```

[Federal Register Volume 75, Number 235 (Wednesday, December 8, 2010)]
[Rules and Regulations]
[Pages 76297-76300]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-30670]

-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 225 and 252

RIN 0750-AG57

Defense Federal Acquisition Regulation Supplement; Restriction on 
Ball and Roller Bearings (DFARS Case 2006-D029)

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to revise the domestic source 
restriction on acquisition of ball and roller bearings. This final 
rule, which implements the DoD annual appropriations act domestic 
source restrictions, requires that each ball or roller bearing be 
manufactured in the United States, its outlying areas, or Canada, and 
that the cost of the bearing components manufactured in the United 
States, its outlying areas, or Canada, shall exceed 50 percent of the 
total cost of the bearing components of that ball or roller bearing.

DATES: Effective Date: December 8, 2010.

FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, 703-602-0328.

SUPPLEMENTARY INFORMATION:

I. Background

    The current DFARS restriction on ball and roller bearings 
(225.7009) implemented two statutory restrictions: 10 U.S.C. 2534(a)(5) 
and annual appropriations act restrictions. 10 U.S.C. 2534(a)(5) 
required that all ball and roller bearings and bearing components, 
either as end items or components of end items, be wholly manufactured 
in the United States or Canada. The annual defense appropriations act 
restrictions require that all ball and roller bearings be produced by a 
domestic source and be of domestic origin. This restriction does not 
apply to the acquisition of commercial items, either as components or 
end products, unless the commercial bearings themselves are purchased 
as the end products.

II. Discussion and Analysis

A. Analysis of Public Comments

    DoD published a proposed rule in the Federal Register on May 7, 
2010 (75 FR 25167). The comment period closed on July 6, 2010. Three 
respondents submitted comments.

[[Page 76298]]

1. Nonavailablity
    Comment: One respondent commented that, in some cases, it is 
necessary to import foreign bearings.
    Response: Noted. This rule does not make any change in the existing 
ability to waive the restriction on a case-by-case basis by certifying 
that adequate domestic supplies are not available and that the 
acquisition must be made in order to acquire capability for national 
security purposes.
    Comment: Another respondent was of the opinion that there is not 
really a shortage of bearings compliant with 10 U.S.C. 2534(a)(5), just 
an unwillingness on the part of distributors and wholesalers to devote 
the time to market research and tracking the supply chain to 
demonstrate the availability of compliant bearings.
    Response: Commercial bearings manufacturers make business decisions 
based on the market. Many suppliers of commercial bearings and bearing 
components are unwilling to track the origin of bearings components and 
subcomponents because the Government does not have enough market 
leverage for it to be in the business interest of the manufacturers and 
suppliers to do so. Therefore, many bearings must be treated as 
nondomestic because the manufacturer is unable to certify to domestic 
sourcing of the components.
    Comment: This respondent recommended retaining the requirement for 
100 per cent domestic content for the following reasons:
    a. According to the respondent, changing the rules now to allow 
cheaper sources after using public law to create domestic sourcing 
would be detrimental to the companies that have recently invested in 
capacity.
    Response: The reason for changing the rule is statutory change. 10 
U.S.C. 2534(a)(5) is no longer in effect because Congress allowed the 
restriction to expire.
    Furthermore, the experience of Government buyers indicates that, in 
general, the current regulation has not prevented the loss of domestic 
sources, due to lack of Government leverage with regard to acquisition 
of commercial bearings. The Government continues to issue more and more 
waivers in the instances when bearings are no longer available that the 
manufacturer or distributor can certify as having 100 percent domestic 
components. Bearings manufacturers have stated that manufacture of the 
retainer, inner race, and outer race are not core competencies. 
Therefore, more and more bearings manufacturers obtain these components 
from foreign sources, which are significantly cheaper, and then do the 
complex manufacture of the bearing in this country. The advantage of 
changing the regulation to allow some foreign components without the 
need for a waiver is that fewer waivers will be required and then the 
requirement for manufacture in the United States and 50 percent 
domestic components remains in effect.
    b. According to the respondent, quality of components is very 
critical to eliminating latent defects. The respondent stated that 
retaining a fully domestic source will make it easier to track the 
components and determine the cause of any failure.
