Document ID: BIS-2010-0021-0001
Agency: bis
Document Type: Proposed Rule
Title: Revisions to Defense Priorities and Allocations System Regulations
Posted Date: 2010-06-07T04:00Z

[Federal Register: June 7, 2010 (Volume 75, Number 108)]
[Proposed Rules]               
[Page 32122-32140]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07jn10-10]                         

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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 700

[Docket No. 0912311453-0016-01]
RIN 0694-AE81

 
Revisions to Defense Priorities and Allocations System 
Regulations

AGENCY: Bureau of Industry and Security, Department of Commerce.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would reorganize and clarify existing 
standards and procedures by which the Bureau of Industry and Security 
(BIS) may require that certain contracts or orders that promote the 
national defense be given priority over other contracts or orders. This 
rule also sets new standards and procedures by which BIS may allocate 
materials, services and facilities to promote the national defense. BIS 
is publishing this rule to comply with a requirement of the Defense 
Production Act Reauthorization of 2009 to publish regulations providing 
standards and procedures for prioritization of contracts and orders and 
for allocation of materials, services and facilities to promote the 
national defense.

DATES: Comments must be received by July 7, 2010.

ADDRESSES: You may submit comments, identified by RIN 0694-AE81, by any 
of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     By e-mail directly to bis@publiccomments.bis.doc.gov. 
Include RIN 0694-AE81 in the subject line.
     By mail or delivery to Regulatory Policy Division, Bureau 
of Industry and Security, U.S. Department of Commerce, Room 2705, 14th 
Street and Pennsylvania Avenue, NW., Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT: John Isbell, Director (Acting), 
Defense Programs Division, Office of Strategic Industries and Economic 
Security, Bureau of Industry and Security; (202) 482-8229, 
jisbell@bis.doc.gov.

SUPPLEMENTARY INFORMATION:

Background

    This rule updates and expands 15 CFR part 700, the Bureau of 
Industry and Security's (BIS) Defense Priorities and Allocations System 
(DPAS) regulations. The DPAS regulations implement BIS' administration 
of priorities and allocations actions involving industrial resources. 
BIS administers the DPAS pursuant to authority under Title I of the 
Defense Production Act (50 U.S.C. app. 2071 et seq.) (DPA) as delegated 
by Executive Order 12919 (June 3, 1994). The DPAS has two principal 
components: Priorities and allocations. Under the priorities component, 
certain contracts between the government and private parties or between 
private parties for the production or delivery of industrial resources 
are required to be given priority over other contracts to facilitate 
expedited delivery in promotion of the U.S. national defense. Under the 
allocations component, materials, services, and facilities may be 
allocated to promote the national defense. For both components, the 
term ``national defense'' is defined broadly and can include critical 
infrastructure protection and restoration, emergency preparedness, and 
recovery from natural disasters. BIS has extensive experience using its 
prioritizations authorities. However, BIS has not used its allocations 
authorities in more than fifty years.
    On September 30, 2009, the Defense Production Act Reauthorization 
of 2009 (Pub. L. 111-67, 123 Stat. 2006, September 30, 2009) (DPAR) was 
enacted. That act requires that within 270 days of its enactment (that 
is, by June 20, 2010), all agencies to which the

[[Page 32123]]

President has delegated priorities and allocations authority under 
Title I of the DPA must publish final rules establishing standards and 
procedures by which that authority will be used to promote the national 
defense in both emergency and nonemergency situations. That act also 
required all such agencies to consult ``as appropriate and to the 
extent practicable to develop a consistent and unified Federal 
priorities and allocations system.'' (123 Stat. 2006, at 2009). This 
rule is one of several rules to be published to implement the 
provisions of the DPAR. The final rules of the agencies with DPAR 
authorities, which are the Departments of Commerce, Energy, 
Transportation, Health and Human Services, Defense, and Agriculture, 
will comprise the Federal Priorities and Allocations System.
    BIS is publishing this proposed rule as the initial rulemaking 
stage in compliance with the provision of the DPAR noted above. BIS 
believes that its existing rules regarding priorities satisfy the 
DPAR's requirement that agencies have standards and procedures in place 
to implement the DPA's authorities. However, in the interest of 
promoting a unified priorities and allocations system, and to update 
many of the existing DPAS procedures, BIS is setting forth in this 
proposed rule changes that will clarify and reorganize the DPAS to make 
it consistent with the regulations issued by other agencies, and to 
make it easier to understand. Additionally, although allocations 
provisions were previously contained in the DPAS, this proposed rule 
expands those provisions to clearly set forth the procedures to be 
followed for allocations actions. The specific changes proposed by this 
rule are more fully described below.

Analysis of the Proposed Priorities and Allocations System

Subpart A

    Proposed Subpart A would be titled ``Purpose, Overview and 
Definitions'' and would reflect all three concepts.
    Proposed Sec.  700.1 would state the purpose of the DPAS in general 
terms and would largely restate information that appears at 15 CFR 
700.1 in the existing regulations. However, extensive language about 
the source of BIS's legal authority would not be incorporated into the 
proposed Sec.  700.1 on the grounds that such language is not 
regulatory in nature. BIS believes that the language regarding the 
DPAS' purpose would be clearer if it is not submerged in extensive 
discussions of legal authority, particularly where those discussions 
have no legal effect.
    Proposed Sec.  700.2 would provide an overview of the DPAS program. 
This section would incorporate much of the discussion that currently 
appears in Subpart B of the existing regulations, but would describe 
briefly all aspects of the DPAS, eliminating the need for the more 
extensive descriptions found in Sec. Sec.  700.3 through 700.7 of the 
existing regulations.
    The ``Definitions'' section, which appears in Sec.  700.8 in 
Subpart C of the current regulations, would appear in proposed Sec.  
700.3 in Subpart A with the following modifications. Proposed Sec.  
700.3 would state that the definitions therein apply to all of part 700 
unless otherwise specified in a particular definition. The reference to 
the definitions found in the DPA and in the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (42 U.S.C. 5195 et seq.) that 
appear in the current regulations would be removed and all relevant 
definitions would appear in full in Sec.  700.3, thereby eliminating 
the need to consult statutes for definitions. Although references to 
these statutes are being removed, the definitions contained in proposed 
Sec.  700.3 would be consistent with those set forth in the statutes.
    New definitions would be added for the following terms: Allocation, 
allocation authority, allocation order, allotment, critical 
infrastructure, prioritization directive, allocation directive, 
emergency preparedness, national defense, priorities authority, 
priority rating, priority performance, program identification symbols, 
resource agency, and short supply item. These new definitions are 
needed to promote clarity of meaning, to remove the need to consult 
authorizing statutes for definitions, to implement the new provisions 
regarding allocations, and to develop a consistent and unified Federal 
priorities and allocations system.
    The definition of the term ``MRO'' would be revised to replace the 
term ``Maintenance, and repair and operating supplies'' with the term 
``Maintenance, repair and/or operating supplies.'' For years, BIS has 
interpreted the term MRO to apply to maintenance, to repair, to 
operating supplies, to any combination of two of the three, or to all 
three. BIS is proposing to revise the language because it believes that 
the proposed language more clearly expresses the meaning that BIS has 
applied for years. In other respects, the definition is unchanged.
    The definition of the term Person would be expanded to include 
international organizations in order to clarify the scope of the 
entities subject to or eligible to be a recipient of authority 
(delegated or direct) as provided in this part. BIS proposes to modify 
the definition to clarify that international organizations are among 
the entities eligible to request priority ratings to obtain items in 
the United States in support of approved programs. This proposed change 
would codify existing agency practice.
    The definition of the term ``Production equipment'' would be 
changed to emphasize that the characteristics of the equipment that 
give it a useful life of more than one year (as distinct from the 
actual amount of time that it actually will be used) is a relevant 
factor in determining whether a piece of equipment is production 
equipment. The wording of the other factors in the definition, unit 
acquisition cost in excess of $2,500 and use in producing materials or 
furnishing services, remains unchanged.
    Finally, the definition of the term Set-aside, which appears as a 
parenthetical in Sec.  700.30 of the existing regulations, would be 
revised to more clearly state what is required of a person who is 
issued a set-aside. The current definition uses outdated language that 
makes the meaning of the term unclear.

Subpart B

    Proposed Subpart B would be based largely on language that appears 
in Subparts D, I and L of the existing regulations and would be titled 
``Industrial Priorities and Allocations,'' reflecting the fact that the 
subpart will address certain matters that are common to both priorities 
and to allocations as opposed to the current title of subpart D 
``Industrial Priorities,'' which reflects a narrower scope.
    Proposed Sec.  700.10, ``Authority,'' would incorporate language 
that appears in the existing regulations at Sec.  700.10 of existing 
Subpart D, however the existing language would be revised to describe 
more fully the President's delegations to the Department of Commerce 
and to other agencies that have roles in the Federal priorities and 
allocation system. It would also describe, in general terms, the items 
subject to each agency's jurisdiction and note that the Department of 
Commerce has delegated certain authorities to other agencies. BIS is 
proposing this change to facilitate public understanding of the role 
that each delegate agency plays in the overall priorities and 
allocations system.
    Proposed Sec.  700.11, ``Priority ratings,'' which is based on 
language that appears in existing Sec.  700.11, would be revised and 
shortened to eliminate language newly included in the proposed

[[Page 32124]]

definitions section of Subpart A regarding ``program identification 
symbols.'' This revision is necessary for clarity and to prevent 
redundancy with the definitions in Subpart A.
    Proposed Sec.  700.12, ``Prioritization directives and allocation 
orders,'' would incorporate language from existing Sec.  700.62(b) and 
(c) and would provide a discussion of the use of prioritization 
directives and allocation orders. The definition for ``directive'' in 
Sec.  700.62(a) would be replaced by definitions of ``allocation 
directive'' and ``prioritization directive'' in proposed Sec.  700.3 
along with the other definitions of terms used in this proposed rule. 
Paragraphs (b) and (c) of the existing regulations at Sec.  700.62 
would become paragraphs (a) and (b) respectively in proposed Sec.  
700.12. Proposed paragraph (c) is a new paragraph that provides that 
allocation orders take precedence over prioritization directives, DX 
rated orders, DO rated orders, and unrated orders, unless a contrary 
instruction appears in the allocation order.
    Language in proposed Sec.  700.13, ``Examples of emergency 
preparedness,'' provides examples of what constitutes ``emergency 
preparedness activities'' and explains how those considerations impact 
decisions with regard to priority ratings and allocation orders. The 
material in this section is new.
    Language in proposed Sec.  700.14, ``Changes or cancellations of 
priority ratings, rated orders and allocation orders,'' is largely 
identical to language that appears in existing Sec.  700.16 ``Changes 
or cancellations of priority ratings and rated orders.'' However, the 
scope would be expanded to include language describing the action 
necessary to change an allocation order.
    Proposed Sec.  700.15, ``Adjustments or exceptions,'' incorporates 
language that appears in existing Sec.  700.80 ``Adjustment or 
exceptions'' found in Subpart K. Proposed Sec.  700.15 would reflect 
the time period in which the Office of Strategic Industries and 
Economic Security should respond to requests for adjustments to or 
exceptions. For such requests related to a priority rated order, 
response should occur within 20 business days. For requests for 
adjustments to or exceptions from an allocation order, response should 
occur within 2 (two) business days. BIS believes that a deadline for 
responses to requests for exceptions or adjustments is appropriate to 
provide predictability in the priorities and allocations processes. In 
addition, because allocations, if used, would address national 
emergencies, BIS believes that a shorter deadline to respond in those 
instances is appropriate.
    Proposed Sec.  700.16, which incorporates language from Sec.  
700.81 of the existing regulations, sets forth the procedures for 
appealing to the Assistant Secretary for Export Administration for 
review of a decision regarding a request for an exception from or 
adjustment to a priority rated order or allocation order. Most of the 
language in proposed Sec.  700.16 is taken from language that appears 
in Sec.  700.81 of the existing regulations. However, Sec.  700.81 
provides no express procedure for appeals from a decision regarding a 
request for an exception from or adjustment to allocation orders. This 
rule would adopt the appeals procedures currently prescribed for 
requests for exceptions from, or adjustments to, priority rated orders 
to appeals from allocation orders with one exception. Appeals from 
allocation orders would have to be received in the Office of the 
Assistant Secretary for Export Administration within 5 (five) business 
days of the receipt of the decision by the party appealing that 
decision. The Assistant Secretary for Export Administration would have 
discretion to accept appeals after the 5 day deadline. For priority 
rated orders, the deadline would continue to be 45 calendar days. The 
proposed rule also would continue to give the Assistant Secretary 
discretion to accept appeals after that 45 day deadline, but would 
remove the phrase ``for good cause shown from the sentence authorizing 
such acceptances because the phrase adds nothing of substance to the 
sentence. Because BIS will issue allocation orders only during a 
national emergency, the urgent nature of the circumstance and its 
possible impact on industry make a five business day deadline for 
filing an appeal necessary.
    Language in proposed Sec.  700.17 ``Protection against claims'' is 
identical to the language that appears in existing Sec.  700.90 of 
Subpart L. BIS is proposing to move the language to Sec.  700.17 in 
Subpart B to emphasize the point that the protections in this section 
would apply equally to persons complying with official actions related 
to priorities and to allocations.

