[Federal Register: March 21, 2006 (Volume 71, Number 54)]
[Rules and Regulations]               
[Page 14108-14110]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr06-13]                         

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 215 and 216

[DFARS Case 2005-D003]

 
Defense Federal Acquisition Regulation Supplement; Incentive 
Program for Purchase of Capital Assets Manufactured in the United 
States

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

ACTION: Final rule.

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SUMMARY: DoD has adopted as final, with changes, an interim rule 
amending the Defense Federal Acquisition Regulation Supplement (DFARS) 
to implement Section 822 of the National Defense Authorization Act for 
Fiscal Year 2004. Section 822 requires the Secretary of Defense to 
establish an incentive program for contractors to purchase capital 
assets manufactured in the United States, and to provide consideration 
for offerors with eligible capital assets in source selections for 
major defense acquisition programs.

DATES: Effective March 21, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition 
Regulations System, OUSD (AT&L) DPAP (DARS), IMD 3C132, 3062 Defense 
Pentagon, Washington, DC 20301-3062. Telephone (703) 602-0328; 
facsimile (703) 602-0350. Please cite DFARS Case 2005-D003.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD published an interim rule at 70 FR 29643 on May 24, 2005, to 
implement Section 822 of the National Defense Authorization Act for 
Fiscal Year 2004 (Pub. L. 108-136). Section 822 added 10 U.S.C. 2436, 
which requires the Secretary of Defense to (1) establish an incentive 
program for contractors to purchase capital assets manufactured in the 
United States under contracts for major defense acquisition programs; 
and (2) provide consideration for offerors with eligible capital assets 
in source selections for major defense acquisition programs.
    Six respondents submitted comments on the interim rule. A 
discussion of the comments is provided below.
    1. Comment: Some respondents expressed concern about the future of 
the U.S. machine tool industry and its ability to help in the defense 
of the United States. They discussed the severe pressure from foreign 
competition and asserted that the machine tool industry in particular 
is essential to the military industrial and critical infrastructure 
base of the United States.
    DoD Response: DoD recognizes these concerns and considers that the 
incentive program in this DFARS rule provides sufficient motivation for 
vendors to consider the purchase of U.S. machine tools for major 
defense acquisition programs as well as for other defense requirements.
    2. Comment: One respondent stated that the use of U.S. machine 
tools for fulfilling defense contracts should be mandatory.
    DoD Response: The mandatory use of U.S. machine tools would 
severely affect DoD's ability to manage its contracts in terms of cost, 
schedule, and performance and would negatively impact DoD's ability to 
meet warfighter needs. Such an approach could deny DoD the ability to 
select the contractor that is most likely to provide the most effective 
solution to DoD needs, simply because that contractor did not possess 
all U.S. machine tools. Further, if defense contractors were forced to 
acquire U.S. machine tools in order to be responsive to DoD's needs, 
the expense of acquiring those tools (estimated to be in the billions) 
would

[[Page 14109]]

be passed on to DoD and would diminish resources available to meet 
defense requirements.
    3. Comment: One respondent stated that, at a minimum, the U.S. 
machine suppliers should be given the opportunity to match any 
competitive quote for foreign machine tools being procured by a defense 
contractor.
    DoD Response: In most instances, defense contractors already have 
the tooling required to fulfill DoD's requirements. In those instances 
where additional tooling is required, the consideration to be provided 
during source selection/evaluation and the use of award fees should 
provide ample incentive to the contractor to consider U.S.-made machine 
tooling instead of foreign tooling and give U.S. machine tool makers 
the opportunity to match offers of foreign manufacturers.
    4. Comment: Several respondents objected to the inclusion of the 
phrase ``when pertinent to the best value determination'' in the 
direction to consider the purchase and use of capital assets (including 
machine tools) manufactured in the United States, believing that the 
phrase is too vague and leaves too much discretion to the contractor or 
the DoD evaluator in deciding whether there is an advantage to 
purchasing U.S. machine tools. The respondents stated that such 
consideration should be an integral part of the evaluation.
    DoD Response: The phrase ``when pertinent to the best value 
determination'' has been excluded from the final rule.
    5. Comment: One respondent requested that the scope of the benefit 
be clarified, i.e., better defined for prospective purchasers of 
machine tools.
    DoD Response: DoD's defense suppliers are aware of the concerns 
expressed by the U.S. machine tool industry and the provisions of 
Section 822 of the National Defense Authorization Act for Fiscal Year 
2004. DoD has structured the incentive program so that the purchase of 
capital assets (including machine tools) is an integral part of the 
evaluation and source selection. The benefit of purchasing U.S.-made 
tooling has been made evident to DoD's suppliers by including U.S. 
tooling purchase as a consideration in source selection. Additionally, 
the Government's desire to motivate and reward a contractor for 
purchase of capital assets (including machine tools) is unmistakable in 
the wording of the award fee application in DFARS 216.470(a). The 
financial benefit associated with an award fee is clear.
    6. Comment: Several respondents wanted DoD to assign objective, 
quantifiable, and meaningful credits or points, or measurable 
standards, for the evaluation of capital assets (including machine 
tooling) in source selection.
    DoD Response: The factors and subfactors used in evaluating 
offerors during source selection reflect the specific procurement being 
undertaken and, therefore, vary from procurement to procurement. 
Specific credits or points are not assigned to any of these factors/
subfactors. Rather, they are weighted to reflect their importance.
    As stated in FAR 15.101, Best value continuum:

