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Friday, August 17, 2012

The Specialty Metal Clause: Oversight Issues and Options for Congress

Valerie Bailey Grasso
Specialist in Defense Acquisition

This report examines the specialty metal clause, potential oversight issues, and options for Congress. The specialty metal clause in the Defense Federal Acquisition Regulation Supplement (DFARS) prohibits the Department of Defense (DOD) from acquiring end units or components for aircraft, missile and space systems, ships, tank and automotive items, weapon systems, or ammunition unless these items have been manufactured with specialty metals that have been melted or produced in the United States. Thousands of products used for defense, aerospace, automotive, and renewable energy technologies rely on specialty metals for which there are often few, if any, substitutes. Specialty metals covered by this provision include certain types of cobalt, nickel, steel, titanium and titanium alloys, zirconium, and zirconium base alloys.

In order to preserve and protect the United States industrial base so that it could meet DOD requirements during periods of adversity and war, Congress passed a set of domestic source restrictions which became known as the Berry Amendment. In 1973, specialty metal become one of the items covered under the Berry Amendment. Over three decades later, specialty metals are now covered in a separate citation in the United States Code (U.S.C.). Congress took action in the FY2007 National Defense Authorization Act, P.L. 109-364, to separate specialty metal from the Berry Amendment (Title 10, U.S.C. 2533a).

Specialty metal provisions underwent a substantial revision in P.L. 110-181 as part of Congress’s continuing effort to create a procurement environment that promotes efficiency in the DOD acquisition process, while insuring that the United States has a vigorous domestic metals industry capable of meeting defense needs. The revised specialty metal clause made clear the requirement that specific defense articles must be produced using domestic specialty metals; made exemptions for commercial-off-the-shelf (COTS) articles, electronic articles, and articles containing small amounts of non-compliant specialty metals; and allowed producers of commercially derivative defense articles to treat domestic and foreign specialty metals as fungible materials so that commercial and defense articles may be produced on the same production line without the need to trace the small amounts of metal used in each article. These changes reflected a view in Congress that there are differing rationales for offering domestic source provisions, and that these refinements would promote efficiencies throughout the defense supply chain.

There are at least seven possible options for policymakers to consider: (1) eliminate the specialty metal clause; (2) require an assessment of compliance with new exceptions to the specialty metals clause; (3) require a review of waivers issued under the revised specialty metals clause, including requiring DOD to publicly disclose when waivers are granted; (4) require congressional approval before non-compliant specialty metal can be used in certain defense contracts; (5) require a congressional report for each platform/component where non-compliant specialty metals are used in defense contracts; (6) encourage the use of domestic specialty metal; and (7) appoint a special metals protection board.

Date of Report: July 30, 2012
Number of Pages: 24
Order Number: RL33751
Price: $29.95

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