    Response: Nothing in this rule alters DoD procedures for ensuring 
the quality of the products it purchases.
    c. The respondent considered that retaining all of this skill set 
is critical to maintaining a viable industrial base. According to the 
respondent, there is potential in the near future to have difficulty 
getting bearings even from qualifying countries, leaving China as the 
sole source of this critical component. The respondent was concerned 
that China may manipulate the market if there is no ready domestic 
supplier of bearings.
    Response: DoD has existing authority under 10 U.S.C. 2304(c)(3) and 
implementing DFARS provisions to restrict procurements to domestic 
sources when it determines that a particular industrial capability must 
be protected for national security reasons, and can use this authority 
for bearings if it proves necessary.
    d. The respondent stated that the fact that the rule affects any 
small business supplier is worthy of consideration, not just when it 
affects a significant number.
    Response: The language in the preamble to the proposed rule 
relating to impact on small business entities is based on the statutory 
requirement to assess whether the rule will have a significant impact 
on a substantial number of small entities within the meaning of the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.). The analysis, 
however, did assess both positive and negative impact on small business 
entities.
2. Exemptions
    Comment: One respondent was concerned that the language in 252.225-
7016 is unchanged from the currently existing exemption.
    a. According to the respondent, by allowing the same exemption and 
lowering the content requirement to 50 per cent, a bearing used in 
assembly for a military application may be sourced from anywhere in the 
world, including countries that have less sophisticated production 
capabilities. The respondent recommended revision of the exemptions to 
require manufacture of domestically nonavailable ball or roller 
bearings in a designated country.
    b. The respondent also mentioned that when the Government needs to 
buy a spare or replacement foreign commercial bearing, it cannot do so 
without a waiver.
    Response: a. This case is only concerned with the definition of 
what constitutes a domestic bearing, based on statutory change. The 
definition of a domestic bearing still requires manufacture in the 
United States, its outlying areas, or Canada. There was no change in 
the statute regarding the exemptions from these requirements.
    b. The issue relating to problems of buying spare or replacement 
foreign commercial bearings is also a problem of the current 
regulation, and is a direct result of the statutory lack of exceptions 
when buying commercial ball or roller bearings as the end item rather 
than as a component.
3. Waivers
    Comment: One respondent stated that waivers go too far. If there is 
no domestic bearing to meet the requirement, then the restriction 
should only be waived to allow purchase of bearings from designated 
countries. The respondent was concerned that the proposal may ease the 
restrictions beyond those found in the Buy American Act, thus opening 
the possibility of allowing bearings for defense purposes to include 
components manufactured by unreliable sources. The respondent noted 
that there are 2,059 FSC ball and roller bearings on the DLA FY 2010 
waiver list. According to the respondent, sourcing is open to any 
country of origin, with price being the sole determining factor for 
award.
    Response: This rule implements section 8065 of the DoD 
Appropriations Act for Fiscal Year 2002 (Pub. L. 107-117) and the same 
restriction in subsequent DoD appropriations acts. While DoD interprets 
the phrase ``produced by a domestic source and of domestic origin'' in 
a way that is comparable to the Buy American Act definition of 
``domestic end product'', this does not imply that DoD is empowered to 
determine exceptions and waiver authority under this statute on any 
basis other than the specific provisions of the appropriations act. 
There is no basis provided in the appropriations act for restricting 
acquisitions of domestically

[[Page 76299]]

nonavailable items to the products of designated countries. Price is 
the sole determining factor for award after determination that the 
offered products meet the criteria of the solicitation. Nor does the 
respondent provide any evidence that the products of nondesignated 
countries are necessarily unreliable. Requiring a reliable product 
would be a more direct way to achieve the objective than prohibiting 
acquisition from nondesignated countries.
4. Confusing or Inconsistent
    Comment: One respondent commented that the rules on bearings are 
only applied by DoD, not other Federal agencies, and that the rules are 
different depending on whether bearings are purchased as an end product 
or a component.
    Response: These inconsistencies are inherent within the law. The 
restrictions on bearings are contained in the annual defense 
appropriations acts, and apply only to DoD. Further, the law provides 
an exception for commercial bearings purchased as components, but does 
not allow the same exception for bearings when purchased as end 
products.
