POLICY ISSUE 

(INFORMATION) 

September 29, 2011 SECY-11-0135

FOR: The Commissioners 

FROM: Michael R. Johnson, Director 

 Office of New Reactors 

SUBJECT: STAFF PLANS TO DEVELOP THE REGULATORY BASIS FOR 

CLARIFYING THE REQUIREMENTS IN TITLE 10 OF THE CODE OF 

FEDERAL REGULATIONS PART 21, “REPORTING OF DEFECTS AND 

NONCOMPLIANCE” 

PURPOSE: 

This paper informs the Commission of the staff’s plan to develop the regulatory basis to clarify 

Title 10 of the Code of Federal Regulations (10 CFR) Part 21, “Reporting of Defects and 

Noncompliance” (hereinafter referred to as Part 21). The staff anticipates that modifications to 

Part 21 and the creation of regulatory guidance will be proposed. 

SUMMARY: 

Since its inception in 1977, Part 21 has presented compliance challenges to licensees, vendors, 

and the U.S. Nuclear Regulatory Commission (NRC) staff. The NRC staff has noted a high rate 

of repetitive inspection findings related to Part 21, including commercial-grade dedication 

findings, despite the staff’s attempts to clarify requirements through generic communications 

and extensive outreach efforts. Recent Part 21 exemption requests by nonreactor facilities 

further underscore the need to examine Part 21. In 2010, the staff established an agencywide 

working group to further explore these inspection findings and identify Part 21’s potential areas 

for improvement. 

CONTACT: Victor Hall, NRO/DCIP 

 301-415-2915
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The working group identified opportunities to clarify Part 21. These opportunities fall into two 

categories: 

(1) Evaluating and reporting defects, and 

(2) The dedication process for accepting commercial items and services for use in 

safety-related applications. 

The NRC has not issued regulatory guides for either topic. Therefore, the staff is developing 

guidance to address ambiguous definitions and clarify expectations with regard to Part 21. 

The staff intends to develop the regulatory basis, continue to interact with stakeholders, and 

propose rule language to make clarifying changes to Part 21 and concurrently issue 

comprehensive guidance. This effort will clarify the requirements in Part 21. However, the staff 

does not intend to expand the scope or intent of the regulation. The staff, during its regulatory 

development, will address the following gaps in the current rule: 

(1) Identification of what information must be provided to a customer when a Part 21 

evaluation is passed from a vendor. 

(2) The appropriate quality assurance requirements that customers should specify in their 

procurement documents. 

(3) The documentation of commercial-grade dedication activities in dedication plans. 

The staff’s regulatory basis development efforts will be focused on improving Part 21 clarity, 

maintaining original intent of the rule, and minimizing changes to currently compliant programs. 

BACKGROUND: 

Part 21

The NRC published the final rule for Part 21 in the Federal Register on June 6, 1977. The 

agency issued the rule to implement Section 206, “Noncompliance,” of the Energy 

Reorganization Act of 1974 (42 U.S.C. 5846). The purpose of Section 206 is to ensure that the 

NRC receives prompt information that a facility, activity, or a “basic component:” (i) fails to 

comply with the Atomic Energy Act of 1954, as amended, or any applicable NRC rule, 

regulation, order or license; or (ii) contains a “defect” which could create a “substantial safety 

hazard,” as defined by NRC regulations. In addition to imposing obligations on certain officers 

of NRC licensees, Section 206 also imposes obligations on certain officers of non-licensees that 

construct facilities for or supply components to licensed facilities or activities (i.e., vendors or 

suppliers). 

The NRC amended Part 21 on October 19, 1978 (43 FR 48621), to exempt commercial-grade 

items from the requirements in Part 21 until those items were dedicated for safety-related use in 

a nuclear facility. This amendment provided the first definition of the commercial-grade 

dedication process. The regulatory framework for dedication has remained largely unchanged 

since the issuance of this 1978 amendment. 
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The NRC has since amended Part 21 to eliminate duplicate reporting, take operating 

experience into account, broaden the scope to include new reactors, and address conforming 

administrative changes. The most notable amendments are as follows: 

• In 1991, the NRC amended Part 21 as a result of the Commission’s efforts to apply the 

experience gained from the Three Mile Island accident and to reflect the Commission’s 

experience to date with the existing regulations. The NRC intended the changes to 

reduce duplicate reporting, clarify the criteria for reporting of defects, and establish 

uniform time periods for reporting and uniform report content requirements. 

• In 1995, the NRC revised Part 21 to provide added flexibility in nuclear power plant 

licensees’ procurement of commercial-grade items for safety-related services. The NRC 

intended the action to provide the requirements for the procurement of parts and 

services, which are procured as commercial-grade items and subsequently dedicated for 

safety-related service, in a manner that avoids unnecessary delay and expense while 

maintaining an adequate level of safety. 

