Defense Federal Acquisition Regulation Supplement: Source Restrictions on Auxiliary Ship Components (DFARS Case 2020-D017), 46900-46903 [2023-15153]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 88, Number 138 (Thursday, July 20, 2023)]
[Rules and Regulations]
[Pages 46900-46903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15153]



[[Page 46899]]

Vol. 88

Thursday,

No. 138

July 20, 2023

Part III





Department of Defense





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Defense Acquisition Regulations System





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48 CFR Parts 202, 212, 225, et al.





Defense Federal Acquisition Regulations; Final Rules

Federal Register / Vol. 88, No. 138 / Thursday, July 20, 2023 / Rules 
and Regulations

[[Page 46900]]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 212, 225, and 252

[Docket DARS-2020-0036]
RIN 0750-AL03


Defense Federal Acquisition Regulation Supplement: Source 
Restrictions on Auxiliary Ship Components (DFARS Case 2020-D017)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement a section of the 
National Defense Authorization Act for Fiscal Year 2020 that requires 
certain auxiliary ship components to be procured from a manufacturer in 
the national technology and industrial base.

DATES: Effective July 20, 2023.

FOR FURTHER INFORMATION CONTACT: Kimberly Bass, telephone 703-717-3446.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD published a proposed rule in the Federal Register at 85 FR 
60943 on September 29, 2020, and a correction at 85 FR 65787 on October 
16, 2020, to amend the DFARS to implement section 853 of the National 
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2020 (Pub. L. 
116-92). Section 853 amends 10 U.S.C. 2534 (now 10 U.S.C. 4864), 
Miscellaneous Limitations on the Procurement of Goods Other than United 
States Goods, by establishing a limitation on the procurement of large 
medium-speed diesel engines for contracts awarded for new construction 
of an auxiliary ship, which requires the engines to be manufactured in 
the national technology and industrial base. The national technology 
and industrial base is defined at 10 U.S.C. 4801(1) to include the 
United States, Australia, Canada, New Zealand, and the United Kingdom. 
Section 853 also added paragraph (k) to clarify that the term auxiliary 
ship does not include an icebreaker or a special mission ship.
    All references to 10 U.S.C. 2534 in this final rule preamble and 
DFARS text are updated to 10 U.S.C. 4864 to reflect the title 10 
transfer accomplished by the final rule for DFARS Case 2022-D018, 
Reorganization of Defense Acquisition Statutes, published at 87 FR 
76988 and effective December 30, 2022.
    One respondent submitted public comments in response to the 
proposed rule.

II. Discussion and Analysis

    DoD reviewed the public comments in the development of the final 
rule. A discussion of the comments and the changes made to the rule as 
a result of those comments is provided, as follows:

A. Summary of Significant Changes From the Proposed Rule

    Changes are made to DFARS 225.7001, Definitions, and to the 
contract clause at 252.225-7062, Restriction on Acquisition of Large 
Medium-Speed Diesel Engines, to add a definition for large medium-speed 
diesel engines. Additional changes are made to the clause at 252.225-
7062 to (1) designate the paragraph that includes the 10 U.S.C. 4864 
limitation as paragraph (b), Restrictions; and (2) add the requirement 
to include the substance of the clause in all subcontracts that exceed 
the simplified acquisition threshold (SAT), including contracts for the 
acquisition of commercial products and commercial services that require 
large medium-speed diesel engines for new construction of auxiliary 
ships.
    DFARS 212.503(a)(vii) adds 10 U.S.C. 4864 to the list of laws that 
are not applicable to contracts for the acquisition of commercial 
products and commercial services, and states that 10 U.S.C. 4864 does 
not apply to contracts valued at or below the SAT. At DFARS 
212.504(a)(xii) clarifying language is added to state that the 
limitation at 10 U.S.C. 4864 does not apply to subcontracts for 
commercial products and commercial services valued at or below the SAT. 
At DFARS 212.504(b), paragraph (iii) adds 10 U.S.C. 4864 to the list of 
laws that have been eliminated for subcontracts at any tier for the 
acquisition of commercial products, commercial services, or commercial 
components and clarifies that the statute does not apply to 
subcontracts valued at or below the SAT.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: The respondent expressed support for the rule and the 
determination that it is in the best interest of the Government to 
apply the new DFARS clause to contracts and subcontracts for commercial 
items, including commercial off-the-shelf (COTS) items. The respondent 
further stated that excluding the new rule from application to 
contracts and subcontracts for commercial items would create a loophole 
that would undermine the overarching intent of the statute and purpose 
of the rule to restrict the purchase of large medium-speed diesel 
engines for auxiliary ships, unless the engines are manufactured in the 
national technology and industrial base.
    Response: DoD acknowledges the respondent's support for the rule.
2. Clarifying Definition for ``Large Medium-Speed Diesel Engines''
    Comment: The respondent recommended revising the definition for 
large medium-speed diesel engines with the addition of the following 
for clarity: A ``medium-speed diesel engine'' operates between 400 and 
1200 rotations per minute (RPM). ``Large'' refers to the brake 
horsepower (bHP) delivered starting at a minimum of 5,000 bHP (~3.75 
MW).
    Response: DoD concurs with the need for clarity concerning the 
definition of ``large medium-speed diesel engine''. Accordingly, large 
medium-speed diesel engines are defined as diesel engines whose 
revolutions per minute (RPM) fall between 300 and 1500 RPM with a 
displacement greater than 1500 cubic inches per cylinder. DoD considers 
medium-speed diesel engines to fall within the range of 300 to 1500 
RPMs based on purchasing experience and market research. Regarding the 
definition of ``large'', DoD considers displacement, i.e., how much 
volume can be pumped through the engine, as the appropriate factor for 
engine size as opposed to brake horsepower that measures the power of 
the engine. Based on this analysis, DoD determines that large marine 
diesel engines have a displacement of 1500 cubic inches per cylinder or 
more.
    The following new definition for large medium-speed diesel engines 
is added at DFARS 225.7001, Definitions, and to the clause at 252.225-
7062: ``Large medium-speed diesel engines means diesel engines whose 
revolutions per minute (RPM) fall between 300 and 1500 RPM with a 
displacement greater than 1500 cubic inches per cylinder.''
3. Recommended Clarification to DFARS 212.504(a)
    Comment: The respondent recommended a minor clarifying revision to 
DFARS 212.504(a) to reflect the determination that the proposed new 
clause at DFARS 252.225-70XX should apply to commercial item 
subcontracts. The respondent stated that currently, DFARS 212.504(a) 
lists

[[Page 46901]]

statutory provisions that are not applicable to subcontracts at any 
tier for the acquisition of commercial items or commercial components. 
The respondent further stated that currently included in that list of 
statutory provisions at DFARS 212.504(a), is 10 U.S.C. 2534, the 
statute that implements section 853. While the proposed rule stated the 
intent to apply the new DFARS 252.225-70XX clause to commercial item 
subcontracts at all tiers, leaving DFARS 212.504(a) as currently 
drafted may create confusion as to whether subcontracts for commercial 
item large medium-speed diesel engines are subject to the restriction 
imposed by the rule.
    The respondent recommended a conforming edit to DFARS 212.504(a) to 
apply the new restriction imposed by 10 U.S.C. 2534 for large medium-
speed diesel engines to commercial item subcontracts. The respondent 
further recommended additional revisions to remove 10 U.S.C. 2534 from 
its listing under DFARS 212.504(a) and add as a new listing under DFARS 
212.504(b).
    Response: DoD acknowledges the omission and concurs with revising 
DFARS 212.504(a) to clarify the application of the new restriction 
imposed by 10 U.S.C. 4864 to commercial product, commercial service, 
and commercial component subcontracts that exceed the SAT, and 
therefore include an additional reference at 212.504(b)(iii). Related 
conforming changes are also made to DFARS 212.503. Accordingly, DoD has 
revised the following:
    1. DFARS 212.503(a)(vii)--added 10 U.S.C. 4864 to the list of laws 
that are not applicable to contracts for the acquisition of commercial 
products and commercial services, and that 10 U.S.C. 4864 does not 
apply to contracts valued at or below the SAT.
    2. DFARS 212.504(a)(xii)--added to the existing 10 U.S.C. 4864 
reference the statement that the limitation does not apply to 
subcontracts for commercial products, commercial services, or 
commercial components valued at or below the SAT; and
    3. DFARS 212.504(b)--added paragraph (iii) to state that 10 U.S.C. 
4864 does not apply to subcontracts for commercial products, commercial 
services, or commercial components valued at or below the SAT.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Products, Commercial Services, and 
Commercially Available Off-the-Shelf (COTS) Items

    This rule creates a new DFARS clause, 252.225-7062, Restriction on 
Acquisition of Large Medium-Speed Diesel Engines. Section 853 amends 10 
U.S.C. 4864(a) to provide a limitation on components for auxiliary 
ships. 10 U.S.C. 4864 does not apply to a contract or subcontract for 
an amount that does not exceed the SAT (see paragraph (g)). Therefore, 
DoD will not apply this clause to acquisitions at or below the SAT. 
However, DoD is applying this clause to contracts for the acquisition 
of commercial products, commercial services, and COTS items.

