Infotech and the law | Berry Amendment reform hangs by thread

The "specialty metals" provision of the Berry Amendment became law in 1973 long before most people could conceive of today's global IT market. But that law, as it's now applied, limits the ability of the Defense Department to acquire commercial IT and the electronic components vital to nearly all modern weapons and other sophisticated systems.

The Berry Amendment and its implementing regulations require specialty metals incorporated in products delivered under DOD contracts to be smelted in the United States or a "qualifying country" unless one of a few narrow exceptions applies. Specialty metals include certain steel, titanium, zirconium and other metal alloys that often are important components of the commercial IT on which the DOD depends.

In today's commercial IT market, sourcing of specialty metals is global. Often it's difficult or even impossible to identify the source of every component of every product at every link in the supply chain. The result is that many companies doing business in this market cannot strictly comply with the Berry Amendment's specialty metals requirements.

Efforts are under way to change this aspect of the law's application, but DOD has signaled its intent to increase Berry Amendment enforcement.

The Defense Contract Management Agency published interim instructions March 10, 2006, for "conditional acceptance" of non-compliant products by DOD agencies "until a long-term departmental remedy can be implemented." Conditional acceptance, which places the burden of disclosing noncompliance or potential noncompliance on prime contractors, creates significant administrative burdens for primes and subcontractors. It also directs procuring agencies to "withhold the cost of the lowest auditable non-compliant specialty metal part plus appropriate burden from payments due against the contract."

A subsequent June 1, 2006, departmentwide memo from the undersecretary of defense for acquisition, technology, and logistics endorses DCMA's conditional acceptance approach. The memo also requires all offending contractors to submit a "comprehensive corrective action plan" no later than 180 days after conditional acceptance.

An Aug. 18, 2006, memo from the director of defense procurement and acquisition policy instructs DOD contracting officers to address Berry Amendment compliance "prior to contract award to avoid non-compliance during performance."

These enforcement guidelines threaten to further hinder DOD acquisition of commercial IT products at a time when flexibility and technological superiority are critical to the success of our armed forces. Fortunately, the Senate recognized the problem and has passed important reforms in its version of the 2007 defense authorization bill (S. 2766).

Section 822 of S. 2766 would exempt commercial items that contain specialty metals from the Berry Amendment's domestic sourcing requirement. It would do the same for "specialty metals that are incorporated into an electronic component, where the value of the specialty metal used in the component is [trifling] in relation to the value of the electronic component." Section 822 would let prime contractors and first-tier subcontractors commingle foreign and domestic specialty metals in their production lines, if they have contractually committed to acquire a specific minimum amount of domestic specialty metal.

These reforms would help preserve DOD's access to the commercial IT market, but it's not at all clear that they will become law. The House version of the 2007 defense authorization legislation (H.R. 5122) would reinforce the current Berry Amendment sourcing regime and, through the establishment of a "Strategic Materials Protection Board," would create a new layer of Berry Amendment-like issues.

The differences between the bills now must be sorted out in conference. Let's hope that good business sense prevails on Capitol Hill and that the Senate legislation carries the day.

David Fletcher is an associate in the government contracts practice of DLA Piper Rudnick Gray Cary US LLP in Washington. He can be reached by e-mail at david.fletcher@dlapiper.com.