Subpart C

    Proposed Subpart C would address matters related to priorities and 
would be based largely on language currently in Subpart D and Subpart 
F. The proposed subpart would be titled ``Complying with Priority 
Ratings and Orders'' to reflect the subpart's narrower scope as 
compared to proposed Subpart B. However, as noted above, the language 
in Sec.  700.10, ``Delegation of Authority,'' and Sec.  700.16, 
``Changes or cancellations of priority ratings and rated orders,'' of 
the existing regulations would be modified, retitled, and moved to 
proposed Subpart B. BIS is proposing these changes because it believes 
that discussing matters related to priorities in the order set forth in 
this proposed rule is more logical and easier to follow than the order 
in which such matters are discussed in the existing rule.
    Proposed Sec.  700.21, ``Rated Orders,'' would reflect language 
that appears in existing Sec.  700.3 but would be revised and shortened 
to prevent redundancy with language provided in the proposed 
definitions section of Subpart A. The new title also distinguishes this 
section from proposed Sec.  700.11.
    Proposed Sec.  700.22, ``Elements of a rated order,'' includes 
language that appears in existing Sec.  700.12 but would include the 
phrase ``program identification symbol'' in proposed paragraph (a) to 
clarify what constitutes an official priority rating in accordance with 
Schedule 1. In addition, a new element setting forth language that 
should be included in those rated orders for emergency preparedness 
requirements for which expedited action is necessary and appropriate to 
meet such requirements, would be added. The language would identify the 
rated order as one for an emergency preparedness requirement and would 
specify that the order must be accepted or rejected within a specified 
number of workings days. When issuing the rated order, the rating 
agency would insert a number of working days ranging from one through 
fourteen as appropriate to the transaction. This section also would be 
reworded to clarify the text.
    Proposed Sec.  700.23, ``Use of rated orders,'' incorporates the 
text from existing Sec.  700.17. This proposed section would describe 
when and how a person would use a rated order. BIS would also 
incorporate language that appears in Sec.  700.17 of the existing 
regulations into proposed Sec.  700.23 to improve the organization of 
the proposed rule.
    Language in proposed Sec.  700.24, ``Limitations on placing rated 
orders,'' draws from the language that appears in existing Sec.  700.18 
but is modified to recognize that in some instances, other agencies' 
regulations would authorize the placement of rated orders. Existing 
Sec.  700.18 prohibits placing rated orders that are not authorized by 
``this regulation.'' BIS would recognize other agencies' authority by 
modifying the language in paragraph (a) of proposed Sec.  700.24 to 
state that rated orders issued pursuant to this part (i.e., 15 CFR part 
700) may not be used except as

[[Page 32125]]

authorized by this part. BIS is making this change because it does not 
intend to regulate conduct that is subject to the regulations of other 
agencies and not subject to regulations that are administered by BIS.
    In proposed Sec.  700.25, ``Acceptance and rejection of rated 
orders,'' the proposed rule would move the language that appears in 
Sec.  700.13 of the existing regulations, and modify it to specify the 
timeframes within which persons must accept or reject rated orders for 
emergency preparedness-related approved programs. This section was also 
revised by removing reference to the OMB control number because such 
reference is not needed in the regulatory text.
    The proposed rule would add language to proposed Sec.  700.25 to 
distinguish the time frame within which persons must respond to 
priority rated orders for certain emergency preparedness requirement 
orders from other rated orders. The recipient would be required to 
accept or reject rated orders that contain the deadline specific 
language set forth in proposed Sec.  700.22(b) within the time 
specified in the order. That time could be in the range of one through 
fourteen working days. The issuing agency would select the number of 
days according to the urgency of the situation for which the order is 
issued at the time of the order's issuance.
    The timeframe for acceptance or rejection of rated orders for all 
other approved programs remains fifteen days for DO programs and ten 
days for DX programs. BIS is proposing the shorter time limits in which 
the recipient must respond to a rated order issued in connection with 
an emergency preparedness program because such programs would involve 
disaster assistance, emergency response or similar activities. BIS 
believes that the exigent circumstances inherent in emergency 
preparedness related programs justify requiring a response time 
commensurate with the exigencies of the situation. In addition, a note 
would be added to alert the public that in some instances, for example 
certain emergency preparedness situations, a shorter time limit may be 
specified. The proposed note also alerts the public that priorities 
regulations issued by other Delegate Agencies may have shorter time 
limits than the time limits provided by BIS, and the recipient of a 
rated order must follow the regulations of the Delegate Agency issuing 
the rated order.
    The language in proposed Sec.  700.26 ``Preferential scheduling,'' 
proposed Sec.  700.27 ``Extension of priority ratings,'' and proposed 
Sec.  700.28 ``Metalworking machines,'' incorporates the language that 
appears in the existing regulations at Sec. Sec.  700.14, 700.15 and 
700.31 respectively. BIS is proposing to move the language of these 
sections to Subpart C because it believes placing the language 
governing priorities in a single subpart would make the regulations 
easier to understand and would clarify the organization of these 
regulations. The proposed sections retain much of the original language 
from those sections, but also have been amended to provide examples in 
some instances, and to make the processes described in each section 
clearer.

Subpart D

    Proposed Subpart D, ``Industrial Priorities for Energy Programs,'' 
describes the use of priority rating authority to support energy 
programs approved by the Department of Energy.
    Proposed Sec.  700.30, ``Use of priority ratings for energy 
programs'' and Sec.  700.31, ``Application for priority rating 
authority,'' would use text that appears in the existing regulations at 
Sec. Sec.  700.20 and 700.21, respectively. The phrase ``for energy 
programs'' would be added to the header of proposed Sec.  700.30 to 
describe accurately the scope of the text of that section. Proposed 
Sec.  700.31 would not contain language that appears in paragraphs (a) 
and (d) of Sec.  700.21 the exiting regulations. Paragraph 700.21(a) of 
the existing regulations describes a procedure and process used by the 
Department of Energy that is more appropriately addressed in that 
agency's regulations, and therefore this proposed rule would not 
include that discussion from regulations. Paragraph 700.21(d) of the 
existing regulations describes an internal BIS procedure that is not 
regulatory in nature and thus would not be included in the regulations. 
Apart from those changes, the text of proposed Subpart D is the same as 
the text of existing Sec. Sec.  700.20 and 700.21.

Subpart E

    Proposed Subpart E ``Special Priorities Assistance'' describes 
instances in which BIS would provide assistance in resolving matters 
related to priority rated contracts and orders. The text is taken from 
existing Subpart H with principle changes discussed below.
    Proposed Sec.  700.40 ``General provisions'' is based on existing 
Sec.  700.50, but has been modified to make it clearer and more 
succinct. Discussions unrelated to the special priorities assistance 
that BIS can provide would be eliminated as would a recitation of the 
OMB Paperwork Reduction Act control number for the form used to request 
assistance from BIS because they are unnecessary and detract from the 
main point of the section, which is to illustrate when and how BIS can 
provide special priorities assistance. Although special priorities 
assistance may be requested for any reason, three examples would be 
provided. These examples are based on BIS's experience and illustrate 
circumstances where BIS has been able to provide assistance in the 
past.
    In proposed Sec.  700.41 ``Request for priority rating authority'' 
is largely the same text that appears in Sec.  700.51 of the existing 
regulations, except that the statement in existing Sec.  
700.51(c)(3)(v), which states that BIS will consider the political 
sensitivity of the project in reviewing requests for rating authority 
in advance of a prime contract would not be included, because BIS would 
not consider that factor in deciding whether to grant rating authority.
    Proposed Sec.  700.42 and Sec.  700.43 reflect the same text that 
appears in existing Sec.  700.53 and Sec.  700.55 respectively, with 
one exception. In proposed Sec.  700.42 the word ``develop'' would 
replace the word ``effect'' that is currently in Sec.  700.53 to make 
that language clearer.
    In some instances, BIS can provide priorities assistance to persons 
located in foreign nations or to international organizations (e.g., 
NATO, United Nations agencies, etc.) seeking assistance in obtaining 
military and critical infrastructure items in the United States or 
priority rating authority for military and critical infrastructure 
items to be purchased in the United States. In addition, BIS can 
sometimes provide informal assistance to persons in the United States 
who are seeking assistance in obtaining items from foreign countries. 
In this proposed rule, BIS would expand the language describing this 
assistance pursuant to the changes specific to the new availability of 
critical infrastructure items to non-U.S. persons set forth in the 
DPAR, and for the purpose of clarification.
    This proposed rule would add a new section that specifically 
describes military assistance with respect to Canada (proposed Sec.  
700.44, ``Military assistance programs with Canada''), and would create 
another section describing such assistance with respect to other 
nations and international organizations (proposed Sec.  700.45, 
``Military assistance programs with other nations and international 
organizations''). Currently, information about military assistance with 
respect to all eligible foreign nations appears in Sec.  700.55 of the 
existing regulations, and that section does not mention international

[[Page 32126]]

organizations. BIS is proposing to create a new section that speaks to 
military assistance with respect to Canada because the Canadian 
Government has been authorized to place priority ratings in the United 
States to support approved defense programs without the endorsement of 
the U.S. Department of Defense (DOD). Persons in other foreign 
countries may place priority ratings in the United States if their 
requests for military assistance are sponsored by their government and 
have DOD approval and endorsement. BIS believes that this difference 
justifies creation of separate sections to address these procedures. In 
addition, because BIS has provided assistance to international 
organizations in the past, adding a reference to international 
organizations in proposed Sec.  700.45 merely codifies existing agency 
practice and does not represent a change in policy.
    In addition, this rule proposes to add new Sec.  700.45 that would 
add Finland to the list of nations that have bilateral security of 
supply arrangements with the U.S. Department of Defense, reflecting an 
agreement signed by the United States and Finland in October 2009. 
Proposed Sec.  700.45 would also make it clear that persons in 
countries that do not have bilateral security of supply arrangements 
with the U.S. Department of Defense (DOD) may still seek assistance in 
obtaining defense items in the United States or priority rating 
authority for defense items to be purchased in the United States.
    Proposed Sec.  700.46, ``Critical infrastructure assistance 
programs with other nations and international organizations,'' is also 
a new section that would describe how persons in foreign nations or 
international organizations may place priority ratings in the United 
States if their requests for critical infrastructure assistance are 
sponsored by their government or organization and have received the 
approval and endorsement of the U.S. Department of Homeland Security. 
The Department of Commerce is adding this section pursuant to the 
requirements of the DPAR, which include critical infrastructure 
protection and restoration assistance to foreign nations and 
international organizations.