5. Need for Qualified Suppliers (QSL) List and Qualified Manufacturers 
List (QML)
    Comment: One respondent recommended that other protections should 
be put in place in conjunction with this change to the domestic source 
restriction on ball and roller bearings. The respondent also 
recommended that the annual defense appropriations acts should include 
a requirement for the use of QSLs and QMLs when acquiring ball and 
roller bearings.
    Response: FAR subpart 9.2 addresses qualifications requirements. 
FAR 9.202 provides the policy criteria that must be met in order for 
the head of the agency to establish a qualification requirement. The 
head of the agency must address in writing why a qualification 
requirement is necessary, and address the likely costs for testing and 
evaluation that will be incurred for a potential offeror to become 
qualified. A DoD agency that purchases bearings and products that 
contain bearings was concerned about the impact a QSL would have on 
competition. In addition, although a QSL would address quality issues, 
the agency does not consider that the level of effort associated with a 
QSL would be an economical solution to pursue. With regard to a QML, 
the agency indicated that a QML would add very little value to the 
purchase of bearings. The manufacturers are usually approved by the 
drawings, a Qualified Producers List (QPL), or the Engineering Service 
Activities (ESA). The recommended statutory change is outside the scope 
of this case. The intent of this case is to comply with the existing 
statute.

B. Other Changes

    DoD incorporated three editorial changes in the final rule.
    1. The reference at 225.7009-2(b) to the specialty metals 
restriction has changed from ``225.7002-1(b)'' to ``225.7003-2.''
    2. Conforming changes are required to the clause dates in 252.212-
7001.
    3. In paragraph (b)(2) of DFARS 252.225-7016, ``, its outlying 
areas'' was added to ``in the United States or Canada'' to clarify that 
this requirement also applies to the outlying areas of the United 
States. It was not necessary to add this in the text in part 225, 
because in FAR 25.003, ``United States'' is defined to include the 
outlying areas. It could be inferred that this also applies in the 
clauses prescribed in part 225 (see 52.202-1(a)). However, it is 
clearer to explicitly add it.

III. Executive Order 12866

    This is a significant regulatory action and, therefore, was subject 
to review under section 6(b) of Executive Order 12866, Regulatory 
Planning and Review, dated September 30, 1993. This rule is not a major 
rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD does not expect this rule to have a significant economic impact 
on a substantial number of small entities within the meaning of the 
Regulatory Flexibility Act, 5 U.S.C. 601, et seq. However, because this 
rule has impact on the application of domestic source restrictions, DoD 
has performed a final regulatory flexibility analysis, which is 
summarized as follows:
    This rule revises the restriction on ball and roller bearings to 
implement the annual defense appropriations act restriction. The DFARS 
currently reflects the more stringent requirement of 10 U.S.C. 
2534(a)(5), that the bearing and all main bearing components must be 
manufactured in the United States or Canada. This restriction expired 
on October 1, 2005. This rule interprets the annual defense 
appropriations act to allow a 50 percent component test similar to the 
Buy American Act component test.
    The objective of the rule is to allow more flexibility to domestic 
bearings manufacturers in the acquisition of nondomestic components. 
The legal basis for the rule is section 8065 of the DoD Appropriations 
Act for Fiscal Year 2002 (Pub. L. 107-117) and the same restriction in 
subsequent DoD appropriations acts.
    One respondent stated that the fact that the rule affects any small 
business supplier is worthy of consideration, not just a significant 
number. The analysis, however, did assess both positive and negative 
impact on small business entities. Generally, the impact is considered 
to be positive (see next paragraph). No changes were made to the rule 
as a result of the comment. The only alternative would be to do 
nothing, which would have worse results as more waivers are granted for 
nonavailability of domestic bearings.
    The final rule affects manufacturers of bearings, bearing 
components, and noncommercial products that incorporate bearings.
     Bearings. This rule applies only to bearings purchased as 
end products or noncommercial bearings incorporated in noncommercial 
end products or noncommercial components of noncommercial end products. 
Because this rule allows some element of nondomestic content in ball 
and roller bearing components, as long as the United States- or 
Canadian- manufactured bearing contains less than 50 percent 
nondomestic bearing components, both large and small businesses may 
find greater numbers of sources from which to obtain ball and roller 
bearing components. Greater sourcing choices may enable small 
businesses to compete more successfully for DoD ball and roller bearing 
acquisitions.
