United States General Accounting Office

GAO Report to the Honorable

John McCain, U.S. Senate

July 1998 DEFENSE

ACQUISITION

Rationale for Imposing

Domestic Source

Restrictions

GAO/NSIAD-98-191

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-279769 

July 17, 1998

The Honorable John McCain

United States Senate

Dear Senator McCain:

In response to your request, we reviewed the basis for domestic source

restrictions imposed by Department of Defense (DOD) policy and by

10 U.S.C 2534. We did not assess other congressionally imposed

restrictions. Specifically, we reviewed DOD’s policy for restricting

procurement to domestic sources and examined the rationale for the

legislative restrictions. As requested, we also identified the suppliers and

manufacturing locations for items currently restricted.

Background There are numerous legislative authorities by which domestic source

restrictions are imposed to limit DOD procurement. Under 10 U.S.C. 2534,

which contains restrictions on several types of items, the Secretary of

Defense is permitted to procure only from manufacturers in the national

technology and industrial base.1

 This restriction can be waived when, for

example, unreasonable cost or delays would result, items of satisfactory

quality are not available, or the limitation would adversely affect a U.S.

company. DOD also has the authority to administratively restrict items for

reasons of national security and industrial base preservation, including

protection of sensitive technologies and products.

The Buy American Act, Trade Agreements Act, and various appropriations

legislation, including the Berry Amendment, are other legislative tools for

imposing domestic source restrictions. Appendix I describes these

legislative authorities.

Results in Brief National security and industrial base concerns form the basis for domestic

source restrictions imposed by DOD and, to the extent known, the basis for

those imposed under 10 U.S.C. 2534. DOD guidance specifies the rationale

for approving domestic source restrictions. The rationale for

congressional restrictions is not always identifiable.

1

Under 10 U.S.C. 2500(1), Canada is considered part of the national technology and industrial base.

The U.S. and Canadian governments have entered into a memorandum of understanding that provides

for persuading Canadian firms to voluntarily comply with U.S. government requests for production

priority.

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B-279769 

In response to changes in defense requirements, DOD has reevaluated

domestic source restrictions. With the end of the Cold War, DOD is no

longer preparing for large-scale mobilization but is focusing on smaller

conflicts that would use readily available defense inventories. At the same

time, DOD wants to take advantage of more competitive markets when

doing so is consistent with national security needs. In 1995, DOD required

the services to provide detailed justification for maintaining the domestic

source restrictions covered by DOD policy. DOD eliminated those

restrictions it determined were no longer essential to national security. Of

those items currently restricted by 10 U.S.C. 2534, all but one were in place

at the time of DOD’s review. In only one case has DOD performed an

industrial base assessment to determine the need for a 10 U.S.C. 2534

restriction.

Criteria for

Establishing Domestic

Source Restrictions

DOD’s Policy The National Security Act of 1947 and the Defense Production Act of 1950

give DOD the authority to develop plans to fulfill military requirements,

maintain the domestic industrial mobilization base, and establish an

emergency mobilization preparedness program. With this authority, DOD

has imposed agencywide domestic source restrictions in the Defense

Federal Acquisition Regulation Supplement. In implementing this

authority, federal regulations and DOD guidance recognize the need to

restrict competition to domestic sources to address national security

concerns. In April, we reported on DOD’s criteria and processes for

imposing domestic source restrictions.2

DOD’s handbook for assessing defense industrial capabilities provides

guidance for determining when competition needs to be restricted to

support national security requirements.3

 This guidance indicates that

limitations on foreign sources may be necessary to (1) avoid dependence

on a politically unreliable foreign supplier or (2) protect technologies and

products that are classified, offer unique war-fighting superiority, or can

2

DOD’s Rationale for Imposing Domestic Source Restrictions (GAO/NSIAD-98-144R, Apr. 10, 1998).

3

Assessing Defense Industrial Capabilities: A DOD Handbook, the Under Secretary of Defense for

Acquisition and Technology, DOD 5000.60-H (Apr. 1996).

Page 2 GAO/NSIAD-98-191 Defense Acquisition
B-279769 

enable foreign governments to develop countermeasures that could

undermine the effectiveness of U.S. systems.

Defense procurement may also be restricted to meet mobilization base

needs. DOD’s planning guidance reflects the changes in military missions

and requirements that have occurred since the end of the Cold War. DOD’s

plans no longer involve large-scale mobilization to prepare for global war

but instead focus on smaller conflicts that would be fought using readily

available defense inventories. To support this strategy, DOD established

requirements to surge production of certain items during a crisis and

replenish supplies of some items within a specified period of time after a

conflict. DOD can restrict procurement to domestic manufacturers and can

require suppliers to give priority to its contracts. This helps to ensure

control over the supplier and the capability to meet surge and

replenishment requirements. These surge and replenishment requirements

are limited to munitions, troop support items, and spares.

DOD, along with the individual services and the Defense Logistics Agency,

is also authorized to restrict competition to domestic sources for

individual procurements.4

 According to the Federal Acquisition

Regulation, agencies can restrict procurement (1) for industrial

mobilization or to maintain a technical capability, (2) to implement the

terms of an international agreement, (3) when required by statute, (4) for

national security, and (5) when it is in the public interest, among other

reasons.

Restrictions Under 

10 U.S.C. 2534

Congress enacts domestic source restrictions using annual DOD

appropriation and authorization legislation that reflects a variety of

interests. In some cases, Congress cites national security, industrial base

preservation, or economic reasons for enacting these restrictions. For

example, in fiscal year 1984 DOD restricted anchor chain to domestic

production because it was viewed as a mobilization-critical item; at that

time, this restriction protected the sole U.S. supplier. Congress enacted a

corresponding restriction in the fiscal year 1988 DOD Appropriations Act.