A. Applicability to Contracts for the Acquisition of Commercial 
Products, Commercial Services, and COTS Items

    10 U.S.C. 3452 exempts contracts and subcontracts for the 
acquisition of commercial products, commercial services, and COTS items 
from provisions of law enacted after October 13, 1994, unless the Under 
Secretary of Defense for Acquisition and Sustainment (USD(A&S)) makes a 
written determination that it is not in the best interest of DoD to 
exempt contracts for the procurement of commercial products and 
commercial services from the applicability of the provision or contract 
requirement, except for a provision of law that--
     Provides for criminal or civil penalties;
     Requires that certain articles be bought from American 
sources pursuant to 10 U.S.C. 4862 (previously 10 U.S.C. 2533a) or that 
strategic materials critical to national security be bought from 
American sources pursuant to 10 U.S.C. 4863 (previously 10 U.S.C. 
2533b); or
     Specifically refers to 10 U.S.C. 3452 and states that it 
shall apply to contracts and subcontracts for the acquisition of 
commercial products (including COTS items) and commercial services.

B. Determination

    Section 853 of the NDAA for FY 2020 does not apply to contracts at 
or below the SAT and is silent on applicability to contracts and 
subcontracts for the acquisition of commercial products and commercial 
services. Also, the statute does not provide for civil or criminal 
penalties. Therefore, it does not apply to contracts or subcontracts 
for the acquisition of commercial products and commercial services 
unless a written determination is made. Due to delegations of 
authority, the Principal Director, Defense Pricing and Contracting is 
the appropriate authority to make this determination.
    DoD has determined that it is in the best interest of the Federal 
Government to apply the rule to contracts and subcontracts for the 
acquisition of commercial products, commercial services, and COTS 
items, as defined at Federal Acquisition Regulation (FAR) 2.101. Not 
applying this rule to contracts and subcontracts for such acquisitions 
would exclude contracts intended to be covered by this rule and 
undermine the overarching purpose for the rule to restrict the purchase 
of large medium-speed diesel engines for auxiliary ships, unless the 
engines are manufactured in the national technology and industrial 
base, which is defined at 10 U.S.C. 4801(1).

IV. Expected Impact of the Rule

    This rule does not propose to add any new burden on the public. It 
amends DFARS 225.7010, Restriction on certain naval vessel components, 
and adds the contract clause 252.225-7062, Restriction on Acquisition 
of Large Medium-Speed Diesel Engines, with flowdown to subcontractors 
to include additional limitations on large medium-speed diesel engines 
for auxiliary ships for contracts awarded by the Secretary of a 
military department for new construction of an auxiliary ship using 
funds available for National Defense Sealift Fund programs or 
Shipbuilding and Conversion, Navy.
    The domestic source restriction does not apply to--
    (1) Contracts or subcontracts that do not exceed the simplified 
acquisition threshold;
    (2) The acquisition of spare or repair parts needed to support 
components for naval vessels manufactured outside the United States; 
and
    (3) Large medium-speed diesel engines for icebreakers or special 
mission ships.
    Contracting officers will include the clause in solicitations and 
contracts that exceed the SAT, including solicitations and contracts 
using FAR part 12 procedures for the acquisition of commercial 
products, commercial services, and COTS items, that require large 
medium-speed diesel engines for new construction of auxiliary ships 
using funds available for National Defense Sealift Fund programs or 
Shipbuilding and Conversion, Navy, unless a waiver is granted or an 
exception applies.

[[Page 46902]]

V. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993.

VI. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before an interim or final rule takes effect, DoD will submit a copy of 
the interim or final rule with the form, Submission of Federal Rules 
under the Congressional Review Act, to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule under the Congressional Review Act cannot take effect until 
60 days after it is published in the Federal Register. The Office of 
Information and Regulatory Affairs has determined that this rule is not 
a major rule as defined by 5 U.S.C. 804.