Subpart F

    Proposed Subpart F ``Official Actions'' is taken largely from 
existing Subpart I of the same name. Proposed Sec. Sec.  700.50, 700.51 
and 700.52 employ the text of existing Sec. Sec.  700.60, 600.61 and 
700.63, respectively, without substantive change. The substance of 
existing Sec.  700.62 ``Directives'' has been amended to clarify that 
these directives are ``prioritization directives'' and has been 
incorporated into the definitions in proposed Sec.  700.3. These 
changes are being made to improve the clarity and flow of the 
regulations.

Subpart G

    Proposed Subpart G ``Allocations in a National Emergency'' contains 
mostly new material and would replace language in existing Subpart F. 
Proposed Subpart G would provide the public with detailed information 
on the procedures governing allocations actions. Allocations actions 
will likely be used in response to a national emergency.
    Proposed Sec.  700.61 describes allocations and when and how 
allocation orders would be used. Specifically, allocation orders would 
be used only if priorities authority would not provide a sufficient 
supply of material, services or facilities for national defense 
requirements, or when use of priorities authority would cause a severe 
and prolonged disruption in the supply of resources available to 
support normal U.S. economic activities. Allocation orders would not be 
used to ration materials or services at the retail level. Allocation 
orders would be distributed equitably among the suppliers of the 
resource(s) being allocated and would not require any person to 
relinquish a disproportionate share of the civilian market. BIS is 
proposing the standards set forth in proposed Sec.  700.60 because it 
believes that they provide reasonable assurance that allocation orders 
will be used only in situations were the circumstances justify such 
orders.
    Proposed Sec.  700.62 would provide that, in the event of a 
conflict between a priority order or prioritization directive and 
allocation order or allocation directive, the latter would take 
precedence. BIS is proposing this order of precedence because it 
believes that given the extreme and rare circumstances under which 
allocation orders would be issued as compared to the serious, but more 
frequently encountered circumstances under which priority orders are 
issued, it can reasonably predict that the justification for the 
allocation order will overcome any justification for any priority order 
that conflicts with the allocation order.
    Proposed Sec.  700.63 describes the three types of allocation 
orders that BIS might issue, which are a set-aside, an allocation 
directive, and an allotment. A set-aside is an official action that 
would require a person to reserve resource capacity in anticipation of 
receipt of rated orders. An allocation directive is an official action 
that would require a person to take or refrain from taking certain 
actions in accordance with its provisions (an allocation directive can 
require a person to stop or reduce production of an item, prohibit the 
use of selected items, divert supply of one type of product to another, 
or to supply a specific quantity, size, shape, and type of an item 
within a specific time period). An allotment is an official action that 
would specify the maximum quantity of an item authorized for use in a 
specific program or application. The text in proposed Sec.  700.63 is 
largely new. BIS is proposing these three types of allocation orders 
because it believes that, collectively they describe the types of 
actions that might be taken in any situation in which allocation is 
justified.
    Proposed Sec.  700.64 ``Elements of an allocation order,'' is a new 
section that sets forth the minimum elements of an allocation order. 
Those elements are:
    (a) A detailed description of the required allocation action(s);
    (b) Specific start and end calendar dates for each required 
allocation action;
    (c) The written signature on a manually placed order, or the 
digital signature or name on an electronically placed order, of the 
head of the Resource Agency placing the order. The signature or use of 
the name certifies that the order is authorized under the DPAS 
regulations and that the requirements of those regulation are being 
followed; and
    (d) A statement that reads in substance: ``This is an allocation 
order certified for national defense use. [Insert the legal name of the 
person receiving the order] is required to comply with this order, in 
accordance with the provisions of 15 CFR 700.''
    BIS is proposing these elements because it believes that they 
provide a proper balance between the need for standards to permit the 
public to recognize and understand an allocation order if one is 
issued, and the expectation that any actual allocation orders will have 
to be tailored to meet unforeseeable circumstances. The language of 
proposed Sec.  700.64 would not preclude BIS from including additional 
information in an allocation order if circumstances warrant doing so.
    Proposed Sec.  700.65 ``Mandatory acceptance of allocation orders'' 
would require that an allocation order must be accepted if a person is 
capable of fulfilling the order. This section also states that a person 
may not discriminate against an allocation order in any manner, such as 
by charging higher prices or imposing terms and conditions different 
than what the person imposed on contracts or orders

[[Page 32127]]

for the same resource(s) that were received prior to receiving the 
allocation order. This section also instructs the public on the 
procedures to follow to reject an allocation order, and refers the 
public to proposed Sec.  700.15 for information on how to seek 
adjustment of or exception to an allocation order. BIS is proposing 
Sec.  700.65 to make it clear to the public that the limited 
circumstances and emergency situations that trigger issuance of an 
allocation order require immediate response from the public in order to 
address the situation in an expedient fashion.
    Proposed Sec.  700.66 ``Changes or cancellations of allocation 
orders'' would provide notice that the Department of Commerce may 
modify or cancel an allocation order. BIS is proposing this language 
because it believes that the uncertain nature of the events attributed 
to allocation orders, and the need for flexibility in dealing with a 
national emergency, require that BIS be able to modify or cancel orders 
to address changing circumstances as they arise.

Subpart H

    Proposed Subpart H, ``Compliance,'' is taken largely from the 
language that appears in Subpart J of the existing regulations with 
little change. The language in existing Sec. Sec.  700.70, 700. 71, 
700.72, 700.73, 700.74 and 700.75 of Subpart J would appear in 
Sec. Sec.  700.70, 700.72, 700.73, 700.74, 700.75, and 700.76, 
respectively, in Subpart H. The term ``official actions'' would be 
removed from the text of this subpart. This term would be removed 
because its inclusion in the text suggested that official actions were 
something other than the activities set forth in part 700. 
Additionally, throughout Subpart H, references to ``related statutes'' 
would be removed from the phrase the ``Defense Production Act, the 
Selective Service Act and related statutes'' because the Defense 
Production Act and the Selective Service Act are the legal basis for 
BIS's administrative and enforcement activities set forth in the 
Defense Priorities and Allocations System regulations (15 CFR part 
700). The removal of the reference to unnamed ``related statutes'' does 
not impact BIS's authority or public understanding of the compliance 
requirement that Subpart H is intended to address. The language 
currently in Sec.  700.70(b) stating that persons who place rated 
orders should be familiar with and must comply with this regulation 
does not appear in proposed Sec.  700.70 because BIS believes that it 
is unnecessary either for public understanding of the rule or as a 
basis for enforcement.
    Proposed Sec.  700.71 reflects language that appears in Sec.  
700.91 ``Records and reports'' in Subpart L of the existing 
regulations. BIS believes that placing all compliance related 
previsions in a single subpart improves the organization of the DPAS. 
Additionally, the language in proposed Sec.  700.72 would be modified 
to clarify that personal service of a demand for information or 
inspection authorization may be made by leaving a copy of the document 
with a person who is at least eighteen years of age. The language that 
appears in Sec.  700.71 of the existing regulations provides that the 
person must be of ``suitable age and discretion.'' The Department of 
Commerce is proposing this change in conformity with the proposed rules 
of other agencies delegated authority under the DPA and in conformity 
with the language in existing Sec.  700.71(f)(3), which requires that a 
person receiving service of a demand for information or inspection 
authorization must be at least eighteen years of age.

Subpart I

    Proposed Subpart I ``Miscellaneous Provisions'' is taken largely 
from Subpart L of the existing regulations. The language in existing 
Sec. Sec.  700.92 and 700.93 would become Sec. Sec.  700.80 and 700.81, 
respectively. Language in proposed Sec.  700.80(c) would mirror the 
language that appears in Sec.  700.92(c) of the existing regulations 
but would include a reference to the Defense Priorities and Allocations 
System because the Defense Priorities and Allocations System superseded 
both the Materials System and the Defense Priorities System, in 1984. 
Language in proposed Sec.  700.80(d) would reflect the language that 
appears in Sec.  700.92(d) of the existing regulations but would 
reflect current terminology. Substantively, existing Sec.  700.92(d) 
provides that repeals of rules, orders, schedules and delegations of 
authority will not affect any penalty or liability incurred while such 
rules, orders, schedules and delegations of authority were in force. As 
previously noted, the language in Sec.  700.90 ``Protection against 
claims'' of the existing regulations would be moved to proposed Sec.  
700.17 in proposed Subpart B, and the language in Sec.  700.91 
``Records and Reports'' of the existing regulations would be moved to 
proposed Sec.  700.71 in proposed Subpart H to make the DPAS 
regulations more organized and easier to read. BIS is proposing the 
language in proposed Sec.  700.80(c) and (d) to state more precisely 
meaning that BIS has attributed to those two paragraphs for years.

Rulemaking Requirements

    1. This rule has been determined to be significant for purposes of 
Executive Order 12866.
    2. Notwithstanding any other provision of law, no person is 
required to respond to nor be subject to a penalty for failure to 
comply with a collection of information, subject to the requirements of 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), 
unless that collection of information displays a currently valid Office 
of Management and Budget (OMB) Control Number. This regulation contains 
two collections previously approved by OMB. OMB control number 0694-
0053 authorizes the requirement that recipient of rated orders notify 
the party placing the order whether or not they will fulfill the rated 
order. BIS believes that this rule will not materially change the 
burden imposed by this collection. OMB control number 0694-0057 
authorizes the collection of information that parties must send to BIS 
when seeking special priorities assistance or priority rating 
authority. BIS believes that this rule will not materially change the 
burden imposed by this collection. Send comments regarding this burden 
estimate or any other aspect of these collections of information, 
including suggestions for reducing the burden, to Jasmeet K. Seehra, 
Office of Management and Budget, by e-mail at jseehra@omb.eop.gov or by 
fax to (202) 395-7285 and to John Isbell, jisbell@bis.doc.gov.
    3. This rule does not contain policies with Federalism implications 
as that term is defined in Executive Order 13132.
    4. The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 
601 et seq., generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act (5 
U.S.C. 553) or any other statute, unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Under section 605(b) of the RFA, however, if 
the head of an agency certifies that a rule will not have a significant 
impact on a substantial number of small entities, the statute does not 
require the agency to prepare a regulatory flexibility analysis. 
Pursuant to section 605(b), the Acting Chief Counsel of Regulations,

[[Page 32128]]

Department of Commerce, certified to the Chief Counsel for Advocacy, 
Small Business Administration that this proposed rule, if promulgated, 
will not have a significant impact on a substantial number of small 
entities for the reasons explained below. Consequently, BIS has not 
prepared a regulatory flexibility analysis.