The House report on this bill stated that the restriction on anchor chain

was “one way to make the Department of Defense aware of congressional

concern over our eroding U.S. industrial base.” As originally enacted, the

provision permitted only the use of U.S. and Canadian sources. The next

4

The Competition in Contracting Act of 1984 requires that agencies procuring products and services

ensure full and open competition through the use of competitive procedures but also provides for

protecting the U.S. industrial mobilization base. Section 2304 of 10 U.S.C. allows DOD to restrict

individual procurements. The provision is implemented in part 6 of the Federal Acquisition Regulation.

Page 3 GAO/NSIAD-98-191 Defense Acquisition
B-279769 

year, the provision was amended to remove Canadian sources. The change

was likely prompted by a contract awarded to the Canadian producer in

1988.5

Our review disclosed other instances, however, in which the rationale for

the legislative restriction was not evident. For example, the legislative

history for naval vessel components did not state the rationale for the

restriction. In other cases where the original justification is stated, no

recent reviews have been completed assessing the continuing need for the

restriction. For example, the restriction on buses was enacted in fiscal

year 1969 for economic reasons. No analysis of the restriction or the

industrial base for buses has been done since then.

For some items, restrictions are based on multiple statutory or regulatory

provisions with different conditions or waiver authority. For example,

miniature and instrument ball bearings were originally restricted by DOD

policy in 1971. In 1988, DOD restricted antifriction bearings for industrial

base reasons. In addition, in each fiscal year since 1995, bearings have

been restricted in either appropriation or authorization language. In fiscal

years 1996 and 1998, ball bearings were restricted in both congressional

bills, but with different durations and waiver authority. Moreover, in fiscal

year 1996, DOD rescinded its administrative restriction on miniature and

instrument ball bearings because the services and the Defense Logistics

Agency believed this limitation was no longer needed.

Changing Security

Requirements Have

Led to Rescission of

Some Restrictions

In 1995, in response to changes in military policy and industrial base

concerns, DOD initiated actions to eliminate agencywide domestic source

restrictions imposed by DOD policy. DOD wanted to take advantage of more

competitive global markets when consistent with national security

requirements. DOD, the services, and the Defense Logistic Agency reviewed

DOD-wide domestic source restrictions imposed by policy decisions and

reported the results of these assessments in DOD’s February 1997 Annual

Industrial Capabilities Report to Congress. As a result of these reviews,

DOD rescinded the administrative restrictions that it no longer considered

necessary. Rescissions included restrictions for miniature and instrument

ball bearings, anchor chain, various ferrous forgings, precision

components for mechanical time devices, high-purity silicon, and

high-carbon ferrochrome. Miniature and instrument ball bearings and

anchor chain continue to be restricted by legislation.

5

The procurement history of that contract is described in 134 Cong. Rec. H. 1002 (daily edition Mar. 22,

1988).

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B-279769 

When reviewing agencywide restrictions, DOD required the services to do

detailed justifications and analyses to support retention of the restrictions.

DOD retained the restriction for polyacrylonitrile-based carbon fiber,

periscope tube forgings, bull gear ring forgings, and ship propulsion shaft

forgings. In its review of polyacrylonitrile-based carbon fiber, the Navy

conducted a study using the criteria established by DOD and determined

that retention of a domestic production capability was required for the

nation’s long-term security and that rescinding the restriction would

seriously jeopardize the ability to retain this capability. DOD also retained

the restriction for periscope tube and bull gear ring forgings to prevent

foreign access to specifications and manufacturing processes, which could

compromise the effectiveness of selected Navy systems. The restriction on

ship propulsion shaft forgings was retained due to unsettled conditions

among domestic suppliers. Table 1 lists the original date of and current

rationale for the DOD-wide policy restrictions that were retained. Appendix

II provides detailed information on the origins and rationale for each item

currently restricted.

Table 1: Items Currently Restricted by

DOD-Wide Regulation

Item name

Original date

of restriction

Current rationale for

restriction

Polyacrylonitrile-based carbon fibers 1987 Preserve

industrial capability

Periscope tube forgings 1984 Protect sensitive data

Bull gear ring forgings 1984 Protect sensitive data

Ship propulsion shaft forgings 1984 Unsettled conditions

among suppliers

In its reviews of industrial base capabilities, DOD sometimes includes items

that are legislatively restricted. These reviews assess the capability for

certain industries but do not generally assess the current relevance of

domestic source restrictions. For example, DOD recently assessed the

industrial base for chemical weapons antidote injectors to determine if

surge requirements could be met. The study looked at the ability of the

sole-source supplier to meet requirements but did not assess the need for a

domestic source restriction.

While not required to routinely assess legislative restrictions, DOD will do

so when directed by Congress. For example, when Congress imposed a

restriction on vessel propellers, it also required the Navy to conduct an

industrial assessment to determine the need for a restriction. The Navy

concluded the restriction was not needed to sustain critical propeller

Page 5 GAO/NSIAD-98-191 Defense Acquisition
B-279769 

manufacturing capabilities. DOD officials told us they do not regularly

review statutory restrictions unless requested by Congress or when the

legislative restriction is rescinded. In those cases, DOD uses the criteria it

has established in agency policy guidance. Only for propellers has DOD

performed an industrial assessment to determine the need for an item

restricted under 10 U.S.C. 2534. Table 2 shows the date and source of

restrictions for those items currently covered by 10 U.S.C. 2534.