The increase in procurement activity associated with the construction of new reactors presents 

the ideal timing to initiate rulemaking. 

Office of the Inspector General Audits

The Office of the Inspector General (OIG) recently performed two audits related to Part 21: 

(1) OIG-10-A-20, “Audit of NRC’s Vendor Inspection Program,” dated September 28, 2010 

(Agencywide Documents Access and Management System (ADAMS) Accession 

No. ML102710583), and (2) OIG-11-A-08, “Audit of NRC’s Implementation of 10 CFR Part 21, 

Reporting of Defects and Noncompliance,” dated March 23, 2011(ADAMS Accession 

No. ML110820426). In response to recommendations related to Part 21 in the OIG’s 2010 

audit, the staff committed to develop this Commission paper and address the need and priority 

for rulemaking, guidance (i.e., regulatory guides), and outreach efforts. Following this audit, 

NRO also formed an agencywide Part 21 working group. 

DISCUSSION: 

The Part 21 working group identified areas for improvement in (1) the evaluation and reporting 

of defects, (2) commercial-grade dedication, and (3) administrative changes. The working 

group derived the enclosed list of technical topics primarily from findings issued by the vendor 

inspection branches in NRO and the Office of Nuclear Reactor Regulation (NRR). Since 2007, 

with the creation of NRO, over half of the approximately 200 vendor inspection report findings 

have been related to Part 21. Half of these Part 21 findings were attributed to evaluating and 

reporting deficiencies, and half of them were cited as improper commercial-grade dedication. 

The potential consequence of evaluating and reporting deficiencies is that substantial safety 

hazards may not be reported to the NRC. The potential consequence of improper dedication is 

that it can allow the incorporation of substandard safety-related parts into NRC-licensed 

facilities. 

The scope of the rulemaking basis development will address gaps in Part 21 terminology to 

improve the rule and thereby its effectiveness. During rulemaking basis development, the staff 
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will assess changes needed to clarify the rule language and the need for additional guidance. 

The staff anticipates that a proposed rulemaking to clarify Part 21 would not expand the scope 

of the regulation. For example, the staff’s guidance could clarify requirements for evaluating 

counterfeit and fraudulent items under Part 21 without expanding requirements to report items 

currently outside its scope (i.e., nonsafety-related items). 

Evaluating and Reporting

Recent findings by NRC vendor inspections have illustrated gaps in the Part 21 requirements for 

the evaluation and reporting of defects. For example, Part 21 does not provide clear 

expectations for the mechanisms that must be in place to identify defects. As a result, the 

staff’s inspections have found that vendors often fail to tie their quality assurance programs to 

Part 21. This failure creates the potential for missing the reporting of defects that are likely to be 

discovered through the quality assurance program. When vendors properly identify potential 

Part 21 issues, inspectors have found that the timeliness requirements of Part 21 are missed in 

some cases because the definition of “discovery” in Part 21 offers ambiguous language on 

when a Part 21 evaluation period begins. 

Another example of a gap is where vendors state they are unable to evaluate a deviation. 

Part 21 allows vendors to pass the responsibility of evaluating a deviation under Part 21 by 

informing their customers that they do not have the capability to determine if a defect exists. 

Inspectors have noted that vendors frequently inform their customers informally and do not 

provide adequate information to the customer who is now responsible for the evaluation. In 

these cases, the vendor is satisfying its Part 21 responsibility but not communicating essential 

information to the customer that may be needed to evaluate the deviation to identity a reportable 

defect. These examples illustrate areas in Part 21 that require clarification to provide clear 

requirements that ensure defects and failures to comply associated with a substantial safety 

hazard are identified and reported as required. 

Commercial-Grade Dedication

The supply chain for nuclear power reactors has greatly evolved since initial issuance of 

Part 21. There has been a reduction in nuclear industry suppliers who implement a quality 

assurance program that complies with Appendix B, “Quality Assurance Criteria for Nuclear 

Power Plants and Fuel Reprocessing Plants,” to 10 CFR Part 50, “Domestic Licensing of 

Production and Utilization Facilities.” This evolution has prompted an increased reliance by 

nuclear power reactor licensees on commercial-grade dedication. Dedication is defined in the 

regulation, in part, as “an acceptance process undertaken to provide reasonable assurance that 

a commercial grade item to be used as a basic component will perform its intended safety 

function and, in this respect, is deemed equivalent to an item designed and manufactured under 

a 10 CFR Part 50, appendix B, quality assurance program.” In short, dedication allows the use 

of commercial parts and services in safety-related applications. 