Number of Small Entities

    Small entities include small businesses, small organizations and 
small governmental jurisdictions. For purposes of assessing the impacts 
of this proposed rule on small entities, a small business, as described 
in the Small Business Administration's Table of Small Business Size 
Standards Matched to North American Industry Classification System 
Codes (August 2008 Edition), has a maximum annual revenue of $ 33.5 
million and a maximum of 1,500 employees (for some business categories, 
these number are lower). A small governmental jurisdiction is a 
government of a city, town, school district or special district with a 
population of less than 50,000. A small organization is any not-for-
profit enterprise which is independently owned and operated and is not 
dominant in its field.
    This rule sets criteria under which BIS (or agencies to which BIS 
delegates authority) will authorize prioritization of certain orders or 
contracts as well as criteria under which BIS would issue orders 
allocating resources or production facilities. Because the rule affects 
commercial transactions, BIS believes that small organizations and 
small governmental jurisdictions are unlikely to be affected by this 
rule. However, BIS has no basis on which to estimate the number of 
small businesses that are likely to be affected by this rule.

Impact

    BIS believes that any impact that this rule might have on small 
businesses would be minor. The rule has two principle components: 
prioritization and allocation. Prioritization is the process that is, 
by far, more likely to be used. Under prioritization, BIS designates 
certain orders, which may be placed by Government or by private 
entities, and assigned under one of two possible priority levels. Once 
so designated, such orders are referred to as ``rated orders.'' The 
recipient of a rated order must give it priority over an unrated order. 
The recipient of a rated order with the higher priority rating must 
give that order priority over any rated orders with the lower priority 
rating and over unrated orders. A recipient of a rated order may place 
two or more orders at the same priority level with suppliers and 
subcontractors for supplies and services necessary to fulfill the 
recipient's rated order and the suppliers and subcontractors must treat 
the request from the rated order recipient as a rated order with the 
same priority level as the original rated order. The rule does not 
require recipients to fulfill rated orders if the price or terms of 
sale are not consistent with the price or terms of sale of similar non-
rated orders. The rule provides a defense from any liability for 
damages or penalties for actions or inactions made in compliance with 
the rule.
    BIS expects that this rule will not result in any increase in the 
use of rated orders. The changes to the provisions of 15 CFR part 700 
that apply to rated orders are primarily simplifications and 
clarifications. The standards under which a rated order would be issued 
are not changed by this rule.
    Although rated orders could require a firm to fill one order prior 
to filling another, they would not require a reduction in the total 
volume of orders nor would they require the recipient to reduce prices 
or provide rated orders with more favorable terms than a similar non-
rated order. Under these circumstances, the economic effects on the 
rated order recipient of substituting one order for another are likely 
to be mutually offsetting, resulting in no net loss.
    Allocations could be used to control the general distribution of 
materials or services in the civilian market. Specific allocation 
actions that BIS might take are as follows:
    Set-aside: An official action that requires a person to reserve 
resource capacity in anticipation of receipt of rated orders.
    Allocation directive: An official action that requires a person to 
take or refrain from taking certain actions in accordance with its 
provisions. An allocation directive can require a person to stop or 
reduce production of an item, prohibit the use of selected items, or 
divert supply of one type of product to another, or to supply a 
specific quantity, size, shape, and type of an item within a specific 
time period.
    Allotment: An official action that specifies the maximum quantity 
of an item authorized for use in a specific program or application.
    BIS has not taken any actions under its existing allocations 
authority since the early 1950s (during the Korean conflict) and any 
future allocations actions would be used only in extraordinary 
circumstances. As required by section 101(b) of the Defense Production 
Act of 1950, as amended, (50 U.S.C. app. Sec.  2071), hereinafter 
``DPA,'' and by Section 201(d) of Executive Order 12919 of June 3, 
1994, as amended, BIS may implement allocations only if the Secretary 
of Commerce made, and the President approved, a finding ``(1) that the 
material [or service] is a scarce and critical material [or service] 
essential to the national defense, and (2) that the requirements of the 
national defense for such material [or service] cannot otherwise be met 
without creating a significant dislocation of the normal distribution 
of such material [or service] in the civilian market to such a degree 
as to create appreciable hardship.'' The term ``national defense'' is 
defined to mean ``programs for military and energy production or 
construction, military or critical infrastructure assistance to any 
foreign nation, homeland security, stockpiling, space, and any related 
activity. Such term includes emergency preparedness activities 
conducted pursuant to title IV of the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (42 U.S.C. 5195 et seq.) and 
critical infrastructure protection and restoration.''
    Any allocation actions taken by BIS would also have to comply with 
Section 701(e) of the DPA (50 U.S.C. app. 2151(e)), which provides that 
``small business concerns shall be accorded, to the extent practicable, 
a fair share of the such material [including services] in proportion to 
the share received by such business concerns under normal conditions, 
giving such special consideration as may be possible to emerging 
business concerns.''

Conclusion

    Although BIS cannot determine precisely the number of small 
entities that would be affected by this rule, BIS believes that the 
overall impact on such entities would not be significant. With respect 
to priorities authority, this rule is not likely to increase the number 
of priority rated contracts compared to the number being issued 
currently. In addition, in most instances, rated contracts would be in 
addition to other (unrated) contracts and not reduce the total amount 
of business of the firm that receives a rated contract.
    BIS's lack of experience with allocations makes gauging the impact 
of an allocation, should one occur, difficult. Because allocations can 
be imposed only after a determination by the President, and the fact 
that BIS has taken no allocations actions in more than fifty years, one 
can expect allocations will be a rare occurrence. However, BIS believes 
that the requirement for a Presidential

[[Page 32129]]

determination and the provisions of section 701 of the DPA provide 
reasonable assurance that any impact on small business will not be 
significant.
    Therefore, for the reasons set forth above, the Chief Counsel for 
Regulations at the Department of Commerce certified that this action 
would not have a significant impact on a substantial number of small 
entities.

List of Subjects in 15 CFR Part 700

    Administrative practice and procedure, Business and industry, 
Government contracts, National defense, Reporting and recordkeeping 
requirements, Strategic and critical materials.
    For the reasons stated in the preamble, 15 CFR part 700, is 
proposed to be revised as follows:

PART 700--[AMENDED]

    1. The authority citations paragraph for part 700 is revised to 
read as follows:

    Authority: 50 U.S.C. App. 2061, et seq.; 42 U.S.C. 5195, et 
seq.; 50 U.S.C. App 468; 10 U.S.C. 2538; 50 U.S.C. 82; E.O. 12919, 
59 FR 29525, 3 CFR, 1991 Comp. 901; E.O. 13286, 68 FR 10619, 3 CFR, 
2003 Comp. 166; E.O. 12742, 56 FR 1079, 3 CFR, 1991 Comp. 309; E.O. 
12656, 53 FR 226, 3 CFR, 1988, Comp. 585.

    2. Subpart A is revised to read as follows:
Subpart A--Purpose, Overview and Definitions.
Sec.
700.1 Purpose.
700.2 Overview.
700.3 Definitions.

Subpart A--Purpose, Overview and Definitions.

Sec.  700.1  Purpose.

    This part implements the Defense Priorities and Allocations System 
(DPAS) that is administered by the U.S. Department of Commerce, Bureau 
of Industry and Security. The DPAS implements the priorities and 
allocations authority of the Defense Production Act specific to 
industrial resources, including use of that authority to implement 
emergency preparedness activities pursuant to Title VI of the Stafford 
Act (Title VI (Emergency Preparedness) of the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act (42 U.S.C. 5195 et seq.), 
and the priorities authority of the Selective Service Act, all with 
respect to industrial resources. The DPAS ensures the timely 
availability of industrial resources for approved programs and provides 
an operating system to support rapid industrial response to a national 
emergency.

Sec.  700.2  Overview.

    (a) Certain national defense and energy programs (including 
emergency preparedness activities) are approved for priorities and 
allocations support. For example, military aircraft production, 
ammunition, and certain programs which maximize domestic energy 
supplies are ``approved programs.'' A complete list of currently 
approved programs is provided at Schedule I to this part.
    (b) The Department of Commerce administers the DPAS and may 
exercise priorities or allocation authority to ensure the timely 
delivery of industrial items to meet approved program requirements.
    (c) The Department of Commerce has delegated authority to place 
priority ratings on contracts or orders necessary or appropriate to 
promote the national defense to certain government agencies that issue 
such contracts or orders. Such delegations include authority to 
authorize recipients of rated orders to place ratings on contracts or 
orders to suppliers and subcontractors. Schedule I includes a list of 
agencies to which the Department of Commerce has delegated authority.

Sec.  700.3  Definitions.

    The definitions in this section apply to the entirety of this part 
unless otherwise stated in a specific definition.
    Allocation. The control of the distribution of materials, services 
or facilities for a purpose deemed necessary or appropriate to promote 
the national defense.
    Allocation Authority. The authority to allocate materials, 
facilities and services for use in approved programs.
    Allocation Directive. An official action that requires a person to 
take or refrain from taking certain actions in accordance with its 
provisions. An allocation directive can require a person to stop or 
reduce production of an item, prohibit the use of selected items, 
divert the supply of one type of product to another, or to supply a 
specific quantity, size, shape, and type of an item within a specific 
time period.
    Allocation Order. An official action to control the distribution of 
materials, services or facilities for a purpose deemed necessary or 
appropriate to promote the national defense.
    Allotment. An official action that specifies the maximum quantity 
of an item for specified use to promote the national defense.
    Approved Program. A program determined by the Secretary of Defense, 
the Secretary of Energy or the Secretary of Homeland Security as 
necessary or appropriate for priorities and allocations support to 
promote the national defense.
    Construction. The erection, addition, extension, or alteration of 
any building, structure, or project, using materials or products which 
are to be an integral and permanent part of the building, structure, or 
project. Construction does not include maintenance and repair.
    Critical Infrastructure. Any systems and assets, whether physical 
or cyber-based, so vital to the United States that the degradation or 
destruction of such systems and assets would have a debilitating impact 
on national security, including, but not limited to, national economic 
security and national public health or safety.
    Delegate Agency. A government agency authorized by delegation from 
the Department of Commerce to place priority ratings on contracts or 
orders for industrial resources needed to support approved programs.
    Defense Production Act. The Defense Production Act of 1950, as 
amended (50 U.S.C. App. 2061, et seq.), is the statute authorizing the 
President to require the priority performance of contracts and orders 
necessary or appropriate to promote the national defense over other 
contracts or orders and to require the allocation of materials, 
services, and facilities as necessary or appropriate to promote the 
national defense.
    Emergency Preparedness. All activities and measures designed or 
undertaken to prepare for or minimize the effects of a hazard upon the 
civilian population, to deal with the immediate emergency conditions 
which would be created by the hazard, and to effectuate emergency 
repairs to, or the emergency restoration of, vital utilities and 
facilities destroyed or damaged by the hazard.
    Industrial Resources. All materials, services, and facilities, 
including construction materials that are needed to establish or 
maintain an efficient and modern defense industrial capacity, the 
authority for which has not been delegated to other agencies under 
Executive Order 12919. This term also includes the term ``item'' as 
defined and used in this part.
    Item. Any raw, in process, or manufactured material, article, 
commodity, supply, equipment, component, accessory, part, assembly, or 
product of any kind, technical information, process, or service.
    MRO. Maintenance, repair and/or operating supplies as those three 
terms are defined in this section. However, MRO does not include items 
produced or obtained for sale to other persons or