Table 2: Items Currently Restricted by

10 U.S.C. 2534

Restricted item

Legislative origin of

restriction Years restricted

Buses Fiscal year 1969 Military

Procurement Authorization

Act

29

Ball bearings Fiscal year 1995 DOD

Authorization Acta

3

Chemical

weapons antidote

Fiscal year 1988-89 DOD

Authorization Act

10

Anchor and

mooring chain

Fiscal year 1988 DOD

Appropriations Actb

9

Air circuit breakers Fiscal year 1991 DOD

Authorization Act

7

Naval vessel components Fiscal year 1996 DOD

Authorization Actc

2

Sonobuoys Fiscal year 1993 DOD

Authorization Act

5

Propellers Fiscal year 1995 DOD

Appropriations Actd

3

aDOD first restricted miniature and instrument bearings in 1971 and antifriction bearings in 1988.

bDOD first restricted anchor chain in 1984 and mooring chain in 1986.

cOne of the covered items, totally enclosed lifeboats, was originally restricted in the fiscal year

1994 Defense Appropriations Act.

dA restriction on propulsion systems (to include propellers) originated in the fiscal year 1993 DOD

Authorization Act under the Navy Fast Sealift program. A separate restriction originated in the

fiscal year 1994 Appropriations Act under the Fast Sealift program for vessel propellers for new

contracts and has appeared in every appropriation act since. The fiscal year 1995 DOD

Appropriations Act restricted vessel propellers 6 feet or more in diameter; this restriction expired

in February 1998.

Appendix III provides a history and current status of the 10 U.SC. 2534

restrictions.

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B-279769 

Agency Comments In commenting on a draft of this report, DOD stated that the report

accurately describes its rationale for imposing domestic source

restrictions. DOD also provided some technical suggestions, which we have

incorporated in the text where appropriate. The Department of Commerce

commented that it found the report to be comprehensive and informative

regarding the origins and status of the various restrictions imposed by

Congress and DOD. The comments from DOD and the Department of

Commerce are reprinted in appendixes IV and V, respectively.

Scope and

Methodology

To review DOD’s basis for determining domestic source restrictions, we

examined federal and DOD regulations and guidelines for assessing the

defense industrial base. We reviewed relevant documentation and reports

and discussed DOD’s policy and guidance with officials from the Office of

the Secretary of Defense, the Defense Logistics Agency, the Army and Air

Force headquarters, the Naval Sea Systems Command, and the

Department of Commerce, in Washington, D.C.

To evaluate the rationale for DOD-imposed and 10 U.S.C. 2534 restrictions,

we reviewed legislative and other histories for each restriction and

discussed the restrictions with the key buying activities responsible for

procuring these items. These activities included the Naval Sea Systems

Command, the Naval Air Systems Command, and the Defense Supply

Center, Philadelphia. We also collected industrial assessments from the

Commerce Department and various industrial analysis offices in the Office

of the Secretary of Defense, the services, and the Defense Logistics

Agency.

We conducted our review between January and May 1998 in accordance

with generally accepted government auditing standards.

We are sending copies of this report to appropriate congressional

committees and to the Secretaries of Commerce and Defense. We will also

make copies available to other interested parties on request.

Page 7 GAO/NSIAD-98-191 Defense Acquisition
B-279769 

Please contact me on (202) 512-4841 if you or your staff have any

questions concerning this report. Major contributors to this report are

listed in appendix VI.

Sincerely yours,

Katherine V. Schinasi

Associate Director

Defense Acquisitions Issues

Page 8 GAO/NSIAD-98-191 Defense Acquisition
Page 9 GAO/NSIAD-98-191 Defense Acquisition
Contents

Letter 1

Appendix I 

Additional

Restrictions on

Purchase of

Nondomestic Items

12

Buy American Act 12

Appropriations Act Restrictions 12

Trade Agreements Act 13

Appendix II 

Rationale For

DOD-Imposed

Restrictions

14

Polyacrylonitrile-Based Carbon Fiber 14

Periscope Tube Forgings 15

Ring Forgings for Bull Gears (Greater Than 120 Inches in

Diameter)

16

Forgings for Ship Propulsion Shafts 17

Appendix III 

Rationale for 10

U.S.C. 2534-Imposed

Restrictions

19

Buses 19

Chemical Weapons Antidote Contained in Automatic Injectors

and Components

19

Air Circuit Breakers 20

Welded Shipboard Anchor and Mooring Chain 21

Vessel Propellers 22

Various Marine Application Vessel Components 24

Ball Bearings and Roller Bearings 25

Sonobuoys 27

Appendix IV 

Comments From the

Department of

Defense

28

Appendix V 

Comments From the

Department of

Commerce

29

Page 10 GAO/NSIAD-98-191 Defense Acquisition
Contents

Appendix VI 

Major Contributors to

This Report

30

Tables Table 1: Items Currently Restricted by DOD-Wide Regulation 5

Table 2: Items Currently Restricted by 10 U.S.C. 2534 6

Abbreviations

DOD Department of Defense

Page 11 GAO/NSIAD-98-191 Defense Acquisition
Appendix I 

Additional Restrictions on Purchase of

Nondomestic Items

There are several legislatively imposed restrictions in addition to those

contained in 10 U.S.C. 2534 on the acquisition of nondomestic items. The

major restrictions on acquisition of nondomestic items are found in the

Buy American Act, which applies to supplies; annual appropriations act

restrictions, which may address a wide variety of products; and the Trade

Agreements Act, which restricts nondomestic purchases to selected

countries.

Buy American Act The Buy American Act, 41 U.S.C. (sections 10a to 10d), applies to supply

contracts exceeding the micro-purchase threshold ($2,500) and contracts

for services that involve the furnishing of supplies when the supply portion

of the contract exceeds the micro-purchase threshold. The act is

implemented in part 25 of the Federal Acquisition Regulation. The

Department of Defense (DOD) has supplemented the Federal Acquisition

Regulation implementation in its departmental regulations.

The act establishes a preference for domestic articles, supplies, and

materials by requiring that, with certain exceptions, only domestic end

products be acquired for public use. The exceptions include

• articles that would be unreasonably expensive if purchased domestically;

• purchases for which the agency head determines that a domestic

preference would be inconsistent with the public interest; or

• articles that are not mined, produced, or manufactured in the United

States in sufficient and reasonably available commercial quantities or are

not of a satisfactory quality.

The act also includes an exception for articles, materials, and supplies that

are for use outside the United States. For the purpose of applying the

preference, DOD will add 50 percent to the price of the nondomestic

product, while nondefense agencies add 6 percent if the domestic offer is

from a large business and 12 percent if the domestic offer is from a small

business.