The NRC conceived the regulations for dedication in 1978. At that time, licensees typically 

performed dedication activities for a small number of basic components which were unavailable 

from suppliers under Appendix B to10 CFR Part 50. The regulatory framework for dedication 

resides solely in the definition of dedication in Section 21.3 of Part 21 and is not discussed in 

the body of the rule. As such, the regulation is difficult to apply in today’s industry; this is 
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evident by inadequate licensee and vendor interpretation of the dedication process related to 

the use of commercial calibration laboratories in safety-related applications. As part of the 

rulemaking effort, the staff expects to include comprehensive guidance on how to dedicate 

calibration lab services. Nonreactor licensees and applicants face similar challenges due to the 

lack of specificity in the definitions. This is evident by four recent Part 21 exemption requests 

from non-reactor facilities. These entities have noted the difficulties in applying the Part 21’s 

terminology to plutonium processing, uranium enrichment, and fuel fabrication. 

Schedule and Milestones

NRO, NRR, the Office of Nuclear Material Safety and Safeguards (NMSS), and the Office of the 

General Counsel (OGC) have participated in the Part 21 working group to form a sound 

technical foundation for the development of a regulatory basis. In addition, NRO has 

coordinated its efforts with other NRC offices that are expected to be unaffected by this 

rulemaking (e.g., the Office of Federal and State Materials and Environmental Management 

Programs (FSME), the Office of Nuclear Security and Incident Response (NSIR), and 

Region II). The development of regulatory guides for evaluating and reporting and for 

dedication activities will be an important part of the rulemaking effort. Wherever possible, these 

guides will consolidate and expand on existing industry guidance. 

The staff recently submitted SECY-11-0032, “Consideration of the Cumulative Effects of 

Regulation in the Rulemaking Process,” dated March 2, 2011, to the Commission (ADAMS 

Accession No. ML110190027). Based on the staff’s plans to develop regulatory guides 

concurrent with the rulemaking process and on the extensive outreach efforts planned, this 

rulemaking would be consistent with the guidelines proposed in SECY-11-0032. The table 

below provides milestones and target dates for these activities. 

Stakeholder Feedback

The staff has received and expects continued extensive stakeholder and public interaction 

throughout the rulemaking process. The staff also plans to build on the industry’s 34 years of 

experience with Part 21. The staff has given presentations on the proposed rulemaking at the 

2011 Regulatory Information Conference, 2011 Nuclear Procurement Issues Committee Vendor 

Conference, and Electric Power Research Institute joint utility task group meetings. 

Stakeholders provided positive feedback and offered suggestions during these meetings. 

The staff hosted a Category 3 public meeting on August 1, 2011, to solicit early stakeholder 

feedback on the technical topics associated with the potential rulemaking (ADAMS Accession 

MILESTONE TARGET DATE

Public Rulemaking Basis Development Kickoff 

Begin Development of Regulatory Guides 

Fiscal Year 2012 

Issue Regulatory Basis September 2012 

Anticipated Publication of Proposed Rule in the Federal Register

Complete Initial Drafts of Regulatory Guides 

September 2013 

Potential Final Rule in the Federal Register September 2014 
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No. ML112650090). During the meeting, representatives from the Nuclear Energy Institute 

(NEI) expressed reservations about initiating rulemaking. They noted that industry guidance 

could be developed to address many of the issues. NEI repeated this position in a letter dated 

August 22, 2011, from Mr. Doug Walters, Vice President of Regulatory Affairs, NEI, to the NRC 

(ADAMS Accession No. ML112650013). However, at the August 1, 2011, meeting, 

representatives of vendors and materials licensees expressed overwhelming support for this 

rulemaking effort, as did representatives of individual nuclear power plant licensees responsible 

for procurement and quality assurance. While guidance will be an integral part to the success of 

this effort, the staff believes that changes to the rule are essential to providing a holistic and 

effective solution for clarifying Part 21. 

The staff considered the need for an Advance Notice of Proposed Rulemaking before 

developing a proposed rule, but determined it to be unnecessary, as sufficient stakeholder input 

had been gathered as a result of the activities and meetings described above. 

RESOURCES: 

The proposed Fiscal Year 2013 Performance Budget to the Office of Management and Budget 

includes the full-time equivalent (FTE) staff specifically for the high priority Part 21 rulemaking. 