[[Page 32130]]

for installation upon or attachment to the property of another person, 
or items required for the production of such items; items needed for 
the replacement of any plant, facility, or equipment; or items for the 
improvement of any plant, facility, or equipment by replacing items 
which are still in working condition with items of a new or different 
kind, quality, or design. The elements of MRO are defined as follows:
    (1) Maintenance is the upkeep necessary to continue any plant, 
facility, or equipment in working condition,
    (2) Operating supplies are any items carried as operating supplies 
according to a person's established accounting practice. Operating 
supplies may include hand tools and expendable tools, jigs, dies, 
fixtures used on production equipment, lubricants, cleaners, chemicals 
and other expendable items, and
    (3) Repair is the restoration of any plant, facility, or equipment 
to working condition when it has been rendered unsafe or unfit for 
service by wear and tear, damage, or failure of parts.
    National Defense. Programs for military and energy production or 
construction, military or critical infrastructure assistance to a 
foreign nation, homeland security, stockpiling, space, and any directly 
related activity. Such term includes emergency preparedness activities 
conducted pursuant to Title VI of The Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (42 U.S.C. 5195 et seq.) and 
critical infrastructure protection and restoration.
    Official action. An action taken by the Department of Commerce 
under the authority of the Defense Production Act, the Selective 
Service Act, and this part. Subparts B, F and H describe the official 
actions that may be taken by the Department of Commerce. Official 
actions include the issuance of set-asides, rating authorizations, 
allocation or prioritization directives, letters of understanding, 
demands for information, inspection authorizations, and administrative 
subpoenas.
    Person. Any individual, corporation, partnership, association, or 
any other organized group of persons, or legal successor or 
representative thereof; or any authorized State or local government or 
agency thereof; and for purposes of administration of this part, 
including the United States Government and any authorized foreign 
government or agency thereof, or international organization delegated 
authority as provided in this part.
    Priorities Authority. The authority of the Department of Commerce, 
pursuant to Section 101 of the Defense Production Act, to require 
priority performance of contracts and orders for industrial resource 
items for use in approved programs.
    Priority Rating. An identifying code assigned by a delegate agency 
or authorized person placed on all rated orders and consisting of the 
rating symbol and the program identification symbol. The Department of 
Commerce uses the priority rating DO and DX; with DX having priority 
over DO.
    Prioritization Directive. An official action which requires a 
person to take or refrain from taking certain actions in accordance 
with its provisions. A prioritization directive may require a person to 
satisfy a rated requirement within a specific time period.
    Production Equipment. Any item of capital equipment used in 
producing materials or furnishing services that has a unit acquisition 
cost of $2,500 or more and the potential for maintaining its integrity 
as a capital item in excess of one year.
    Program Identification Symbols. Abbreviations used to indicate 
which approved program is supported by a rated order. The list of 
approved programs and their identification symbols is found in Schedule 
I of this part. For example, A1 identifies defense aircraft programs 
and A7 signifies defense electronic programs. Program identification 
symbols, in themselves, do not connote any priority.
    Rated Order. A prime contract, a subcontract, or a purchase order 
in support of an approved program issued in accordance with the 
provisions of this part.
    Resource Agency. Any U.S. Government agency delegated priorities 
and allocations authority in Section 201 of Executive Order 12919.
    Selective Service Act. Section 18 of the Selective Service Act of 
1948 (50 U.S.C. app. 468), authorizes the President to place an order 
with a supplier for any articles or materials required for the 
exclusive use of the U.S. armed forces whenever the President 
determines that in the interest of national security, prompt delivery 
of the articles and materials is required. The supplier must give 
precedence to the order so as to deliver the articles or materials in a 
required time period.
    Set-Aside. An official action that requires a person to reserve 
resource capacity in anticipation of the receipt of rated orders.
    Short Supply Item. An item that is in short supply due to a sudden 
and substantial increase in demand or decrease in supply.
    Stafford Act. Title VI (Emergency Preparedness) of the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5195 
et seq.).
    3. Subpart B is revised to read as follows:
Subpart B--Industrial Priorities and Allocations
Sec.
700.10 Authority.
700.11 Priority ratings.
700.12 Prioritization directives and allocation orders.
700.13 Examples of emergency preparedness.
700.14 Changes to or cancellations of priority ratings, rated orders 
and allocation orders.
700.15 Adjustments or exceptions.
700.16 Appeals.
700.17 Protection against claims.

Subpart B--Industrial Priorities and Allocations

Sec.  700.10  Authority.

    (a) Delegations to the Department of Commerce. The priorities and 
allocations authorities of the President under Title I of the Defense 
Production Act with respect to industrial resources have been delegated 
to the Secretary of Commerce under Executive Order 12919 of June 3, 
1994 (59 FR 29525, 3 CFR, 1991 Comp., p. 901). The priorities 
authorities of the President under the Selective Service Act with 
respect to industrial resources have also been delegated to the 
Secretary of Commerce under Executive Order 12742 of January 8, 1991 
(56 FR 1079, 3 CFR 1991 Comp., p. 309).
    (b) Delegations by the Department of Commerce. In turn, the 
Department of Commerce has authorized the Delegate Agencies to assign 
priority ratings to orders for industrial resources needed for use in 
approved programs.
    (c) Jurisdiction limitations. (1) The priorities and allocations 
authority for certain items have been delegated under Executive Order 
12919, other executive orders, or Interagency Memoranda of 
Understanding between other agencies. Unless otherwise agreed to by the 
concerned agencies, the provisions of this part are not applicable to 
those other items which include:
    (i) Food resources, food resource facilities, and the domestic 
distribution of farm equipment and commercial fertilizer (delegated to 
the Department of Agriculture);
    (ii) All forms of energy (delegated to the Department of Energy);
    (iii) Health resources (delegated to the Department of Health and 
Human Services);
    (iv) All forms of civil transportation (delegated to the Department 
of Transportation); and

[[Page 32131]]

    (v) Water resources (delegated to the Department of Defense/U.S. 
Army Corps of Engineers).
    (2) The priorities and allocations authority set forth in this part 
may not be applied to communications services (delegated to the 
National Communications System under Executive Order 12472 of April 3, 
1984, 49 FR 13471, 3 CFR, 1985 Comp., p. 193).

Sec.  700.11  Priority ratings.

    (a) Levels of priority. (1) There are two levels of priority 
authorized by this subpart, identified by the rating symbols ``DO'' and 
``DX.''
    (2) All DO rated orders have equal priority with each other and 
take precedence over unrated orders. All DX rated orders have equal 
priority with each other and take precedence over DO rated orders and 
unrated orders. (For resolution of conflicts among rated orders of 
equal priority, see Sec.  700.12(c) of this part.)
    (3) In addition, a prioritization directive issued by the 
Department of Commerce takes precedence over any DX rated order, DO 
rated order or any unrated order, as stipulated in the prioritization 
directive. (For a full discussion of prioritization directives, see 
Sec.  700.12 of this part.)
    (b) Program identification symbols. The list of approved programs 
and their identification symbols are listed in Schedule I. For example, 
A1 identifies defense aircraft programs and A7 signifies defense 
electronic programs.

Sec.  700.12  Prioritization directives and allocation orders.

    (a) A person must comply with each prioritization directive issued. 
However, a person may not use or extend a prioritization directive to 
obtain any items from a supplier, unless expressly authorized to do so 
in the prioritization directive.
    (b) Prioritization directives take precedence over all DX rated 
orders, DO rated orders and unrated orders previously or subsequently 
received, unless a contrary instruction appears in the prioritization 
directive.
    (c) Allocation orders take precedence over prioritization 
directives, DX rated orders, DO rated orders and unrated orders 
previously or subsequently received, unless a contrary instruction 
appears in the allocation order.

Sec.  700.13  Examples of emergency preparedness.

    There are instances where emergency preparedness is a basis for 
issuance of a priority rating or allocation order. Emergency 
preparedness is defined in Sec.  700.3 of this part, and largely 
depends on the nature of the hazards encountered. Examples of hazards 
that relate to emergency preparedness include the following:
    (a) Measures to be undertaken for anticipated hazards (including 
the establishment of appropriate organizations, the conduct of 
research, the procurement and stockpiling of necessary materials and 
supplies, the provision of suitable warning systems, the construction 
or preparation of shelters, shelter areas, and control centers, and 
when appropriate, the nonmilitary evacuation of the civilian 
population);
    (b) Measures to be undertaken during a hazard (including the 
evacuation of personnel to shelter areas and the control and use of 
lighting and civil communications); and
    (c) Measures to be undertaken following a hazard (including 
activities for fire fighting, rescue, emergency medical, health and 
sanitation services, monitoring for specific dangers of special 
weapons, unexploded bomb reconnaissance, essential debris clearance, 
and immediately essential emergency repair or restoration of damaged 
vital facilities).

Sec.  700.14  Changes to or cancellations of priority ratings, rated 
orders and allocation orders.

    (a) The priority rating on a rated order may be changed or 
cancelled by:
    (1) An official action of, or an allocation order from, the 
Department of Commerce; or
    (2) Written notification from the person who placed the rated order 
(including a Delegate Agency).
    (b) If an unrated order is amended to make it a rated order, or if 
a DO rating is changed to a DX rating, the supplier must give the 
appropriate preferential treatment to the order as of the date the 
change is received by the supplier.
    (c) An amendment to a rated order that significantly alters a 
supplier's original production or delivery schedule shall constitute a 
new rated order as of the date of its receipt. The supplier must accept 
or reject the amended order according to the provisions of Sec.  700.24 
of this part.
    (d) The following amendments do not constitute a new rated order: A 
change in shipping destination; a reduction in the total amount of the 
order; an increase in the total amount of the order which has 
negligible impact upon deliveries; a minor variation in size or design 
(prior to the start of production); or a change which is agreed upon 
between the supplier and the customer.
    (e) If a person no longer needs items to fill a rated order, any 
rated orders placed with suppliers for the items, or the priority 
rating on those orders, must be cancelled.
    (f) When a priority rating is added to an unrated order, or when a 
priority rating is changed or cancelled, all suppliers must be promptly 
notified in writing by the person adding, changing or canceling the 
priority rating.
    (g) An allocation order may be changed by an official action of the 
Department of Commerce.

Sec.  700.15  Adjustments or exceptions.