Appropriations Act

Restrictions

Restrictions on DOD’s procurement of nondomestic products frequently

appear in annual appropriations acts. The DOD Appropriations Act for 1997,

for instance, prohibited or restricted the expenditure of funds for such

things as anchor and mooring chain, handguns, and consulting contracts.

Each appropriations act since 1996 has barred the expenditure of funds

appropriated by the act for the acquisition of nondomestic ball and roller

Page 12 GAO/NSIAD-98-191 Defense Acquisition
Appendix I 

Additional Restrictions on Purchase of

Nondomestic Items

bearings and provided for waivers more restrictive than those included in

10 U.S.C. 2534(d).

These restrictions may be changed annually, omitted in a subsequent year,

or enacted as permanent law. For example, until 1995, the DOD

appropriations act each year included a restriction (the so-called Berry

Amendment) against spending funds appropriated in that act on food,

clothing, certain textile products, specialty metals, and hand tools that had

not been produced in the United States. In that year, the language of the

amendment was changed to provide that it would apply during the

“current fiscal year and hereafter” (section 9005, Public Law 102-396). The

amendment applies to DOD procurements that exceed the simplified

acquisition threshold ($100,000). It provides exceptions for such items as

those procured outside the United States in support of combat operations

or by vessels in foreign waters. The Berry Amendment is implemented in

part 225 of the DOD supplement to the Federal Acquisition Regulation.

Trade Agreements Act The Trade Agreements Act (19 U.S.C., sections 2501 to 2582), applies to

procurements subject to the Agreement on Government Procurement as

amended by the Uruguay Round Agreements Act (Public Law 103-465) and

other trade agreements. The act prohibits the acquisition of products from

nondesignated countries, except in limited circumstances, and provides an

exemption from the application of Buy American Act restrictions to

products from designated countries that are valued above a threshold

determined by the U.S. Trade Representative. Through other trade

agreements, the exemption also applies (with different thresholds) to

Israeli end products offered in procurements by certain nondefense

agencies and to identified products offered by Mexico or Canada, in

implementation of the North American Free Trade Agreement

Implementation Act (Public Law 103-282).

Page 13 GAO/NSIAD-98-191 Defense Acquisition
Appendix II 

Rationale For DOD-Imposed Restrictions

The Defense Acquisition Regulation Supplement, subpart 225.71, contains

DOD’s administrative domestic source restrictions.1 In 1996, DOD rescinded

a variety of restrictions but, to protect national security and the defense

industrial base, retained the restrictions on polyacrylonitrile-based carbon

fiber, periscope tube forgings, ring forgings for bull gears, and forgings for

ship propulsion shafts. The Department of Commerce played a role in

assessing the strength of the industrial base for producers of the three

forging items.

PolyacrylonitrileBased Carbon Fiber

Polyacrylonitrile-based carbon fiber is a component of advanced

composite materials used in aircraft.

Original Source of Restriction: The restriction on

polyacrylonitrile-based carbon fiber was originally imposed in the fiscal

year 1988 DOD Appropriations Act. The act required that 50 percent of

DOD’s purchases of this item come from domestic sources by 1992. The

restriction was established to maintain a U.S. industry in advanced

technology material composites.

Current Source of Restriction: There has been no legislative restriction

on polyacrylonitrile-based carbon fiber since the fiscal year 1991 DOD

Appropriations Act. Instead, DOD has maintained this restriction by

administrative action.

Item Suppliers: Polyacrylonitrile-based carbon fiber is made by two

domestic companies, Amoco Performance Products, Inc., headquartered

in Alpharetta, Georgia, and Fiberite Holding, Inc., headquartered in Tempe,

Arizona.

Recent Studies: In the 1996 review of agencywide domestic source

restrictions, DOD concluded that the restriction on polyacrylonitrile-based

carbon fiber should be retained. The Army and the Air Force supported

the removal of the restriction, but the Navy believed that

polyacrylonitrile-based carbon fiber was a critical technology for meeting

current and future operational requirements of carrier-based aviation and

other mission-critical systems. In justifying the restriction, DOD reported

that polyacrylonitrile-based carbon fiber is increasingly important to

achieving weapon system performance advantages necessary for military

superiority. According to DOD, there is little advantage to rescinding the

1

In addition to these agencywide restrictions, DOD components can limit competition on a

procurement-by-procurement basis using guidance in the Federal Acquisition Regulation.

Page 14 GAO/NSIAD-98-191 Defense Acquisition
Appendix II 

Rationale For DOD-Imposed Restrictions

restriction, while retaining it could sustain domestic suppliers. DOD also

concluded that the issue should be reexamined in 3 years.

Periscope Tube

Forgings

Periscope tube forgings are uniquely customized. The periscope has thin

walls (less than an inch) and a narrow diameter (about 7 inches) along its

40-foot length. The Navy is virtually the only market for periscope tube

forgings.

Original Source of Restriction: In 1984, DOD initiated the forging

procurement restriction in response to the serious deterioration of the

domestic forging sector and a rapid increase in imports. The restriction

targeted those forgings with the highest import penetration levels,

primarily ferrous forgings used in Army and Navy applications. The

restriction covered about 20 percent of forgings used by the military.

Current Source of Restriction: In 1996, DOD rescinded many of the

forging restrictions listed in the Defense Federal Acquisition Regulation

Supplement but decided to retain the restrictions for periscope tube

forgings.

Item Suppliers: Periscope tubes are produced by National Forge

Company in Irvine, Pennsylvania, and by Jorgensen Forge Corporation in

Seattle, Washington.

Recent Studies: In late 1995, the Department of Commerce conducted a

review of the industrial base for periscope tube forgings. It concluded that,

if restrictions were removed, physical capabilities would remain, but the

small margin of know-how and experience in this sector would be placed

in jeopardy and possibly lost. The Department of Commerce noted,

however, that no foreign company was identified that could make

periscope tubes.

