Understanding Compliance Requirements for Products Containing Specialty Metals

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DFARS:Understanding Compliance Requirements for Products Containing Specialty Metals

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Valerie KuntzAssent ComplianceSubject Matter Expert, Materials Management

Today’s Presenter







Defense Federal Acquisition Regulation Supplement (DFARS)Specialty Metals & Counterfeit Parts







Agenda

DFARS Origin

DFARS Specialty Metals Requirements

DFARS Counterfeit Parts Requirements

Specialty Metals

Qualifying Countries

Exceptions to DFARS

Penalties for Non-Compliance

Summary

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DFARS Origin

◆ DFARS is a supplement to the Federal Acquisition Regulation (FAR)◆ The purpose of FAR is to provide uniform policies and procedures for

acquisition related to governmental products. Among its guiding principles is to have an acquisition system that satisfies customer's needs in terms of cost, quality, and timeliness; minimize administrative operating costs; conduct business with integrity, fairness, and openness; and fulfill other public policy objectives.

◆ DFARS was added to address defense-specific acquisitions including supplements related to specialty metals and counterfeit parts, with the intention of purchasing specialty metals from American companies and protecting the government from counterfeit part purchases.







DFARS Timeline

1972 – Specialty Metals Restriction added to the

“Berry Amendment”

July 29, 2009 – Laws noted above implemented

in Defense Federal Acquisition Regulation Supplement (DFARS)

2002 – Codified in 10 U.S.C 2533a by section 832 of

Public Law 107-107. Later moved to 2533b

October 26, 2007 – Specialty metals statute determined

inapplicable to the acquisition of commercial off-the-shelf

(COTS) items

January 28, 2008 – Addressed further changes to 10 U.S.C

2533b including exceptions for specialty metals

1972 2002 2007 2008 2009

September 21, 2015 – Detection and Avoidance of Counterfeit Electronic

Parts added as supplement to DFARS

2015







DFARS Specialty Metals Requirements

When the prime contract exceeds the Simplified Acquisition Threshold (SAT) of $150,000:

◆ 100 percent of specialty metals in specific end items or components must be melted or produced in the United States or a “qualifying country”.

◆ Any specialty metal (raw bar stock, wire rod, sheet, plate, etc.) bought by the Department of Defense (DoD) as an end item must be melted or produced only in the US.







DFARS Counterfeit Parts Requirements

◆ Electronic components must be acquired from trusted suppliers◆ Risk-based process to:

◇ Trace electronic parts from the original manufacturer to product acceptance by the Government or

◇ Complete an evaluation that includes consideration of alternative parts or utilization of tests and inspections commensurate with the risk

◆ Responsible for inspection, testing and authentication, in accordance with existing applicable industry standards, of electronic parts obtained from sources other than a trusted supplier

◆ Subcontracts must include a clause noting the requirements for counterfeit parts

NOTE: Simplified Acquisition Threshold (SAT) does not apply to counterfeit parts requirements because often the total value of the purchased electronic parts would be below SAT.







DFARS In-Scope Products

◆ Specialty Metals: ◇ Airplanes◇ Missile and space systems◇ Ships◇ Tank and automotive item◇ Weapon systems◇ Ammunition

NOTE: includes all components of the noted end items

◆ Counterfeit Parts:◇ Electronic parts; end items, components, parts, or assemblies containing electronic

parts; or services, if the contractor will supply electronic parts or components, parts, or assemblies containing electronic parts as part of the service.







Specialty Metals per DFARS 252.225-7008

1. Steel◆ With a maximum alloy content exceeding one or more of the following limits:

manganese, 1.65 percent; silicon, 0.60 percent; or copper, 0.60 percent; or◆ Containing more than 0.25 percent of any of the following elements:

i. aluminum, chromium, cobalt, columbium, molybdenum, nickel, titanium, tungsten, or vanadium

2. Metal alloys consisting of –◆ Nickel or iron-nickel alloys that contain a total of alloying metals other than

nickel and iron in excess of 10 percent; or ◆ Cobalt alloys that contain a total of alloying metals other than cobalt and iron

in excess of 10 percent;3. Titanium and titanium alloys; or4. Zirconium and zirconium base alloys







DFARS Qualifying Countries

◆ Australia◆ Austria◆ Belgium◆ Canada◆ Czech Republic

◆ Spain◆ Sweden◆ Switzerland◆ Turkey◆ United Kingdom of

Great Britain & Northern Ireland

"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.

◆ Denmark◆ Egypt◆ Finland◆ France◆ Germany

◆ Greece◆ Israel◆ Italy◆ Japan◆ Luxembourg

◆ Netherlands◆ Norway◆ Poland◆ Portugal◆ Slovenia







Exceptions to DFARS Specialty Metals

Domestic Non-Availability Determination (DNAD) – compliant specialty metal of satisfactory quality, sufficient quantity, and in the required form, cannot be procured as and when needed.

Note: Specialty Metal Providers are required by U.S. law under the Defense Production Act (DPA), to treat DPAS-rated contracts expeditiously by providing material, either at the prime or subcontract level, ahead of other customers.

COTS (Commercially Off-The-Shelf Items) – Excludes COTS with certain limitations for fasteners, as well as castings and forgings

Electronic Components Exception – Electronic components as defined by DFARS 252.225-7009(a)(5)

De minimis Exception – When non-compliant specialty metal is less than 2 percent of the total weight of specialty metals in the item







Exceptions to DFARS Specialty Metals

Qualifying Country Agreement Exception - The specialty metal was melted or produced in a qualifying country or is contained in an item manufactured in a qualifying country

Urgency Exception - Items acquired in support of contingency operations or compelling urgency in accordance with FAR 6.302-2

Resale Exception - Items specifically for resale by commissaries, exchanges, and other nonappropriated fund instrumentalities







U.S. Suppliers of Specialty Metals

Resources for finding specialty metal suppliers: ◆ Contact the government contracting officer responsible for the procurement

◆ Website by Specialty Steel Industry of North America for specialty metals and titanium buyers

http://www.ssina.com/









Penalties for Non-Compliance or False Claims

◆ Suspension and debarment from government business (typically three years)◆ Fines

◇ Individual fines of up to $250,000 per occurrence for individuals and $500,000 for organizations

◆ Imprisonment◇ Individual risk of up to 10 years in federal prison

◆ Breach of contract◇ Federal government can terminate contract for cause

◆ Adverse publicity







Summary

◆ DFARS is a supplement of FAR intended to define standardized purchasing requirements for U.S. government defense products and support U.S. companies and relationships with qualifying countries.

◆ Specialty metal restriction requirements applies to companies above the Simplified Acquisition Threshold of $150,000.

◆ There isn’t a threshold requirement for counterfeit parts requirements.

◆ Some exemptions apply for specialty metals with approval, but are often difficult to apply.

◆ Penalties can vary but includes fines and prison confinement.







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