    (a) A person may submit a request to the Office of Strategic 
Industries and Economic Security, U.S. Department of Commerce, for an 
adjustment or exception on the ground that:
    (1) A provision of this part or an official action results in an 
undue or exceptional hardship on that person not suffered generally by 
others in similar situations and circumstances; or
    (2) The consequence of following a provision of this part or an 
official action is contrary to the intent of the Defense Production 
Act, the Selective Service Act, or this part.
    (b) Each request for adjustment or exception must be in writing and 
contain a complete statement of all the facts and circumstances related 
to the provision of this part or official action for which adjustment 
or from which an exception is sought and a full and precise statement 
of the reasons why relief should be provided. Requests for adjustment 
or exception pursuant this section should be sent to: Office of 
Strategic Industries and Economic Security, Bureau of Industry and 
Security, U.S. Department of Commerce, Room 3876, 14th Street and 
Pennsylvania Avenue, NW., Washington, DC 20230, Ref: DPAS Adjustments; 
Fax: (202) 482-5650.
    (c) The submission of a request for adjustment or exception shall 
not relieve any person from the obligation of complying with the 
provision of this part or official action in question while the request 
is being considered unless such interim relief is granted in writing by 
the Office of Strategic Industries and Economic Security.
    (1) The Office of Strategic Industries and Economic Security shall 
respond to request for adjustment of or exceptions to priority orders 
within 20 (twenty) business days of the date of receipt.
    (2) The Office of Strategic Industries and Economic Security shall 
respond to request for adjustment of allocation orders or exceptions to 
within 2 (two) business days of receipt.

[[Page 32132]]

    (d) A decision of the Office of Strategic Industries and Economic 
Security under this section may be appealed to the Assistant Secretary 
for Export Administration, U.S. Department of Commerce in accordance 
with Sec.  700.16 of this part.

Sec.  700.16  Appeals.

    (a) Any person who has had a request for adjustment or exception 
denied by the Office of Strategic Industries and Economic Security 
under Sec.  700.15 of this part, may appeal to the Assistant Secretary 
for Export Administration, U.S. Department of Commerce, who shall 
review and reconsider the denial. Such appeals should be submitted to 
the Office of the Assistant Secretary for Export Administration, Bureau 
of Industry and Security, U.S. Department of Commerce, Room 3886, 
Washington, DC 20230, Ref: DPAS Appeals.
    (b) Appeals of denied requests of exceptions from or adjustments to 
priority orders must be received by the Assistant Secretary for Export 
Administration no later than 45 days after receipt of a written notice 
of denial from the Office of Strategic Industries and Economic 
Security. After this 45-day period, an appeal may be accepted at the 
discretion of the Assistant Secretary for Export Administration.
    (c) Appeals of denied requests of exception from or adjustment to 
allocation orders must be received by the Assistant Secretary for 
Export Administration no later than 5 business days after receipt of a 
written notice of denial from the Office of Strategic Industries and 
Economic Security. After this 5 day period, an appeal may be accepted 
at the discretion of the Assistant Secretary for Export Administration.
    (d) Each appeal must be in writing and contain a complete statement 
of all the facts and circumstances related to the action appealed from 
and a full and precise statement of the reasons the decision should be 
modified or reversed.
    (e) In addition to the written materials submitted in support of an 
appeal, an appellant may request, in writing, an opportunity for an 
informal hearing. This request may be granted or denied at the 
discretion of the Assistant Secretary for Export Administration.
    (f) When a hearing is granted, the Assistant Secretary for Export 
Administration may designate an employee of the Department of Commerce 
to conduct the hearing and to prepare a report. The hearing officer 
shall determine all procedural questions and impose such time or other 
limitations deemed reasonable. In the event that the hearing officer 
decides that a printed transcript is necessary, all expenses shall be 
borne by the appellant.
    (g) When determining an appeal, the Assistant Secretary for Export 
Administration may consider all information submitted during the appeal 
as well as any recommendations, reports, or other relevant information 
and documents available to the Department of Commerce, or consult with 
any other persons or groups.
    (h) The submission of an appeal under this section shall not 
relieve any person from the obligation of complying with the provision 
of this part or official action in question while the appeal is being 
considered, unless such relief is granted in writing by the Assistant 
Secretary for Export Administration.
    (i) The decision of the Assistant Secretary for Export 
Administration shall be made within a reasonable time after receipt of 
the appeal and shall be the final administrative action. It shall be 
issued to the appellant in writing with a statement of the reasons for 
the decision.

Sec.  700.17  Protection against claims.

    A person shall not be held liable for damages or penalties for any 
act or failure to act resulting directly or indirectly from compliance 
with any provision of this part, or an official action, notwithstanding 
that such provision or action shall subsequently be declared invalid by 
judicial or other competent authority.
    4. Subpart C is revised to read as follows:
Subpart C--Complying With Priority Ratings and Orders.
Sec.
700.21 Rated orders.
700.22 Elements of a rated order.
700.23 Use of rated orders.
700.24 Limitations on placing rated orders.
700.25 Acceptance and rejection of rated orders.
700.26 Preferential scheduling.
700.27 Extension of priority ratings.
700.28 Metalworking machines.

Subpart C--Complying With Priority Ratings and Orders.

Sec.  700.21  Rated orders.

    (a) Rated orders are identified by a priority rating and a program 
identification symbol. Rated orders take precedence over all unrated 
orders as necessary to meet required delivery dates. Among rated 
orders, DX rated orders take precedence over DO rated orders. Program 
identification symbols indicate which approved program is attributed to 
the rated order.
    (b) Persons receiving rated orders must give them preferential 
treatment as required by this part.
    (c) All rated orders must be scheduled, to the extent possible, in 
a manner to ensure delivery by the required delivery date.
    (d) Persons who receive rated orders must in turn place rated 
orders with their suppliers for the items they need to fill the orders. 
This provision ensures that suppliers will give priority treatment to 
rated orders throughout the procurement chain.
    (e) Persons may place a priority rating on orders only when they 
are in receipt of a rated order, have been explicitly authorized to do 
so by the Department of Commerce or a Delegate Agency, or are otherwise 
permitted to do so by this part.

Sec.  700.22  Elements of a rated order.

    (a) Elements required for all rated orders. Each rated order must 
include:
    (1) The appropriate priority rating and program identification 
symbol (e.g., DO-A1, DX-A4, DO-H1);
    (2) A required delivery date or dates. The words ``immediately'' or 
``as soon as possible'' do not constitute a delivery date. When a 
``requirements contract,'' ``basic ordering agreement,'' ``prime vendor 
contract,'' or similar procurement document bearing a priority rating 
contains no specific delivery date or dates, but provides for the 
furnishing of items from time-to-time or within a stated period against 
specific purchase orders, such as ``calls,'' ``requisitions,'' and 
``delivery orders,'' the purchase orders supporting such contracts or 
agreements must specify a required delivery date or dates and are to be 
considered as rated as of the date of their receipt by the supplier and 
not as of the date of the original procurement document;
    (3) The written signature on a manually placed order, or the 
digital signature or name on an electronically placed order, of an 
individual authorized to sign rated orders for the person placing the 
order. The signature, manual or digital, certifies that the rated order 
is authorized under this part and that the requirements of this part 
are being followed; and
    (4) A statement that reads in substance:

This is a rated order certified for national defense use and you are 
required to follow all the provisions of the Defense Priorities and 
Allocations System regulation in the execution of this rated order 
(15 CFR part 700).

    (b) If the rated order is placed in support of emergency 
preparedness requirements and expedited action is

[[Page 32133]]

necessary and appropriate to meet these requirements, the following 
sentences should be added following the statement set forth in 
paragraph (a)(4) of this section: ``This rated order is placed for the 
purpose of emergency preparedness. It must be accepted or rejected 
within (the rating agency will insert a time frame in the range of one 
through fourteen working days) working days in accordance with Section 
700.25(d)(3) of the Defense Priorities and Allocations System 
regulation (15 CFR part 700).''

Sec.  700.23  Use of rated orders.

    (a) Use of rated orders. A person may use rated orders to obtain:
    (1) Items which will be physically incorporated into other items to 
fill rated orders, including that portion of such items normally 
consumed, or converted into scrap or by-products, in the course of 
processing;
    (2) Containers or other packaging materials required to make 
delivery of the finished items against rated orders;
    (3) Services, other than contracts of employment, needed to fill 
rated orders; and
    (4) MRO needed to produce the finished items to fill rated orders. 
However, for MRO, the priority rating used must contain the program 
identification symbol H7 in addition to the rating symbol contained on 
the customer's rated order. For example, a person in receipt of a DO-A3 
rated order who needs MRO would place a DO-H7 rated order with the 
person's supplier.
    (b) Use of rated orders to replace inventoried items. A person may 
use a rated order to replace inventoried items (including finished 
items) if such items were used to fill rated orders, as follows:
    (1) The order must be placed within 90 days of the date of use of 
the inventory.
    (2) A DO rating symbol and the program identification symbol 
indicated on the customer's rated order must be used on the order. A DX 
rating symbol may not be used even if the inventory was used to fill a 
DX rated order.
    (3) If the priority ratings on rated orders from one customer or 
several customers contain different program identification symbols, the 
rated orders may be combined. In this case, the program identification 
symbol H1 must be used (i.e., DO-H1).
    (c) Combining rated orders. A person may combine DX and DO rated 
orders from one customer or several customers if the items covered by 
each level of priority are identified separately and clearly. If 
different program identification symbols are indicated on those rated 
orders of equal priority, the person must use the program 
identification symbol H1 (i.e., DO-H1 or DX-H1).
    (d) Combining rated and unrated orders. (1) A person may combine 
rated and unrated order quantities on one purchase order provided that:
    (i) The rated quantities are separately and clearly identified; and
    (ii) The four elements of a rated order, as required by Sec.  
700.22 of this part, are included on the order with the statement 
required in Sec.  700.22(d) of this part modified to read in substance:
    ``This purchase order contains rated order quantities certified for 
national defense use, and you are required to follow all the provisions 
of the Defense Priorities and Allocations System regulation (15 CFR 
part 700) as it pertains to the rated quantities.''
    (2) A supplier must accept or reject the rated portion of the 
purchase order as provided in Sec.  700.21 of this part and give 
preferential treatment only to the rated quantities as required by this 
part. This part may not be used to give preferential treatment to the 
unrated portion of the order.
    (3) Any supplier who believes that rated and unrated orders are 
being combined in a manner contrary to the intent of this part or in a 
fashion that causes undue or exceptional hardship may submit a request 
for adjustment or exception under Sec.  700.15 of this part.
    (e) Rated orders and minimum commercially procurable quantities. A 
person may place a rated order for the minimum commercially procurable 
quantity even if the quantity needed to fill a rated order is less than 
that minimum. However, a person must combine rated orders as provided 
in paragraph (c) of this section, if possible, to obtain minimum 
procurable quantities.
    (f) Federal Acquisition Regulation. A person is not required to 
place a priority rating on an order for less than $50,000, or one-half 
Simplified Acquisition Threshold (as established in the Federal 
Acquisition Regulation (FAR) (48 CFR chapter 1), see FAR 2.101 or in 
other authorized acquisition regulatory or management systems) 
whichever amount is greater, provided that delivery can be obtained in 
a timely fashion without the use of the priority rating.

Sec.  700.24  Limitations on placing rated orders.

