On December 24, 2009, the U.S. Department of Defense (“DoD”) released a final rule concerning the definition of “components” under the Defense Federal Acquisition Regulation Supplement (“DFARS”). 74 F.R. 68383 (Dec. 24, 2009). The final rule amends DFARS Part 225 to clarify the distinction between foreign acquisition policies that apply only to top-level components of end products and those that apply to both top-level and lower-tier components of end products.
A “top-level component” is a component that is incorporated directly into an end product. A “lower-tier component” is a component that is incorporated into a component of the end product. The general definition of a component under the Federal Acquisition Regulation (“FAR”) is “any item supplied to the Government as part of an end item or of another component.” 48 C.F.R. § 2.101. According to the DoD, “the term includes both top-level components and lower-tier components.” 74 F.R. 18383 (Dec. 24, 2009). The DoD points out, however, that for purposes of the Buy American Act, the FAR defines “component” as “an article, material, or supply incorporated directly into an end product or construction material.” 48 C.F.R. § 25.003. In other words, for Buy American purposes, only top-level components are “components” according to DoD. 74 F.R. 18383 (Dec. 24, 2009).
Previously, Part 225 of the DFARS had defined the term “component” to apply only to top-level components with some limited exceptions. Following enactment of the final rule, DoD has adopted different definitions of “component” for different situations. The applicable definition of “component” depends upon the purpose for which the term is being used. DoD provides the following summary:
- Duty-Free Entry. Duty-free entry is not related to evaluation of domestic end products under the Buy American Act and should apply to qualifying country components at any tier.
- Restriction on Anchor and Mooring Chain. The requirements that the cost of components manufactured in the United States exceed 50 percent of the total cost of components is similar to the Buy American Act component test, in which only top-level components are considered. Therefore, the definition restricting application to top-level components should apply.
- Restriction on Acquisition of Forgings. The requirement to acquire forging items that are of domestic manufacture is not related to evaluation of domestic products under the Buy American Act and should apply to components at any tier.
This development is worthy of the attention of any DoD contractor that is, or could become, subject to domestic content requirements. Specifically, the final rule modifies the standard DFARS clauses 252.225-7000, 252.225-7013, 252.225-7019, 252.225-7025, and 252.225-7035. Contractors in whose contracts these clauses appear, and especially contractors who have tailored their supply chains to meet these requirements, should re-evaluate the top-level and lower-tier nature of the components in their products to ensure compliance with the revised DFARS definitions.