These resources are consistent with the Common Prioritization Rulemaking Report and thus 

budgeted accordingly as shown in the following table: 

NRO NRR NMSS FSME OGC OIS ADM

Fiscal Year 2012 0.6 0.25 0.2 0.2 0.1 0.1 0.1

Fiscal Year 2013 1.0 0.5 0.2 0.2 0.1 0.1 0.1

Finally, the staff acknowledges that the agency’s priority for Part 21 rulemaking may be 

impacted by potential rulemakings that the Commission may direct in response to the 

Near-Team Task Force (NTTF) report (ADAMS Accession No. ML111861807). 

 
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COORDINATION: 

This action has been coordinated with the Office of the Chief Financial Officer. OGC has 

reviewed this paper and has no legal objection. 

 /RA/ 

Michael R. Johnson, Director

 Office of New Reactors 

Enclosure: 

10 CFR Part 21—Proposed Areas 

 for Improvement 
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COORDINATION: 

This action has been coordinated with the Office of the Chief Financial Officer. OGC has reviewed 

this paper and has no legal objection. 

 /RA/

Michael R. Johnson, Director

 Office of New Reactors 

Enclosure: 

10 CFR Part 21—Proposed Areas 

 for Improvement 

WITS 201000255/EDATS: OEDO-2010-0904/OIG-10-A-20 

WITS 201000256/EDATS: OEDO-2010-0905/OIG-10-A-20 

WITS 201000257/EDATS: OEDO-2010-0906/OIG-10-A-20 

WITS 201000259/EDATS: OEDO-2010-0908/OIG-10-A-20 

 

ADAMS Accession No.: ML112430138 *via e-mail SECY-012 

OFFICE NRO/DCIP/CQVB NRO/DCIP/CQVB NRO/DCIP/CQVA QTE* NRO/DCIP 

NAME VHall RRasmussen 

(JJacobson for) JPeralta JDougherty LDudes 

(MJunge for) 

DATE 09/01/2011 09/01/2011 09/01/2011 09/19/2011 09/14/2011 

OFFICE NRO/DNRL NRO/PMDA* OCFO NRR/DE/EQVB NRR/DE 

NAME DMatthews 

(PMadden for) CSchum JDyer 

(JGolder for) CNguyen PHiland 

(FBrown for) 

DATE 09/27/2011 09/27/2011 09/27/2011 09/19/2011 09/20/2011 

OFFICE NRR RII* NMSS* NSIR* OI* 

NAME ELeeds 

(BBoger for) 

VMcCree 

(PHolahan for) CHaney JWiggins 

(BMcDermott for) CMcCrary 

DATE 09/21/2011 09/21/2011 09/21/2011 09/21/2011 09/21/2011 

OFFICE OGC* NRO 

NAME GMizuno MJohnson 

DATE 09/22/2011 09/29/2011 

OFFICIAL RECORD COPY
10 CFR PART 21—PROPOSED AREAS FOR IMPROVEMENT

EVALUATING AND REPORTING 

Potential

Regulation

Change 

New 

Requirem

(1) Lack of Regulatory Guidance (2) Quality Requirements in Procurement Documents 

✔

✔

(3) Lack of Clarity in Definition of Basic Component for Nonreactor Facilities 

✔

(4) Clarification of Point of Discovery 

✔

(5) Evaluating and Reporting Responsibility 

✔

(6) Deferral of Evaluation (10 CFR 21.21(b)) 

✔

✔

(7) Use of Licensee Event Reporting (i.e., 10 CFR 50.72 and 10 CFR 50.73) 

✔

(8) Acceptable Forms of Written Notification under 10 CFR 21.21(d)(2) for Nonreactor Facilities 

✔

(9) 10 CFR 50.55e Redundancy 

✔

(10) Evaluation of Counterfeit Fraudulent and Suspect Items under 10 CFR Part 21 (11) Clarification of Deviation and Delivery 

✔

(12) Contemporary Posting Requirements (13) Training 

COMMERCIAL-GRADE DEDICATION 

Requires

Regulation

Change 

New 

Requirem

(A) Lack of Regulatory Guidance (B) Proper Place for Dedication 

✔

(C) Definition of Dedication 

✔

(D) Definition of Commercial-Grade Item 

✔

(E) Clarification of Dedication as a Safety-Related Activity (F) Dedication Plans and the Importance of Safety Function 

✔

✔

(G) Sampling Requirements (H) Use of Commercial Calibration (and Testing) Laboratories—International Laboratory 

Accreditation Cooperation Process 

(I) Software Dedication 

ADMINISTRATIVE CHANGES 

Requires

Regulation

Change 

New 

Requirem

(i) Addition of “10 CFR Part 52” to the Definition of Dedication 

✔

(ii) Definitions for 10 CFR Part 76 Facilities (i.e., Basic Component and Substantial Safety 

Hazard) 

✔

(iii) Definition of Critical Characteristics for Nonreactor Facilities 

✔