    (a) General limitations. (1) A person may not place a rated order 
pursuant to this part unless entitled to do so under the provisions of 
this part.
    (2) Rated orders may not be used to obtain:
    (i) Delivery on a date earlier than needed;
    (ii) A greater quantity of the item than needed, except to obtain a 
minimum procurable quantity. Separate rated orders may not be placed 
solely for obtaining minimum procurable quantities on each order if the 
minimum procurable quantity would be sufficient for all of the rated 
orders if combined.
    (iii) Items in advance of the receipt of a rated order, except as 
specifically authorized by the Department of Commerce (see Sec.  
700.41(c) for information on obtaining authorization for a priority 
rating in advance of a rated order); or
    (iv) Any of the following items unless specific priority rating 
authority has been obtained from a Delegate Agency or the Department of 
Commerce:
    (A) Items for plant improvement, expansion or construction, unless 
they will be physically incorporated into a construction project 
covered by a rated order; and
    (B) Production or construction equipment or items to be used for 
the manufacture of production equipment (for information on requesting 
priority rating authority, see Sec.  700.41 of this part).
    (v) Any items related to the development of chemical or biological 
warfare capabilities or the production of chemical or biological 
weapons, unless such development or production has been authorized by 
the President or the Secretary of Defense.
    (b) Limitations on Use of Ratings. Rated orders may not be placed 
on the following items under the jurisdiction of the Department of 
Commerce; however, these items must be supplied if request is pursuant 
to an allocation directive described under Subpart G. These excluded 
items are:
    (1) Copper raw materials.
    (2) Crushed stone.
    (3) Gravel.
    (4) Sand.
    (5) Scrap.
    (6) Slag.
    (7) Steam heat, central.
    (8) Waste paper.

Sec.  700.25  Acceptance and rejection of rated orders.

    (a) Mandatory acceptance. (1) Except as otherwise specified in this 
section, a person capable of fulfilling a rated order shall accept 
every rated order received and must fill such orders in due 
consideration of any other rated order, and regardless of unrated 
orders that have been accepted.
    (2) A person shall not discriminate against rated orders in any 
manner such

[[Page 32134]]

as by charging higher prices or by imposing different terms and 
conditions than are imposed for comparable unrated orders.
    (b) Mandatory rejection. Unless otherwise directed by the 
Department of Commerce:
    (1) A person shall not accept a rated order for delivery on a 
specific date if unable to fill the order by that date. However, the 
person must inform the customer of the earliest date on which delivery 
can be made and offer to accept the order on the basis of that date. 
Scheduling conflicts with previously accepted lower rated or unrated 
orders are not sufficient reason for rejection under this section.
    (2) A person shall not accept a DO rated order for delivery on a 
date which would interfere with delivery of any previously accepted DO 
or DX rated orders. However, the person must offer to accept the order 
based on the earliest delivery date otherwise possible.
    (3) A person shall not accept a DX rated order for delivery on a 
date which would interfere with delivery of any previously accepted DX 
rated orders, but must offer to accept the order based on the earliest 
delivery date otherwise possible.
    (4) If a person is unable to fill all the rated orders of equal 
priority status received on the same day, the person must accept, based 
upon the earliest delivery dates, only those orders which can be 
filled, and reject the other orders. For example, a person must accept 
order A requiring delivery on December 15 before accepting order B 
requiring delivery on December 31. However, the person must offer to 
accept the rejected orders based on the earliest delivery dates 
otherwise possible.
    (c) Optional rejection. Unless otherwise directed by the Department 
of Commerce, rated orders may be rejected in any of the following cases 
as long as a supplier does not discriminate among customers:
    (1) If the person placing the order is unwilling or unable to meet 
regularly established terms of sale or payment;
    (2) If the order is for an item not supplied or for a service not 
performed;
    (3) If the order is for an item produced, acquired, or provided 
only for the supplier's own use for which no orders have been filled 
for two years prior to the date of receipt of the rated order. If, 
however, a supplier has sold some of these items, the supplier is 
obligated to accept rated orders up to that quantity or portion of 
production, whichever is greater, sold within the past two years;
    (4) If the person placing the rated order, other than the U.S. 
Government, makes the item or performs the service being ordered;
    (5) If acceptance of a rated order or performance against a rated 
order would violate any other regulation, official action, or order of 
the Department of Commerce issued under the authority of the Defense 
Production Act or the Selective Service Act (see Sec.  700.76 of this 
part).
    (d) Customer notification requirements. (1) A person must accept or 
reject a rated order for all approved programs and, except as provided 
in paragraph (d)(2) of this section, must transmit the acceptance or 
rejection in writing (hard copy), or in electronic format, within 
fifteen (15) working days after receipt of a DO rated order and within 
ten (10) working days after receipt of a DX rated order.
    (2) For rated orders involving emergency preparedness requirements 
and containing the language specified in Sec.  700.22(b) of this part, 
notification of acceptance or rejection must be transmitted in writing 
or electronically within the time specified in the rated order.

    Note to Paragraph (d)(2): There may be certain instances, 
including, for example, the emergency preparedness requirements 
listed in Sec.  700.13 of this part, where a shorter time period for 
acceptance or rejection of the rated order may apply. The time 
period for acceptance and rejection of rated orders is dictated by 
the regulations of the Delegate Agency issuing the rating. The 
contract or the contracting official should identify which agency 
has issued the rated order and provide reference to the regulations 
that apply to that rated order.

    (3) If the rated order is rejected, the person must provide reasons 
in writing (hard copy) or electronically for the rejection.
    (4) If a person has accepted a rated order and subsequently finds 
that shipment or performance will be delayed, the person must notify 
the customer immediately, give the reasons for the delay, and advise of 
a new shipment or performance date. If notification is given verbally, 
written (hard copy) or electronic confirmation must be provided within 
five (5) working days of the verbal notice.

Sec.  700.26  Preferential scheduling.

    (a) Scheduling requirement, modification of non-rated order 
delivery dates. A person must schedule operations, including the 
acquisition of all needed production items, in a timely manner to 
satisfy the delivery requirements of each rated order. Modifying 
production or delivery schedules for other orders is necessary only 
when required delivery dates for rated orders cannot otherwise be met.
    (b) Precedence of orders. DO and DX rated orders must be given 
production precedence over unrated orders, if necessary to meet 
required delivery dates, even if this requires the diversion of items 
being processed or ready for delivery against unrated orders. 
Similarly, DX rated orders must be given precedence over DO rated 
orders and unrated orders.

    Examples: If a person receives a DO rated order with a delivery 
date of June 3 and if meeting that date would mean delaying 
production or delivery of an item for an unrated order, the unrated 
order must be delayed. If a DX rated order is received calling for 
delivery on July 15 and a person has a DO rated order requiring 
delivery on June 2 and business operations can be scheduled to meet 
both deliveries, there is no need to alter production schedules to 
give any additional preference to the DX rated order. However, if 
business operations cannot be altered to meet both the June 3 and 
July 15 delivery dates, then the DX rated order must be given 
priority over the DO rated order.

    (c) Conflicting rated orders. (1) If a person finds that delivery 
or performance against any accepted rated orders conflicts with the 
delivery or performance against other accepted rated orders of equal 
priority status, the person shall give precedence to the conflicting 
orders in the sequence in which they are to be delivered or performed 
(not to the receipt dates). If the conflicting rated orders are 
scheduled to be delivered or performed on the same day, the person 
shall give precedence to those orders which have the earliest receipt 
dates.
    (2) If a person is unable to resolve rated order delivery or 
performance conflicts under this section, the person should promptly 
seek special priorities assistance as provided in Subpart E of this 
part. If a customer placing a rated order objects to the rescheduling 
of delivery or performance of a rated order, the customer should 
promptly seek special priorities assistance as provided in Subpart E of 
this part. For any rated order against which delivery or performance 
will be delayed, the person must notify the customer as provided in 
Sec.  700.24(d)(3) of this part.
    (d) Use of inventoried items to fill rated orders. If a person is 
unable to purchase needed production items in time to fill a rated 
order by its required delivery date, the person must fill the rated 
order by using inventoried production items. A person who uses 
inventoried items to fill a rated order may replace those items with 
the use of the rated order as provided in Sec.  700.23(b) of this part.

[[Page 32135]]

Sec.  700.27  Extension of priority ratings.

    (a) A person must use rated orders with suppliers to obtain items 
needed to fill a rated order. The person must use the priority rating 
indicated on the customer's rated order, except as otherwise provided 
in this part or as directed by the Department of Commerce. For example, 
if a person is in receipt of a DO-A3 rated order for a navigation 
system and needs to purchase semiconductors for its manufacture, that 
person must use a DO-A3 rated order to obtain the needed 
semiconductors.
    (b) The priority rating must be included on each successive order 
placed to obtain items needed to fill a customer's rated order. 
Therefore, the inclusion of the rated order will continue from 
contractor to subcontractor to supplier throughout the entire 
procurement chain.

Sec.  700.28  Metalworking machines.

    (a) ``Metalworking machines'' include power driven, manual or 
automatic, metal cutting and metal forming machines and complete 
machines not supported in the hands of an operator when in use. Basic 
machines with a list price of $2,500 or less are not covered by this 
section.
    (b) Metalworking machines covered by this section include:
    (1) Bending and forming machines.
    (2) Boring machines.
    (3) Broaching machines.
    (4) Drilling and tapping machines.
    (5) Electrical discharge, ultrasonic and chemical erosion machines.
    (6) Forging machinery and hammers.
    (7) Gear cutting and finishing machines.
    (8) Grinding machines.
    (9) Hydraulic and pneumatic presses, power driven.
    (10) Machining centers and way-type machines.
    (11) Manual presses.
    (12) Mechanical presses, power driven.
    (13) Milling machines.
    (14) Miscellaneous machine tools.
    (15) Miscellaneous secondary metal forming and cutting machines.
    (16) Planers and shapers.
    (17) Polishing, lapping, boring, and finishing machines.
    (18) Punching and shearing machines.
    (19) Riveting machines.
    (20) Saws and filing machines.
    (21) Turning machines, lathes, including automatic.
    (22) Wire and metal ribbon forming machines.
    (c) A metalworking machine producer is not required to accept DO or 
DX rated orders calling for delivery in any month of a total quantity 
of any size of machine in excess of 60 percent of scheduled production 
of that size of machine for that month, or any DO or DX rated orders 
received less than three months prior to the beginning of the month for 
which delivery is requested. However, DX and DO rated orders must be 
accepted without regard to a set-aside or the lead time, if delivery 
can be made by the required date.
    5. Subpart D is revised to read as follows:
Subpart D--Industrial Priorities for Energy Programs
Sec.
700.30 Use of priority ratings for energy programs.
700.31 Application for priority rating authority.

Subpart D--Industrial Priorities for Energy Programs

Sec.  700.30  Use of priority ratings for energy programs.

    (a) Section 101(c) of the Defense Production Act authorizes the use 
of priority ratings for projects which maximize domestic energy 
supplies.
    (b) Projects which maximize domestic energy supplies include those 
which maintain or further domestic energy exploration, production, 
refining, and transportation; maintain or further the conservation of 
energy; or are involved in the construction or maintenance of energy 
facilities.

Sec.  700.31  Application for priority rating authority.