VII. Regulatory Flexibility Act

    A final regulatory flexibility analysis has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
and is summarized as follows:
    The final rule is necessary to revise the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement a statute that 
requires certain auxiliary ship components to be procured from a 
manufacturer in the national technology and industrial base, subject to 
exceptions. The national technology and industrial base is defined at 
10 U.S.C. 4801(1) and currently includes the United States, Australia, 
Canada, New Zealand, and the United Kingdom of Great Britain and 
Northern Ireland.
    The objective of the rule is to implement section 853 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2020, 
which amends 10 U.S.C. 2534 (now 10 U.S.C. 4864), Miscellaneous 
Limitations on the Procurement of Goods Other Than United States Goods, 
that establishes limitations on auxiliary ship components for contracts 
awarded for new construction of an auxiliary ship unless the components 
are manufactured in the national technology and industrial base. The 
rule includes additional limitations on large medium-speed diesel 
engines for auxiliary ships for contracts awarded by the Secretary of a 
military department for new construction of an auxiliary ship using 
funds available for National Defense Sealift Fund programs or 
Shipbuilding and Conversion, Navy.
    No public comments were received in response to the initial 
regulatory flexibility analysis.
    DoD reviewed data from the Federal Procurement Data System (FPDS) 
for FY 2017, 2018, and 2019 excluding (1) contracts or subcontracts 
that do not exceed the simplified acquisition threshold, (2) 
acquisitions of spare or repair parts needed to support naval vessels 
manufactured outside the United States, and (3) large medium-speed 
diesel engines specifically for icebreakers or special mission ships. 
The review of the FPDS data revealed that there was a total of 241 
awards, of which 121 were made to small businesses, a median of 50 
percent awarded to small entities during those three fiscal years.
    It is expected that this rule will benefit small businesses. The 
rule will provide small businesses the opportunity to participate in 
the manufacture of auxiliary ship components in support of the national 
technology and industrial base.
    This rule does not include any new reporting, recordkeeping, or 
other compliance requirements for small entities.
    DoD has not identified any alternative approaches to the rule that 
would meet the requirements of the statute.

VIII. Paperwork Reduction Act

    This rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 212, 225, and 252

    Government procurement.

Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 212, 225, and 252 are amended as follows:

0
 1. The authority citation for 48 CFR parts 212, 225, and 252 continues 
to read as follows:

    Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.

PART 212--ACQUISITION OF COMMERCIAL PRODUCTS AND SERVICES

0
2. Amend section 212.301 by adding paragraph (f)(ix)(NN) to read as 
follows:


212.301  Solicitation provisions and contract clauses for the 
acquisition of commercial products and commercial services.

* * * * *
    (f) * * *
    (ix) * * *
    (NN) Use the clause at 252.225-7062, Restriction on Acquisition of 
Large Medium-Speed Diesel Engines, as prescribed in 225.7010-5, to 
comply with 10 U.S.C. 4864.
* * * * *

0
 3. Amend section 212.503 by--
0
a. Redesignating paragraphs (a)(vii) and (viii) as paragraphs (a)(viii) 
and (ix), respectively; and
0
b. Adding new paragraph (a)(vii).
    The addition reads as follows:


212.503  Applicability of certain laws to Executive agency contracts 
for the acquisition of commercial products and commercial services.

    (a) * * *
    (vii) 10 U.S.C. 4864, Miscellaneous Limitations on the Procurement 
of Goods Other Than United States Goods. 10 U.S.C. 4864 is not 
applicable to contracts valued at or below the simplified acquisition 
threshold.
* * * * *

0
4. Amend section 212.504 by revising paragraph (a)(xii) and adding 
paragraph (b)(iii) to read as follows:


212.504  Applicability of certain laws to subcontracts for the 
acquisition of commercial products and commercial services.

    (a) * * *
    (xii) 10 U.S.C. 4864, Miscellaneous Limitations on the Procurement 
of Goods Other Than United States Goods. 10 U.S.C. 4864 is not 
applicable to subcontracts valued at or below the simplified 
acquisition threshold.
* * * * *
    (b) * * *
    (iii) 10 U.S.C. 4864, Miscellaneous Limitations on the Procurement 
of Goods Other Than United States Goods. 10 U.S.C. 4864 is not 
applicable to subcontracts at any tier valued at or below the 
simplified acquisition threshold.

