"Hundreds Of Defense Contractors Are Using Illegal Foreign Metals In Weapons Systems"

Manufacturing & Technology News May 2, 2006 Pg. 3

Hundreds Of Defense Contractors Are Using Illegal Foreign Metals In Weapons Systems

By Richard McCormack

Hundreds of contractors are supplying the Department of Defense with products that are made with specialty metals from foreign producers, breaking a "Buy American" law that has been on the books for 65 years. As of April 27, 274 companies have reported to the Defense Department that they are or could be providing parts, components and systems that are not in compliance with the so-called "Specialty Metals" provision of the 1941 "Berry Amendment," according to a document provided by the Defense Contract Management Agency (DCMA) to Manufacturing & Technology News through the Freedom of Information Act. The requirement that contractors use only U.S.-made metals, which became part of the Berry Amendment in 1972, was reinforced in a recent interim guidance from DCMA. It is stirring a heated controversy within the defense contracting community, due to the globalization of their supply chains, and DOD's decision to strictly uphold the law. The 274 suppliers have reported thousands of non-complying parts, ranging from basic fasteners to semiconductors, light emitting diodes, capacitors, valves, piston rings, actuators and bearings, among others. The number of companies is rising every week. "While we suspect that 274 suppliers represents only a sample of a larger population, [the number is] significant in that every noncompliance requires remedial action," writes a DCMA spokesman in an e-mail response to questions submitted by MTN. "Consider this number of suppliers in the context of about 16,000 total contractors that DCMA oversees; this represents a significant workload for our agency." Under its "Interim Instruction: Non Compliance with the Preference for Domestic Specialty Metals Clause" issued earlier this year, DCMA's 11,000 contracting officers must determine what type of remedial action it should take against non-complying suppliers. They can require that companies replace the non-conforming parts with those made by U.S. producers, or they can withhold payments for the delivered value of the parts in question. "Upon receipt of a contractor's notification of non-compliance, DCMA will cease acceptance of the non-conforming product until such time as conditions enumerated in the DCMA Interim Instruction are met," says the statement from DCMA. Some contractors have reported that withholds can be as much as 20,000 times the original price of the raw specialty steel used in the non-complying parts. The issue continues to reverberate through the defense contracting community. The Department of Defense has sent proposed legislation to the Senate and House Armed Services Committees to help ameliorate the situation. But, as usual with anything related to the Berry Amendment, a legislative fix is controversial, with specialty steel suppliers defending their turf. Any changes in the Berry Amendment could ignite the wrath of other industrial sectors that could be adversely impacted, especially textiles. Proposed changes to the law have touched a nerve in the specialty steel industry. The reporting by so many companies to DCMA of so many non-complying parts is seen by some as a means to overwhelm DOD, thereby forcing it to allow companies to start supplying more products made with cheaper and, contractors argue, more available and higher quality, foreign content. Defense contractors are "trying to get a foot in the door to overhaul the Berry Amendment, which has been debated and upheld for decades," says one metals industry executive. DOD's proposal, entitled "Clarification of Domestic Source and Content Requirements," would enable a new era of "civil-military integration in the manufacturing processes of the Department's suppliers," according to a DOD analysis accompanying the bill language. "It would allow suppliers of missiles and space systems, ships, tank-automotive items, weapons and ammunition or components thereof, at the prime and subcontractor levels, to use commingled foreign and domestic specialty metals supplies so long as the contractor...procures an equivalent amount (in terms of quantity and quality) of domestically melted specialty steel." The new law would allow suppliers to do away with separate production lines for military and commercial items. "As a result, the provision would eliminate the administrative and costly burden that suppliers face in ensuring that items and components designed for the Department's procurements include only specialty metal melted in the United States, while ensuring that the domestic industry is protected by requiring the purchase of an equivalent amount of domestically produced specialty metals. Eliminating the need for separate production lines for commercial and military products may encourage additional suppliers to participate in the Department's procurements and ultimately, result in lower costs to the Department." The proposal would change the law so that items made with a small amount of foreign specialty steel can be provided to DOD without penalty. The DOD proposal also calls for the elimination of the requirement that it buy only U.S.-made stainless steel flatware because it is a "commercial commodity little produced in the United States after Oneida Ltd. ceased its domestic manufacturing operations," says DOD. In the food category, DOD's proposal would change the Berry Amendment to cover only meals ready to eat, so that it can provide its troops "with the expected assortment of fresh food products to comply with this law." Virtually everything about the defense contracting business has changed since the Buy American laws were enacted, say defense industry executives. Congress has told DOD to purchase dual-use and commercial off-the-shelf technologies. Supply chains have become more global and many of these items are no longer made in the United States. National Semiconductor and Texas Instruments have told DOD that their products may not be in compliance with the Berry Amendment and that there is little they can or will do about it. DOD is considering issuing a blanket "domestic non-availability determination" waiver for various product categories, according to industry sources. Manufacturing companies that use specialty steel are girding for battle with their domestic steel suppliers. They think the time has come for them to take the upper hand against domestic producers of steel, at a time when, they say, those producers are making record profits. If manufacturers can spur a debate on the Specialty Steel provision, they believe they now have the political power to win the battle in Congress.

Reply to
yared22311
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Several questions/comments:

* Do we even make those specialty alloys in this country any more?

* Was this another "feel good" law with no teeth?

* If we are serious about using domestically sourced material, how far back down the supply chain does this go? For example if the alloy required rare earths, the U. S. no longer domestically produces any, although we have the deposits. IIUC because thorium is a byproduct and must be treated as a low level nuclear waste and stored at considerable cost. [It should be used as fuel in a crash LFTR program, but that's another thread.]

* If we are serious about using domestically produced materials, change the tax law so that a tax of 200% of the difference in cost between using imported rather than domestic material is assessed thus providing an incentive to comply with the law.

Reply to
F. George McDuffee

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