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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: April 15, 2002

SUBJECT: Defense Federal Acquisition Regulation Supplement (DFARS); Balance of Payments Program in Defense Supply Contracts

SOURCE: Federal Register, April 15, 2002, Vol. 67, No. 72, page 18161

AGENCIES: Department of Defense (DOD)

ACTION: Request for Comments

SYNOPSIS: DOD is inviting interested parties to submit written comments or recommendations on a proposal to eliminate the application of the Balance of Payments Program (BOPP) to DOD procurements of supplies to be used overseas.

EDITOR'S NOTE: A September 11, 2001, proposed rule requested comments on eliminating the application of the BOPP to construction contracts performed outside the United States. Those comments are now being evaluated. For more on this proposed rule, see the September 11, 2001, FEDERAL CONTRACTS DISPATCH "Balance of Payments Program."

DATES: Comments must be received no later than June 14, 2002.

ADDRESSEES: Send comments to Charles A. Zuckerman, Deputy Director, Defense Procurement, Foreign Contracting, OUSD(AT&L), 3060 Defense Pentagon, Washington, DC 20301-3060.

FOR FURTHER INFORMATION CONTACT: Susan M. Hildner, Procurement Analyst, Defense Procurement, Defense Systems Procurement Strategies, OUSD(AT&L), 3060 Defense Pentagon, Washington, DC 20301-3060; 703-695-4258; e-mail: Susan.Hildner@osd.mil.

SUPPLEMENTAL INFORMATION: The BOPP was established in July 1962 when Secretary of Defense Robert S. McNamara directed the military departments to hold to a minimum their expenditures of appropriated funds outside the U.S., its possessions, and Puerto Rico. The BOPP was established as an interim measure to be used until the U.S. balance of payments deficit was corrected. However, 40 years later, the deficit continues even with the BOPP in place.

The BOPP was incorporated into the Armed Services Procurement Regulation (ASPR), the predecessor to the DFARS, in July 1964. There is no statutory authority for the BOPP.

The BOPP, as implemented in DFARS Subpart 225.3 and Federal Acquisition Regulation (FAR) Subpart 25.3, restricts the purchase of supplies that are not domestic end products, for use outside the U.S., in procurements where the estimated cost is expected to exceed the $100,000 simplified acquisition threshold. Its restrictions are similar to those of the Buy American Act (BAA). The BOPP uses the same definitions and evaluation procedures, including the application of a 50% factor to determine unreasonable cost.

Over the 40 years the BOPP has been in existence, there have been so many waivers and exceptions to its provisions that few DOD supply procurements are subject to BOPP procedures:

As a result of these waivers and exceptions (some of which overlap), defense equipment procured from approximately 85 countries receive equal consideration with domestic offers. Among these countries are practically every major U.S. trading partner.

In addition, the marketplace has changed considerably since implementation of the BOPP. In today's market, U.S. manufacturers rely heavily on global sources, particularly in the commercial arena. DOD encourages its acquisition managers to buy commercially produced items rather than entering into long and expensive development projects. Just as in the BAA, contractors must certify that end products offered for public use are domestic end products that have been manufactured in the U.S. and that the cost of the domestic or qualifying country components exceeds 50% of the cost of all components. To do this, suppliers must determine, control, and track the source of components. In the global economy, this has become an extremely difficult task and creates a disincentive for commercial companies to sell to DOD since they do not track the cost of items manufactured in a foreign country. It is believed that the elimination of the application of the BOPP to DOD procurements of supplies for use outside the U.S. would allow DOD to procure more commercial items if the items were lower in cost and would expand access to state-of-the-art commercial technology.

DOD is seeking comments on the proposal to eliminate the application of the BOPP to DOD procurements of supplies to be used overseas. Those submitting comments should provide specific examples of the benefits to be achieved by the elimination of the BOPP or identify specific harm that would be caused by the elimination of the BOPP preference in DOD supply contracts.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2002 by Panoptic Enterprises. All Rights Reserved.

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