In early 1996, the Naval Sea Systems Command reported that retention of

the restriction on periscope tubes is required to ensure U.S. superiority

with respect to submarine visual systems. The periscope is the primary

early warning and visual system employed by the submarine. To allow

insight into the manufacturing process or specifications could adversely

affect U.S. superiority in this area, posing a threat to U.S. war-fighting

capability.

Page 15 GAO/NSIAD-98-191 Defense Acquisition
Appendix II 

Rationale For DOD-Imposed Restrictions

Ring Forgings for Bull

Gears (Greater Than

120 Inches in

Diameter)

Gear suppliers use large, seamless, rolled ring forgings to manufacture bull

gears used in Navy systems. About 75 percent of the value of a bull gear

comes from its ring forging.

Original Source of Restriction: In 1984, DOD initiated the forging

procurement restriction in response to the serious deterioration of the

domestic forging sector and the rapid increase in imports. The restriction

targeted those forgings with the highest import penetration levels,

primarily ferrous forgings used in Army and Navy applications. The

restriction covered about 20 percent of forgings used by the military.

Current Source of Restriction: In 1996, DOD rescinded many of the

forging restrictions listed in the Defense Federal Acquisition Regulation

Supplement but decided to retain the restrictions for ring forgings for bull

gears.

Item Suppliers: Standard Steel Division of Freedom Forge Corporation in

Burnham, Pennsylvania, is the key supplier of large ring forgings for bull

gears. Three other companies have the capability to make large ring

forgings—Ladish Company Incorporated in Cudahy, Wisconsin; Scot

Forge Company in Spring Grove, Illinois; and Lehigh Heavy Forge

Company in Bethlehem, Pennsylvania.

Recent Studies: In late 1995, the Department of Commerce conducted a

review of the industrial base for large-diameter seamless rolled rings.

According to the Department of Commerce, if the restriction were

removed, physical know-how capabilities would very likely remain.

Domestic firms use the same facilities to make other products, and they

are very competitive in quality, price, and delivery. However, the

Department of Commerce concluded that some technical skills and

know-how specifically related to ring forgings for bull gears could be lost

because subsidies foreign companies receive from their governments

result in unfair competition.

In early 1996, a Naval Sea Systems Command report stated that

restrictions on ring forgings for bull gears were necessary because the

manufacturer of these forgings requires information related to naval

nuclear propulsion, which is not releasable to foreign countries.

Page 16 GAO/NSIAD-98-191 Defense Acquisition
Appendix II 

Rationale For DOD-Imposed Restrictions

Forgings for Ship

Propulsion Shafts

Forgings for ship propulsion shafts are specialized because they can be

over 70 feet long and finished to one-thousandth of an inch. The strength

and torque requirements for the military are far more stringent than for

commercial shafts since the military has requirements for speed, agility,

strength, and the ability to withstand attack in combat.

Original Source of Restriction: In 1984, DOD initiated the forging

procurement restriction in response to the serious deterioration of the

domestic forging sector and a rapid increase in imports. The restriction

targeted those forgings with the highest import penetration levels,

primarily ferrous forgings used in Army and Navy applications. The

restriction covered about 20 percent of the forgings used by the military.

Current Source of Restriction: In 1996, DOD rescinded many of the

forging restrictions listed in the Defense Federal Acquisition Regulation

Supplement but decided to retain the restrictions for ship propulsion

shafts.

Item Suppliers: Erie Forge and Steel Company in Erie, Pennsylvania;

Jorgensen Forge Corporation in Seattle, Washington; and Lehigh Heavy

Forge Corporation in Bethlehem, Pennsylvania, produce ship propulsion

shafts for the Navy.

Recent Studies: In late 1995, the Department of Commerce reviewed the

industrial base for ship propulsion shafts. It reported that, if the restriction

were removed, domestic capabilities would be jeopardized and probably

lost. According to the Department of Commerce, one manufacturer would

go out of business and another would exit the product line. Although

domestic producers are competitive in quality and price, the Department

of Commerce asserted that subsidized foreign companies would be

attracted to this market.

In early 1996, a Naval Sea Systems Command report stated that, if ship

propulsion shaft restrictions were removed, the health of the Navy’s

shipbuilding industry would not be endangered. Adequate industrial

capacity would be expected to remain in the ship propulsion shaft

segment of the forging industry, with or without the restriction. The report

did note that removing the restriction could cause significant risk

associated with the continued viability of the suppliers and their ability

and willingness to continue to provide timely and affordable products

should their business base decline.

Page 17 GAO/NSIAD-98-191 Defense Acquisition
Appendix II 

Rationale For DOD-Imposed Restrictions

In August 1996, the Deputy Under Secretary of Defense, Industrial Affairs

and Installations, deferred the final decision on the restriction for 1 year

due to unsettled conditions affecting the Navy’s domestic suppliers. As of

June 1998, a final determination had not yet been made.

Page 18 GAO/NSIAD-98-191 Defense Acquisition
Appendix III 

Rationale for 10 U.S.C. 2534-Imposed

Restrictions

This appendix reviews the background and rationale for legislative

restrictions currently imposed through 10 U.S.C. 2534.

Buses Multipassenger vehicles or buses are used to transport military personnel.

Original Source of Restriction: The lease, rental, or other acquisition of

buses was first restricted by the Military Procurement Authorization Act

for 1969 (Public Law 90-500, section 404). During House Committee on

Armed Services consideration of the amendment that included this

provision, there was discussion that leasing arrangements with Japanese

companies were not economical in light of then-current Buy American Act

and balance-of-payment concerns.

Current Source of Restriction: The substance of the restriction has

remained largely unchanged since 1969. The placement of the restriction

in the U.S. Code has been changed on numerous occasions and, as of the

fiscal year 1993 National Defense Authorization Act (Public Law 102-484),

the restriction is now in 10 U.S.C. 2534. Under this restriction, DOD may not

procure any bus unless the manufacturer is a member of the national

technology and industrial base.

