this area is currently being considered at the OSD level. Slide3:  Berry Amendment: It’s not intuitive! It’s odd that chopped liver might be covered; silver bullets aren’t. Berry Amendment Background:  Berry Amendment Background Earliest version – 1940 Naval Appropriations Act. 1941: Restriction was included in the General Appropriation Act. Thereafter, the annual Defense Appropriation Acts contained the Berry Amendment restrictions. 1992: Becomes a note to 10 U.S.C. § 2241. 2002: Codified at 10 U.S.C. 2533a (FY02 Defense Authorization Act). Purpose: The legislative history of the Berry Amendment indicates that the purpose of the amendment was and is to maintain and support the defense industrial base for those items it covers. Who was E.Y. Berry?:  Who was E.Y. Berry? Ellis Yarnal Berry (R) served as South Dakota's Western District Congressman from 1951 - 1971. Why is it called the Berry Amendment?:  Why is it called the Berry Amendment? Though the restriction existed prior to 1952 it was during floor debates that Congressmen E.Y. Berry introduced his amendment to DoD’s Buy American restrictions. Prior to this amendment “Berry” only covered food and clothing. The Berry Amendment to the DoD Buy American Restrictions expanded the coverage to include “clothing, cotton or wool (whether in the form of fabric or yarn or contained in fabric, materials, or manufactured articles).” Berry Amendment (Basics):  Berry Amendment (Basics) Restricts the use of DoD funds to pay for certain items That are not grown, reprocessed, reused, or produced in the U.S. To protect the related industrial base in the U.S. Puts no direct requirements on Contractor Only via contract terms does Berry apply to primes/subs Berry Amendment (Coverage):  Berry Amendment (Coverage) Food, Clothing, Tents/Tarpaulins/Covers Cotton and Other Natural Fiber Products Woven Silk or Woven Silk Blends Spun Silk Yarn for Cartridge Cloth Synthetic Fabric or Coated Synthetic Fabric Canvas Products Wool (including in manufactured articles) Individual Equipment manufactured from or containing such fibers, yarns, fabrics, or materials Specialty Metals, including stainless steel flatware, unless the metals were melted in manufacturing facilities located within the United States Hand or Measuring Tools Specialty Metals :  Specialty Metals Application was added to Berry Amendment coverage in 1972 Consider the timing of this addition – Vietnam War Acquisition Exceptions:  Acquisition Exceptions DFARS 225.7002-2 & 10 USC 2533a At/below Simplified Acquisition Threshold In support of Combat Operations Food, specialty metals, hand/measuring tools – In support of Contingency Operations Under other than competitive procedures approved on the basis of unusual and compelling urgency -- 10 USC § 2304(c)(2) Specialty metals and chemical warfare protective clothing when acquisition furthers an agreement with a foreign government (Qualifying Country sources) Acquisition Exceptions, Continued:  Acquisition Exceptions, Continued Domestic Non-Availability Determination (DNAD) at Secretariat level Satisfactory quality and sufficient quantity of the protected articles or items, or of specialty metals (including stainless steel flatware), cannot be acquired as and when needed at U.S. market prices. The U.S. Market Price exception is rarely utilized. Requestor must first consider alternatives that would Not require a DNAD. Exception may be considered only if requesting activity first confirms such alternatives are unacceptable. Acquisition Exceptions, Continued:  Acquisition Exceptions, Continued Waste and byproducts of cotton or wool fiber for use in the production of propellants and explosives. Acquisitions of foods manufactured or processed in the United States, regardless of where the foods (and any component if applicable) were grown or produced. Under FY 2003 and subsequent DoD Appropriations Acts, this exception does not apply to fish, shellfish, or seafood manufactured or processed in the United States or contained in foods manufactured or processed in the United States. More BERRY AMENDMENT Exceptions:  More BERRY AMENDMENT Exceptions Outside the United States In support of combat operations Procurements of food, Specialty metals (including stainless steel flatware), or hand or measuring tools in support of contingency operations. Application and Exceptions:  Application