     Bearing components. Manufacturers of domestic bearing 
components may face increased competition from manufacturers of 
nondomestic bearing components. However, many of the bearing components 
that are being outsourced are no longer readily available from domestic 
sources.
     Manufacturers of noncommercial products incorporating 
bearings. Manufacturers of noncommercial products incorporating 
bearings (both large and small businesses) will find it easier to 
acquire domestic bearings and will less frequently need to request 
nonavailability determinations.
    There is no significant economic impact on small entities as a 
result of this rule. The impact of this rule on small business is 
expected to be predominantly positive. If this rule is not implemented, 
the regulations will continue to meet the statutory requirements, but 
more domestic nonavailability waivers would continue to be required, 
which would mean that there would be no requirement to manufacture such 
bearings in the

[[Page 76300]]

United States or Canada, or provide predominantly domestic components.

V. Paperwork Reduction Act

    This final rule does not impose any new or modified reporting, 
recordkeeping, or information collection requirements that require the 
approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et seq.

List of Subjects in 48 CFR Parts 225 and 252

    Government procurement.

Clare M. Zebrowski,
Editor, Defense Acquisition Regulations System.

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

    Authority:  41 U.S.C. 421 and 48 CFR chapter 1.

PART 225--FOREIGN ACQUISITION

0
2. Revise section 225.7009-2 to read as follows:

225.7009-2  Restriction.

    (a) Do not acquire ball and roller bearings unless--
    (1) The bearings are manufactured in the United States or Canada; 
and
    (2) For each ball or roller bearing, the cost of the bearing 
components mined, produced, or manufactured in the United States or 
Canada exceeds 50 percent of the total cost of the bearing components 
of that ball or roller bearing.
    (b) The restriction at 225.7003-2 may also apply to bearings that 
are made from specialty metals, such as high carbon chrome steel 
(bearing steel).

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

252.212-7001  [Amended]

0
3. Section 252.212-7001 is amended as follows:
0
a. By revising the clause date to read ``(DEC 2010)''; and
0
b. In paragraph (b)(10) by removing ``(MAR 2006)'' and adding in its 
place ``(DEC 2010)''.
0
4. Revise section 252.225-7016 to read as follows:

252.225-7016  Restriction on Acquisition of Ball and Roller Bearings.

    As prescribed in 225.7009-5, use the following clause:

RESTRICTION ON ACQUISITION OF BALL AND ROLLER BEARINGS (DEC 2010)

    (a) Definitions. As used in this clause--
    (1) Bearing component means the bearing element, retainer, inner 
race, or outer race.
    (2) Component, other than a bearing component, means any item 
supplied to the Government as part of an end product or of another 
component.
    (3) End product means supplies delivered under a line item of 
this contract.
    (b) Except as provided in paragraph (c) of this clause--
    (1) Each ball and roller bearing delivered under this contract 
shall be manufactured in the United States, its outlying areas, or 
Canada; and
    (2) For each ball or roller bearing, the cost of the bearing 
components mined, produced, or manufactured in the United States, 
its outlying areas, or Canada shall exceed 50 percent of the total 
cost of the bearing components of that ball or roller bearing.
    (c) The restriction in paragraph (b) of this clause does not 
apply to ball or roller bearings that are acquired as--
    (1) Commercial components of a noncommercial end product; or
    (2) Commercial or noncommercial components of a commercial 
component of a noncommercial end product.
    (d) The restriction in paragraph (b) of this clause may be 
waived upon request from the Contractor in accordance with 
subsection 225.7009-4 of the Defense Federal Acquisition Regulation 
Supplement.
    (e) If this contract includes DFARS clause 252.225-7009, 
Restriction on Acquisition of Certain Articles Containing Specialty 
Metals, all bearings that contain specialty metals, as defined in 
that clause, must meet the requirements of that clause.
    (f) The Contractor shall insert the substance of this clause, 
including this paragraph (f), in all subcontracts, except those 
for--
    (1) Commercial items; or
    (2) Items that do not contain ball or roller bearings.

(End of clause)

[FR Doc. 2010-30670 Filed 12-7-10; 8:45 am]
BILLING CODE 5001-08-P
```