    ``An agency can obtain best value in negotiated acquisitions by 
using any one or a combination of source selection approaches. In 
different types of acquisitions, the relative importance of cost or 
price may vary. For example, in acquisitions where the requirement 
is clearly definable and the risk of unsuccessful contract 
performance is minimal, cost or price may play a dominant role in 
source selection. The less definitive the requirement, the more 
development work required, or the greater the performance risk, the 
more technical or past performance considerations may play a 
dominant role in source selection.''

    In major weapons systems acquisition, past performance will 
obviously be a factor, as will technical expertise, cost, and schedule. 
Other elements such as small business goals and purchase of U.S. 
machine tools will also be factors for consideration. The relative 
weights for these factors will vary. None will be assigned a specific 
``credit'' or ``measurable standard.''
    In addition to the change described in the response to Comment 4, 
the final rule excludes the phrase ``and use'' from the text at 
215.304(c)(ii) and 216.470(a)(1) to more closely conform to the 
language of Section 822 of the National Defense Authorization Act for 
Fiscal Year 2004.
    This rule was not subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993.

B. Regulatory Flexibility Act

    DoD has prepared a final regulatory flexibility analysis consistent 
with 5 U.S.C. 604. A copy of the analysis may be obtained from the 
point of contact specified herein. The analysis is summarized as 
follows:
    The objective of the rule is to increase the purchase of capital 
assets (including machine tools) manufactured in the United States. The 
rule implements 10 U.S.C. 2436, as added by Section 822 of the National 
Defense Authorization Act for Fiscal Year 2004. Most prime contractors 
for major defense acquisition programs are large business concerns. 
However, the rule is expected to have a positive impact on small 
business manufacturers of machine tools and other capital assets used 
in major defense acquisition programs, as their sales to DoD prime 
contractors should increase. There were no issues raised by the public 
comments in response to the initial regulatory flexibility analysis. As 
a result of public comments received in response to the interim rule, 
the final rule contains changes that strengthen the requirement for 
consideration of the purchase of capital assets manufactured in the 
United States under contracts for major defense acquisition programs.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply, because the rule does 
not impose any information collection requirements that require the 
approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et seq.

List of Subjects in 48 CFR Parts 215 and 216

    Government procurement.

Michele P. Peterson,
Editor, Defense Acquisition Regulations System.

0
Accordingly, the interim rule amending 48 CFR parts 215 and 216, which 
was published at 70 FR 29643 on May 24, 2005, is adopted as a final 
rule with the following changes:
0
1. The authority citation for 48 CFR parts 215 and 216 continues to 
read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 215--CONTRACTING BY NEGOTIATION

0
2. Section 215.304 is amended by revising paragraph (c)(ii) to read as 
follows:


215.304  Evaluation factors and significant subfactors.

    (c) * * *
    (ii) In accordance with 10 U.S.C. 2436, consider the purchase of 
capital assets (including machine tools) manufactured in the United 
States, in source selections for all major defense acquisition programs 
as defined in 10 U.S.C. 2430.

PART 216--TYPES OF CONTRACTS

0
3. Section 216.470 is amended by revising paragraph (a)(1) to read as 
follows:

[[Page 14110]]

216.470  Other applications of award fees.

* * * * *
    (a) * * *
    (1) Purchase of capital assets (including machine tools) 
manufactured in the United States, on major defense acquisition 
programs; or
* * * * *

[FR Doc. 06-2645 Filed 3-20-06; 8:45 am]

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