Item Suppliers: DOD is required to lease all of its buses from the General

Services Administration, to the extent that the General Services

Administration can fulfill the requirement. The General Services

Administration currently procures buses from Bluebird Body Company in

Fort Valley, Georgia, and Thomas Bus Company in High Point, North

Carolina.

Recent Studies: DOD officials responsible for assessing the industrial base

had no knowledge of recent market or industrial base analyses for buses.

Chemical Weapons

Antidote Contained in

Automatic Injectors

and Components

Chemical weapons antidote injectors are military-unique items designed

so that soldiers can rapidly administer them through clothing upon

exposure to nerve agents. The antidotes, autoinjectors, and manufacturing

processes must be approved by the U.S. Food and Drug Administration.

Original Source of Restriction: This restriction was first enacted by

Congress in the National Defense Authorization Act for Fiscal Years

1988-89 (Public Law 100-80, section 124). The legislative history provides

no indication of the intended purpose of the restriction.

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Restrictions

Current Source of Restriction: The current language governing this

limitation comes from the National Defense Authorization Act for Fiscal

Year 1995 (Public Law 103-337, section 814) and has been codified in

10 U.S.C. 2534. The language restricts the purchase of chemical weapons

antidotes contained in automatic injectors, or components for such

injectors, to those manufacturers that are part of the national technology

and industrial base and meet other requirements.

Item Suppliers: Meridian Medical Technologies in St. Louis, Missouri, is

the only supplier of autoinjectors approved by the Food and Drug

Administration. Meridian also assembles the kits used by military field

personnel that contain the autoinjectors and antidote.

Recent Studies: DOD performed assessments in April 1996 and

November 1997 to determine if there were sufficient industrial capabilities

to meet DOD requirements. The studies found that, although peacetime

requirements are low, autoinjectors must be available quickly and in large

quantities in the event of a military contingency. Meridian is limited by a

4-month lead time for obtaining required autoinjector components and

drugs. Assembly and sterility testing take approximately 7 weeks.

Therefore, even if components are available, Meridian cannot ship

completed products until the eighth week of a contingency. DOD has

awarded a contract to maintain production capabilities for autoinjectors.

Since stocking components does not eliminate all shortfalls in meeting

contingency requirements, the Defense Logistics Agency is discussing with

Meridian an additional requirement to stock finished goods to further

alleviate shortfalls. According to one Defense Logistics Agency official, the

agency would like to have other suppliers of autoinjectors. Currently, one

foreign firm has the capability to produce one type of autoinjector, but this

firm is not approved by the Food and Drug Administration.

Air Circuit Breakers Shock-hardened circuit breakers are used across all classes of nuclearand nonnuclear powered ships and provide electric power continuity and

fault protection, imperative to ensure the reliability and safety of critical

ship systems. Depending on the size and type, a naval vessel will have two

or three large air circuit breakers and hundreds to thousands of smaller

circuit breakers (generally not restricted to domestic procurement).

Original Source of Restriction: This provision was first enacted in the

fiscal year 1991 National Defense Authorization Act (Public Law 101-510,

section 1421). Discussions in favor of the amendment noted that a British

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Rationale for 10 U.S.C. 2534-Imposed

Restrictions

firm was dumping air circuit breakers on the U.S. market and that these

actions placed domestic producers at risk.

Current Source of Restriction: Procurement of air circuit breakers is

currently restricted under 10 U.S.C. 2534 to manufacturers that are part of

the national technology and industrial base.

Item Suppliers: SPD Technologies, Inc., in Philadelphia, Pennsylvania,

and Eaton Corporation’s Cutler-Hammer/Westinghouse Division, in

Beaver, Pennsylvania, are the suppliers of shock-hardened circuit

breakers. According to Navy personnel, SPD is the current supplier of

large air circuit breakers for naval use, and holds a great deal of

proprietary data on their manufacture.

Recent Studies: In 1994, the Navy issued a report at the direction of the

House Appropriations Defense Subcommittee concerning actions

necessary for ensuring that a production capability for a full line of

shipboard, shock-hardened circuit breakers will exist in the future. The

Navy noted that for many types of circuit breakers, there is only one

supplier, and no alternative source. In order to foster long-term

competition, the Navy gave all potential offerors time to develop a

competitive posture and qualify their circuit breakers for future

applications. This study assessed the state of the industry but did not

review the need for the restriction. There is potentially some desire on the

part of the Navy to use a more common, marine-based type of circuit

breaker. These circuit breakers would be less sensitive because the shock

resistance would be built into their casing.

Welded Shipboard

Anchor and Mooring

Chain

Shipboard anchor chain is submerged only periodically and spends most

of the time in the ship’s chain locker. Mooring chain is part of a permanent

naval facility and is intended for long-term submergence between

overhauls. These different requirements have implications for the grade of

material required.

In 1983, the Navy changed its specifications from forged Di-Lok chain with

high-strength reliability, durability, and identical links to welded anchor

and mooring chain. This change opened the Navy’s chain procurement to

competition because many manufacturers were capable of meeting the

new product specification for welded chain.

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Original Source of Restriction: In 1984, DOD administratively imposed a

restriction on anchor chain 4 inches or less in diameter. In 1986, DOD

decided to include mooring chain in this restriction. Congress enacted a

corresponding restriction in the fiscal year 1988 DOD Appropriations Act

(Public Law 100-202, section 8125). The fiscal year 1989 DOD

Appropriations Act (Public Law 100-463, section 8089) restricted the

acquisition of anchor and mooring chain (4 inches or less in diameter) to

U.S. sources, eliminating items manufactured in Canada from competition.

In 1996, DOD rescinded its administrative restriction on anchor chain.

Current Source of Restriction: Anchor and mooring chain is currently

restricted in 10 U.S.C. 2534 to manufacturers in the national technology

and industrial base, which includes Canada. The fiscal year 1998 DOD

Appropriations Act (Public Law 105-56, section 8016) also restricts the

purchase of anchor and mooring chain 4 inches or less in diameter. The

chain must be manufactured in the United States and the aggregate cost of

domestic components used to produce the chains must exceed the

aggregate cost of components from foreign sources.