PART 225--FOREIGN ACQUISITION

0
5. Amend section 225.7001 by adding, in alphabetical order, the 
definition of ``Large medium-speed diesel engines'' to read as follows:

[[Page 46903]]

225.7001  Definitions.

* * * * *
    Large medium-speed diesel engines means diesel engines whose 
revolutions per minute (RPM) fall between 300 and 1500 RPM with a 
displacement greater than 1500 cubic inches per cylinder.
* * * * *

0
 6. Revise section 225.7010 to read as follows:


225.7010  Restrictions on certain naval vessel and auxiliary ship 
components.

0
7. Revise section 225.7010-1 to read as follows:


225.7010-1  Restrictions.

    In accordance with 10 U.S.C. 4864, unless manufactured in the 
United States, Australia, Canada, or the United Kingdom, do not 
acquire:
    (a) The following components of naval vessels to the extent they 
are unique to marine applications:
    (1) Gyrocompasses.
    (2) Electronic navigation chart systems.
    (3) Steering controls.
    (4) Pumps.
    (5) Propulsion and machinery control systems.
    (6) Totally enclosed lifeboats.
    (b) Large medium-speed diesel engines for new construction of 
auxiliary ships using funds available for National Defense Sealift Fund 
programs or Shipbuilding and Conversion, Navy.

0
 8. Revise section 225.7010-2 to read as follows:


225.7010-2  Exceptions.

    (a) The restriction at 225.7010-1(a) does not apply to--
    (1) Contracts or subcontracts that do not exceed the simplified 
acquisition threshold; or
    (2) Acquisition of spare or repair parts needed to support 
components for naval vessels manufactured outside the United States. 
Support includes the purchase of spare gyrocompasses, electronic 
navigation chart systems, steering controls, pumps, propulsion and 
machinery control systems, or totally enclosed lifeboats, when those 
from alternate sources are not interchangeable.
    (b) The restriction at 225.7010-1(b) does not apply to--
    (1) Contracts or subcontracts that do not exceed the simplified 
acquisition threshold; or
    (2) Large medium-speed diesel engines for icebreakers or special 
mission ships.

0
9. Revise section 225.7010-3 to read as follows:


225.7010-3  Waiver.

    The waiver criteria at 225.7008 apply to the restrictions at 
225.7010-1.

0
10. Amend section 225.7010-4--
0
a. By revising the section heading; and
0
b. In paragraphs (a) and (b) by removing ``this restriction'' and 
adding ``the restriction at 225.7010-1(a)'' in its place.
    The revision reads as follows:


225.7010-4  Implementation of restriction on certain naval vessel 
components.

* * * * *

0
11. Add section 225.7010-5 to read as follows:


225.7010-5  Contract clause.

    Use the clause at 252.225-7062, Restriction on Acquisition of Large 
Medium-Speed Diesel Engines, in solicitations and contracts that exceed 
the simplified acquisition threshold, including solicitations and 
contracts using FAR part 12 procedures for the acquisition of 
commercial products and commercial services, that require large medium-
speed diesel engines for new construction of auxiliary ships using 
funds available for National Defense Sealift Fund programs or 
Shipbuilding and Conversion, Navy unless--
    (a) An exception at 225.7010-2(b)(2) applies; or
    (b) A waiver has been granted.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
12. Add section 252.225-7062 to read as follows:


252.225-7062  Restriction on Acquisition of Large Medium-Speed Diesel 
Engines.

    As prescribed in 225.7010-5, use the following clause:

Restriction on Acuisition of Large Medium-Speed Diesel Engines (Jul 
2023)

    (a) Definition. As used in this clause--
    Large medium-speed diesel engines means diesel engines whose 
revolutions per minute (RPM) fall between 300 and 1500 RPM with a 
displacement greater than 1500 cubic inches per cylinder.
    (b) Restriction. As required by 10 U.S.C. 4864, the Contractor 
shall deliver under this contract large medium-speed diesel engines 
manufactured in the United States, Australia, Canada, New Zealand, 
or the United Kingdom.
    (c) Subcontracts. The Contractor shall include the substance of 
this clause, including this paragraph (c), in subcontracts that 
exceed the simplified acquisition threshold, including subcontracts 
for commercial products and commercial services, that require large 
medium-speed diesel engines for new construction of auxiliary ships.


(End of clause)

[FR Doc. 2023-15153 Filed 7-19-23; 8:45 am]
 BILLING CODE 5001-06-P