and Exceptions DFARS 225.7002-2(c) - Acquisitions of items listed in FAR 25.104(a), unless the items are hand or measuring tools. FAR 25.104 – Nonavailable Articles However, when an item is listed at FAR 25.104 conduct market research to determine if the item is available in the domestic marketplace (including alternatives.) Examples: Cashew Nuts, Castor oil, altar linen, quinine, cobra venom Application and Exceptions:  Application and Exceptions The following Qualifying Countries are treated equally with “domestic” sources for specialty metal and other restrictions (see DFARS 225.872-1): Australia Belgium Canada Denmark Egypt Federal Republic of Germany France Greece Israel Italy Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland Turkey United Kingdom of Great Britain and Northern Ireland Buy American Act (BAA):  Buy American Act (BAA) Passed during the Great Depression to both save and create jobs for American workers. The Berry Amendment limits competition. The BAA merely gives a preference to U.S. manufactured goods by adding a price evaluation factor to foreign end products. Legislation – Great Depression relief vice Industrial Base preservation. Primary intent – Jobs vice Strategic Defense Originally designed to make sure food/uniforms came from U.S. sources Why do we need the Berry Amendment?:  Why do we need the Berry Amendment? Examples (from American Manufacturing Trade Action Coalition): Vietnam War – Sony withheld cameras used to guide tactical missiles In 1983, the socialists in the Japanese Diet blocked the sale of ceramic packaging used in U.S. cruise missiles JDAM bomb production was stopped during Iraq war because a Swiss industrialist refused to ship critical part - disagreed w/Administration policy Hellfire Missile production was stopped during West Coast dock strike because critical parts sourced in Japan were awaiting off-loading Recent Berry Issues:  Recent Berry Issues Army black berets from China, Romania and Sri Lanka Russian titanium fraud case of late 90s – spawned the withhold methodology Specialty Metal issues arising primarily at major subs * Providing non-conforming goods is a fraud indicator; investigative referrals have been made in some instances Biggest Concern – Specialty Metal:  Biggest Concern – Specialty Metal Has arisen most often at sub level in programs where flow-down required: Aircraft; missile and space systems; ships, tank-auto; weapons; ammo (Laird Memo – DFARs 225.7002-2) See also DFARS 252.244-7000 (subcontracts for commercial items) It’s still the Prime’s problem Main Problems:  Main Problems Prime didn’t flow down clause to subs Prime contract used confusing or inappropriate language – duty to inquire? Prime contract omitted required language – Christian Doctrine? (GAO reports 60% of contracts have “problems”) Prime not taking ownership (overseeing) sub compliance – getting a cert is not enough General lack of understanding of the requirement DCMA Fire-proofing Guidance:  DCMA Fire-proofing Guidance What we were trying to achieve: Help PCOs to make appropriate determinations – many “problem” contracts Try to foster consistency – we had received complaints about disparate treatment (especially on withhold calculations) Try to be pragmatic while complying with the letter of the law – avoid ADA violations Get all ACOs working off the same sheet of music DCMA Interim Guidance:  DCMA Interim Guidance Supplants the fire-proofing memo as the primary Berry guidance document Fire-proofing memo still good background info Main issues addressed by guidance: Authority to accept with a withhold Calculation of withhold Conditional acceptance language Accounting for withholds WAWF test of invoicing process has been successful What ACOs Expect From PCOs:  What ACOs Expect From PCOs Tell us if a Berry Amendment exception applies to this acquisition. Tell us if you intend to obtain a DNAD (Secretarial Exception). Tell us if you want to reject the item. If the answers to 1-3 are all no, tell us if we are authorized to conditionally accept the non-conforming part with a withhold calculated per the DCMA Interim Guidance. Execute contract mods, as appropriate. What DCMA Will Do:  What DCMA Will Do Work with DCAA, PCO and Primes to determine appropriate withhold amounts Process Conditional Acceptance (modified DD250) incorporating withhold after PCO approval Perform