Item Suppliers: Baldt, Inc., in Chester, Pennsylvania, and Lister Chain

and Forge, Inc. in Blaine, Washington, are suppliers of anchor and mooring

chain.1

Recent Studies: In 1995, the Navy conducted a study of the two U.S.

manufacturers of anchor and mooring chain. This study noted that the

continued decline in overall Navy orders could adversely affect both

manufacturers’ viability. DOD did not determine if the anchor and mooring

chain production capability was critical to DOD requirements. In fiscal year

1996, DOD rescinded its self-imposed restriction for anchor chain (although

the legislative restriction stayed in place).

Vessel Propellers Used to move a ship, vessel propellers are devices that consist of a central

hub with radiating blades.

Original Source of Restriction: A restriction on propulsion system

components (to include propellers) originated in the fiscal year 1993

National Defense Authorization Act under the Navy Fast Sealift program

(Pubic Law 102-484, section 1022). A separate restriction originated in the

1

In November 1997, Baldt, Inc. filed a protest with us concerning the award of a contract to Lister

Chain and Forge, Inc. The protest focused on Lister’s compliance with domestic manufacturing

requirements contained in the fiscal year 1998 DOD Appropriations Act. We denied the protest. (Baldt,

Inc., B-278648, Feb. 23, 1998, 98-1 CPD61.)

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fiscal year 1994 DOD Appropriations Act (Public Law 103-139) under the

Fast Sealift program for vessel propellers for new contracts and has

appeared in every appropriations act since.

A restriction on procurement of vessel propellers 6 feet in diameter or

more was first enacted in the fiscal year 1995 DOD Appropriations Act

(Public Law 103-335, section 8115). The restriction required the propeller

manufacturers to use castings that were poured and finished in the United

States. Debate in favor of the provision noted concerns for preserving the

defense industrial base and saving American jobs. The restriction was later

codified at 10 U.S.C. 2534 by the fiscal year 1996 National Defense

Authorization Act (Public Law 104-106, section 806).

Current Source of Restriction: The restriction in 10 U.S.C. 2534 expired

in February 1998. Vessel propellers are currently restricted if funded

through the fiscal year 1998 DOD Appropriations Act, title V, National

Defense Sealift Fund (Public Law 105-56). None of the funds provided in

that section can be used for new contract awards for procurement of

components, to include propellers, unless they are manufactured in the

United States.

Item Suppliers: Suppliers of propellers are Bird Johnson, Walpole,

Massachusetts; Bird Johnson, Pascagoula, Mississippi; Lockheed-Martin

Energy Systems, Oak Ridge, Tennessee; Stone Marine, Iberville, Canada;

United Defense, Minneapolis, Minnesota; and the Naval Foundry and

Propeller Center, Philadelphia, Pennsylvania.

Recent Studies: In an August 1994 report to Congress on propellers over

12 feet in diameter, the Navy concluded that the industrial base was in a

fragile state due to the Navy’s downsizing and the lack of commercial

shipbuilding. The report also concluded that all propeller manufacture

work has historically been done domestically. In a July 1996 report to

Congress, the Navy assessed the industrial base for propellers 6 feet in

diameter or more. The report concluded that it was not necessary to

statutorily protect the domestic industrial base for large propellers. It

stated that there has been little historical interest by foreign

manufacturers to enter the U.S. market, and restrictive language artificially

constrains competition and may result in propellers that are more costly to

the Navy. The report also concluded that the constraint on competition

may also remove incentives for companies to modernize and develop new

technology. According to the report, the combination of U.S. Navy and

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Restrictions

commercial shipbuilding work should sustain U.S. propeller

manufacturers.

Various Marine

Application Vessel

Components

10 U.S.C. 2534(a)(3)(B) includes a limitation on procurement of the

following items to the extent they are unique to marine applications:

totally enclosed lifeboats - Safety of Life at Sea-qualified system consisting

of a standard lifeboat with a fiberglass encapsulated shell, lowered by a

winch and davit system to allow emergency passenger disembarkment;

gyrocompass - a navigational device used to determine a ship’s position

relative to the north-south axis of the earth;

electronic navigation chart system - an electronically stored data package

that shows maps and charts for various waterways on the surface of the

earth;

steering control systems - an automated or actuated system that allows

remote ability to throw power from a ship’s bridge to its rudder for

directional control;

pumps - any one of numerous devices used to move fuel, water, or other

fluids throughout a naval vessel; and

propulsion and machinery systems - computerized sensor controls that

transfer critical operating data from propulsion and machinery systems to

shipboard monitoring systems.

Original Source of Restriction: Totally enclosed lifeboats were first

restricted in the House version of the fiscal year 1994 DOD Appropriations

Act (Public Law 103-139, section 8124). The restriction originally called for

the lifeboats and associated davits and winches to use at least 75 percent

domestic parts and 100 percent U.S. labor for assembly. The subsequent

conference report reduced the domestic content level to 50 percent

domestic parts and labor. The legislative history does not elaborate on the

rationale for the restriction.

The remaining marine-unique items were first proposed as part of the

House version of the fiscal year 1996 National Defense Authorization Act

(Public Law 104-106, section 806). The items were deleted from the Senate

version of that bill but were later reinstated during conference.

Current Source of Restriction: The totally enclosed lifeboat restriction

was again included in the fiscal year 1995 DOD Appropriations Act (Public

Law 103-335, section 8093). It was codified into 10 U.S.C. 2534 by the fiscal

year 1996 National Defense Authorization Act (Public Law 104-106,

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section 806). The original domestic content portion of the restriction was

dropped as a result of this codification.

The remaining marine-unique items are still restricted under 10 U.S.C.

2534. Some of the these items (pumps and propulsion system components,

engines, reduction gears, and propellers) are also restricted to U.S.

sources by a provision in the annual appropriations act applicable to new

contracts entered into for Fast Sealift ships (Public Law 105-56, Title V,

National Defense Sealift Fund).