normal quality function w/r/t tendered product including release of product from subs where source inspection is authorized Controversial Areas:  Controversial Areas Amount of withhold: Contract end item, major sub-assembly, lowest level auditable part, or metal only? What about FAR 46.407 (replace at no cost)? Burdened amount from all subs and withheld at prime level – impact of different accounting systems Lowest Level Auditable Part Plus Burden This calculation is auditable, does not rely on an estimate, includes all costs associated with the non-compliant part, and is in synch with replace option. We create an ADA violation if we pay for items containing non-domestic metals. Our withhold approach is based on DoJs position in actual fraud case. Related Issues:  Related Issues What about FMS? Statute restricts use of funds “appropriated or otherwise available to DoD” Industry position – FMS funds not “otherwise available” to DOD DCMA defers to PCO on funds availability issues GAO opinions, case-law on false claims act, long-standing positions of Defense Security Assistance Agency and DoJ are at odds with industry position FMF is distinct from FMS as to funding. The part is still contractually non-compliant. Definition Issues:  Definition Issues What constitutes an ALT 1 major program? DPAS rating is instructive but not necessarily determinative. Not all contracts are rated – or rated correctly. DPAS system is a Dept of Commerce reg. Safe approach: If contract rated DPAS A1-A6 – ALT 1 likely applies. If you think something has been ordered for an ALT 1 program but it isn’t rated DPAS A1-A6, ask PCO for a definitive determination. More Definition Issues:  More Definition Issues Why isn’t the US considered a qualifying country? Won’t this drive business off-shore? This issue was considered by DAR Council. Making US a qualifying country would “gut” the statutory intent. DAR Council considered and rejected requirement for metal in article from qualifying country to also be smelted in a qualifying country. The qualifying countries list results from various trade agreements. Fiscal Issues :  Fiscal Issues The amount of withhold is so small it costs more to work the fix than is being saved. That may be so but fiscal law does not recognize a de minimis rule. Contractors can make a business decision to set the withhold amount at a higher component level if obtaining auditable data for lowest level non-compliant part is difficult, not cost-effective, or impossible. Payment Issues:  Payment Issues WAWF does not allow for withholds on conditional acceptances? I am not a WAWF/MOCAS expert. Fixed Price Ks - Identify via an attached schedule the withhold amount by line item and a revised unit price. Attach to receiving report (DD250). Voucher and DD250 need to match. Flexibly Priced Ks – back withhold amount out of voucher consistent with billing instructions Any payment delays are due to contractual noncompliance, not “the system.” Payment Process:  Payment Process Conditional Acceptance language (will likely need to be attached to the acceptance document given space constraints in the “Comments” Field ); a schedule (authorized by the ACO/PCO) identifying the amounts to be withheld at the line item level must also be attached in order for DFAS to pay the invoice. 1. The DD250 is created in WAWF. 2. Once created, the WAWF menu will show a new Tab called “Misc. Info.” 3. Click on “Misc. Info” tab and there will be an “Add Attachment” button. 4. Click on the “Add Attachment” button and you will see the familiar Windows-type “Select File to Attach/Browse” Button. My View Looking Up:  My View Looking Up My opinion only: OSD is engaged and they know we are looking for policy OSD knows how DCMA has recommended conducting business in the interim Industry (AIA and others) has engaged OSD at the AT&L level and above Serious people on both sides of the legislative debate over Berry restrictions will be heard from Recommended Reading:  Recommended Reading 10 USC 2533(a) DFARS 252.225-7014; 225.7002; 252.224-7000; 58 Comp. Gen. 81 (FMS) 32 Pub. Cont. L.J. 577 (2003) CRS Rpt to Cong. - Berry Amend. (4/21/2005) Gov’t Contractor, Vol. 46, No. 16 (4/21/2004) GAO NSIAD-87-191 (B-226033) (09/1987) GAO-05-957 - AF waiver issues (09/2005) Amer. Manuf. Trade Action Coalition Report

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