Item Suppliers: Suppliers for each of the items are as follows:

totally enclosed lifeboats - Schat Harding, Inc. in New Iberia, Louisiana;

gyrocompasses - Sperry Marine in Harvey, Louisiana, and Rentorn,

Washington;

electronic navigation chart systems - no current suppliers;

steering controls - Sperry Marine in Harvey, Louisiana, and Charlottesville,

Virginia, and C.S. Controls in Orange, California, and Houma, Louisiana;

pumps - at least 15 suppliers of pumps for naval vessels, located in 11

different states; and

propulsion and machinery control systems - at least 6 suppliers of

propulsion and machinery control systems for naval vessels, located in 6

different states.

Recent Studies: Other than the study mentioned under the propeller

section of this appendix, DOD officials responsible for assessing the

industrial base had no knowledge of recent market or industrial base

analyses for any of the other marine-unique items found in 10 U.S.C. 2534.

Ball Bearings and

Roller Bearings

Antifriction bearings are essential in any metal product with moving parts

and, therefore, are necessary for manufacturing defense products varying

from motor vehicles to high-accuracy gyroscopes for missile guidance

systems.

Original Source of Restriction: DOD has an extensive history of

administratively limiting bearing procurement. In 1971, DOD imposed a

restriction on miniature and instrument bearings. In August 1988, the

Office of the Secretary of Defense issued an interim rule that DOD

components may procure only antifriction bearings, components of such

bearings, or items containing antifriction bearings produced in the United

States or Canada. In April 1989, the interim rule was revised and adopted

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as a final rule. DOD removed the restriction on miniature and instrument

bearings in fiscal year 1996; these bearings are still restricted under the

broader antifriction bearing limitation.

Ball and roller bearings were first legislatively restricted in the fiscal year

1995 National Defense Authorization Act as part of the general amendment

to 10 U.S.C. 2534 (Public Law 103-337, section 814).

DOD appropriations acts also placed restrictions on the procurement of ball

and roller bearings. The fiscal year 1996 DOD Appropriations Act barred the

expenditure of funds for nondomestic items (Public Law 104-61, 

section 8099).

Current Source of Restriction: The antifriction bearing restriction is

codified in 10 U.S.C. 2534 but expires on October 1, 2000. A restriction is

also in place in the fiscal year 1998 DOD Appropriations Act (Public

Law 105-56, section 8073), which requires all waivers to the restriction to

be signed at the secretarial level.

Item Suppliers: DOD purchased bearings from 159 domestic and 5 British

companies in fiscal year 1997. The domestic companies are located

throughout the United States.

Recent Studies: Prior to DOD’s August 1988 imposition of the antifriction

bearing restriction, DOD’s Joint Logistics Commanders conducted a 1986

industrial base study of bearings, and in July 1988 the Commerce

Department completed an investigation of the effects of antifriction

bearings imports on national security. The 1986 study concluded that the

U.S. bearing industry had eroded and that failure to halt this erosion would

result in a domestic bearings industry that is unable to meet industrial

surge and mobilization requirements. The 1988 restriction was intended to

protect and strengthen the domestic industrial base for an industry that

was described as critical to national defense. In February 1993, the

Department of Commerce reported that the restriction had a positive

impact on the industry. Commerce also reported that eliminating the

restriction would have a detrimental impact on the defense superprecision

bearings sector. In 1997, a Commerce, Defense Logistics Agency, and

industry forum reported that the U.S. bearing industry had improved its

competitiveness over the last decade.

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Sonobuoys A sonobuoy is an electronic sensor dropped by Navy antisubmarine

warfare aircraft into the ocean. These sensors provide the data required

for naval aircrews to detect, localize, and destroy submerged submarines.

Original Source of Restriction: This prohibition was first enacted in the

fiscal year 1993 National Defense Authorization Act (Public Law 102-484,

section 833) as an amendment to 10 U.S.C. 2534. It originated in the Senate

authorization bill (S. 3114). The pertinent Senate committee report

indicates there was some concern that, while DOD made it a policy to

solicit from U.S. and Canadian suppliers, the Canadian government had

recently awarded a sole-source contract to a Canadian firm. The

Committee was “concerned that . . . U.S. manufacturers are not being

treated in an equitable manner” and “believes that the principle of

reciprocity should prevail in such procurement.” The language has not

changed since it was enacted.

Current Source of Restriction: Currently codified in 10 U.S.C. 2534(e),

this restriction is unlike others. Procurement is restricted only if the

foreign sonobuoy manufacturer comes from a country that does not allow

U.S. sonobuoy manufacturers to compete on an equal basis.

Item Suppliers: The Navy procures sonobuoys from Raytheon Systems

Corporation in Fort Wayne, Indiana; Spartron Corporation in Jackson,

Mississippi; and Hermes Electronics, Inc. in Nova Scotia, Canada

Recent Studies: In fiscal year 1998, the Naval Air Systems Command

conducted an assessment of the sonobuoy industrial base. The legislative

restriction on sonobuoys was not reviewed. This assessment concluded

that the industrial base can support current and projected Navy sonobuoy

needs. However, it also concluded that planned procurement may not

support two U.S. suppliers. In addition, the assessment stated that past

competition between vendors has kept sonobuoy costs down and quality

up.

Page 27 GAO/NSIAD-98-191 Defense Acquisition
Appendix IV 

Comments From the Department of Defense

Page 28 GAO/NSIAD-98-191 Defense Acquisition
Appendix V 

Comments From the Department of

Commerce

Page 29 GAO/NSIAD-98-191 Defense Acquisition
Appendix VI 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Blake Ainsworth

Brian Mullins

Karen Zuckerstein

Office of the General

Counsel

Margaret Armen

John Carter

Behn Miller

William Woods

(707337) Page 30 GAO/NSIAD-98-191 Defense Acquisition
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