    (a) For projects believed to maximize domestic energy supplies, a 
person may request priority rating authority for scarce, critical, and 
essential supplies of materials, equipment, and services (related to 
the production of materials or equipment, or the installation, repair, 
or maintenance of equipment) by submitting a request to the Department 
of Energy. Further information may be obtained from the U.S. Department 
of Energy, Office of Electricity Delivery and Energy Reliability, 1000 
Independence Avenue, SW., Washington, DC 20585.
    (b) If the Department of Energy notifies the Department of Commerce 
that the project maximizes domestic energy supplies and that the 
materials, equipment, or services are critical and essential, the 
Department of Commerce must make two findings; whether the items in 
question are scarce, and whether there is a need to use the priorities 
authority.
    (1) Scarcity implies an unusual difficulty in obtaining the 
materials, equipment, or services in a timeframe consistent with the 
timely completion of the energy project. Among the factors to be used 
in making the scarcity finding will be the following:
    (i) Value and volume of material or equipment shipments;
    (ii) Consumption of material and equipment;
    (iii) Volume and market trends of imports and exports;
    (iv) Domestic and foreign sources of supply;
    (v) Normal levels of inventories;
    (vi) Rates of capacity utilization;
    (vii) Volume of new orders; and
    (viii) Lead times for new orders.
    (2) In finding whether there is a need to use the priorities 
authority, the Department of Commerce will consider alternative supply 
solutions and other measures.
    (c) After the Department of Commerce has conducted its analysis, it 
will advise the Department of Energy whether the two findings have been 
satisfied. If the findings are satisfied, the Department of Commerce 
will authorize the Department of Energy to grant the use of a priority 
rating to the applicant.
    (d) Schedule I includes a list of approved programs to support the 
maximization of domestic energy supplies. A Department of Energy 
regulation setting forth the procedures and criteria used by the 
Department of Energy in making its determination and findings is 
published in 10 CFR part 216.
    6. Subpart E is revised to read as follows:
Subpart E--Special Priorities Assistance
Sec.
700.40 General provisions.
700.41 Requests for priority rating authority.
700.42 Criteria for assistance.
700.43 Instances where assistance will not be provided.
700.44 Military Assistance programs with Canada.
700.45 Military Assistance programs with other nations and 
international organizations.
700.46 Critical Infrastructure Assistance programs with other 
nations and international organizations.

Subpart E--Special Priorities Assistance

Sec.  700.40  General provisions.

    (a) To resolve problems or conflicts that may arise in the 
execution of priorities and allocations authorities, the Department of 
Commerce may exercise its authority to provide special priorities 
assistance to resolve such problems or conflicts. The Department of 
Commerce can provide special priorities assistance for any reason in

[[Page 32136]]

support of this part, such as assisting in obtaining timely deliveries 
of items needed to satisfy rated orders or authorizing the use of 
priority ratings on orders to obtain items not automatically ratable 
under this part.
    (1) Examples of Special Priorities Assistance Requests. Special 
priorities assistance requests may be made for a variety of reasons 
including:
    (i) A person may request special priorities assistance to obtain 
priority rating authority for an item from a U.S. supplier in support 
of an approved program to ensure timely delivery ahead of unrated 
orders;
    (ii) A person may request special priorities assistance to obtain 
priority rating authority for an item to ensure timely delivery when 
there are one or more rated orders for the same item; or
    (iii) A person may request special priorities assistance when a 
U.S. supplier is unable to ensure the timely delivery of a rated order 
due to the production schedules of other rated orders.
    (2) Assistance for persons executing priority ratings or orders. 
Persons executing priority ratings or orders may apply directly to the 
Department of Commerce for special priorities assistance.
    (b) In the event a problem arises in the fulfillment of a rated 
order or other action authorized by a Delegate Agency, a person should 
immediately contact the appropriate contract administration officer for 
guidance or assistance. In turn, the contract administration officer 
should request assistance from that Delegate Agency to resolve the 
problem. If the Delegate Agency is unable to resolve the problem, then 
the Delegate Agency may instruct the contract administration officer to 
request special priorities assistance from the Department of Commerce.
    (c) The Department of Commerce makes the following types of special 
priorities assistance available: Priority rating authority; ensuring 
that rated orders receive preferential treatment by suppliers; 
resolution of production or delivery conflicts between various rated 
orders; assistance in placing rated orders with suppliers; verification 
of the urgency of rated orders; and determination of the validity of 
rated orders.
    (d) A request for special priorities assistance or priority rating 
authority must be submitted on Form BIS-999 to the local contract 
administration representative. Form BIS-999 may be obtained from the 
Delegate Agency representative or from the Department of Commerce. A 
sample Form BIS-999 is attached at Appendix I.

Sec.  700.41  Requests for priority rating authority.

    (a) Reason for request. If a rated order is likely to be delayed 
because a person is unable to obtain items not normally rated under 
this part, the person may request the authority to use a priority 
rating in ordering the needed items. Examples of items for which 
priority ratings can be authorized include:
    (1) Production or construction equipment;
    (2) Computers when not used as production items; and
    (3) Expansion, rebuilding or replacing plant facilities.
    (b) Rating authority for production or construction equipment. (1) 
A request for priority rating authority for production or construction 
equipment must be submitted to the appropriate Delegate Agency. The 
Delegate Agency may establish particular forms to be used for these 
requests (e.g., Department of Defense Form DD 691.).
    (2) When the use of a priority rating is authorized for the 
procurement of production or construction equipment, a rated order may 
be used either to purchase or to lease such equipment. However, in the 
latter case, the equipment may be leased only from a person engaged in 
the business of leasing such equipment or from a person willing to 
lease rather than sell.
    (c) Rating authority in advance of a rated prime contract. (1) In 
certain cases and upon specific request, the Department of Commerce, in 
order to promote the national defense, may authorize a person to place 
a priority rating on an order to a supplier in advance of the issuance 
of a rated prime contract. In these instances, the person requesting 
advance rating authority must obtain sponsorship of the request from 
the appropriate Delegate Agency. The person shall also assume any 
business risk associated with the placing of rated orders if these 
orders have to be cancelled in the event the rated prime contract is 
not issued.
    (2) The person must state the following in the request:

    It is understood that the authorization of a priority rating in 
advance of our receiving a rated prime contract from a Delegate 
Agency and our use of that priority rating with our suppliers in no 
way commits the Delegate Agency, the Department of Commerce or any 
other government agency to enter into a contract or order or to 
expend funds. Further, we understand that the Federal Government 
shall not be liable for any cancellation charges, termination costs, 
or other damages that may accrue if a rated prime contract is not 
eventually placed and, as a result, we must subsequently cancel 
orders placed with the use of the priority rating authorized as a 
result of this request.

    (3) In reviewing requests for rating authority in advance of a 
rated prime contract, the Department of Commerce will consider, among 
other things, the following criteria:
    (i) The probability that the prime contract will be awarded;
    (ii) The impact of the resulting rated orders on suppliers and on 
other authorized programs;
    (iii) Whether the contractor is the sole source;
    (iv) Whether the item being produced has a long lead time; and
    (v) The time period for which the rating is being requested.
    (4) The Department of Commerce may require periodic reports on the 
use of the rating authority granted under paragraph (c) of this 
section.
    (5) If a rated prime contract is not issued, the person shall 
promptly notify all suppliers who have received rated orders pursuant 
to the advanced rating authority that the priority rating on those 
orders has been cancelled.

Sec.  700.42  Criteria for assistance.

    Requests for special priorities assistance should be timely, i.e., 
the request must be submitted promptly and with enough time for the 
Delegate Agency or the Department of Commerce to develop a meaningful 
resolution to the problem, and must establish that:
    (a) There is an urgent need for the item; and
    (b) The applicant has made a reasonable effort to resolve the 
problem.

Sec.  700.43  Instances where assistance will not be provided.

    Special priorities assistance is provided at the discretion of the 
Department of Commerce when it is determined that such assistance is 
warranted to meet the objectives of this part. Examples where 
assistance may not be provided include situations when a person is 
attempting to:
    (a) Secure a price advantage;
    (b) Obtain delivery prior to the time required to fill a rated 
order;
    (c) Gain competitive advantage;
    (d) Disrupt an industry apportionment program in a manner designed 
to provide a person with an unwarranted share of scarce items; or
    (e) Overcome a supplier's regularly established terms of sale or 
conditions of doing business.

Sec.  700.44  Military Assistance programs with Canada.

    To promote military assistance to Canada, this section provides for 
authorizing priority ratings to persons in Canada to obtain items in 
the United States in support of approved programs.

[[Page 32137]]

Although priority ratings have no legal authority outside of the United 
States, this section also provides information on how persons in the 
United States may obtain informal assistance in Canada in support of 
approved programs.
    (a) The joint United States-Canadian military arrangements for the 
defense of North America and the integrated nature of United States and 
Canadian their defense industries require close coordination and the 
establishment of a means to provide mutual assistance to the defense 
industries located in both countries.
    (b) The Department of Commerce coordinates with the Canadian Public 
Works and Government Services Canada on all matters of mutual concern 
relating to the administration of this part.
    (c) Any person in the United States ordering defense items in 
Canada in support of an approved program should inform the Canadian 
supplier that the items being ordered are to be used to fill a rated 
order. The Canadian supplier should be informed that if production 
materials are needed from the United States by the supplier or the 
supplier's vendor to fill the order, the supplier or vendor should 
contact the Canadian Public Works and Government Services Canada, for 
authority to place rated orders in the United States: Public Works and 
Government Services Canada, Acquisitions Branch, Business Management 
Directorate, Phase 3, Place du Portage, Level 0A1, 11 Laurier Street, 
Gatineau, Quebec, K1A 0S5, Canada; Telephone: (819) 956-6825; Fax: 
(819) 956-7827, or electronically at 
DGAPrioritesdedefense.ACQBDefencePriorities@tpsgc-pwgsc.gc.ca.
    (d) Any person in Canada producing defense items for the Canadian 
government may also obtain priority rating authority for items to be 
purchased in the United States by applying to the Canadian Public Works 
and Government Services Canada, Acquisitions Branch, Business 
Management Directorate, in accordance with its procedures.
    (e) Persons in Canada needing special priorities assistance in 
obtaining defense items in the United States may apply to the Canadian 
Public Works and Government Services Canada, Acquisitions Branch, 
Business Management Directorate, for such assistance. Public Works and 
Government Services Canada will forward appropriate requests to the 
Department of Commerce.
    (f) Any person in the United States requiring assistance in 
obtaining items in Canada must submit a request through the Delegate 
Agency to the Department of Commerce on Form BIS-999. The Department of 
Commerce will forward appropriate requests to the Canadian Public Works 
and Government Services Canada.

Sec.  700.45  Military Assistance programs with other nations and 
international organizations.

    (a) Scope. To promote military assistance to foreign nations and 
international organizations, this section provides for authorizing 
priority ratings to persons in foreign nations or international 
organizations to obtain items in the United States in support of 
approved programs. Although priority ratings have no legal authority 
outside of the United States, this section also provides information on 
how persons in the United States may obtain informal assistance in 
Finland, Italy, The Netherlands, Sweden, and the United Kingdom in 
support of approved programs.
    (b) Foreign nations and international organizations. (1) Any person 
in a foreign nation other than Canada, Finland, Italy, The Netherlands, 
Sweden, or the United Kingdom, or any person in an international 
organization, requiring assistance in obtaining defense items in the 
United States or priority rating authority for defense items to be 
purchased in the United States, should submit a request for such 
assistance or rating authority to: The Department of Defense DPAS Lead 
in the Office of the Director, Industrial Policy, 3330 Defense 
Pentagon, Washington, DC 20301; Telephone: (703) 697-0051; Fax: (703) 
695-4885.
    (i) If the end product is being acquired by a U.S. Government 
agency, the request should be submitted to the DPAS Lead through the 
U.S. contract administration representative.
    (ii) If the end product is being acquired by a foreign nation or 
international organization, the request must be sponsored prior to its 
submission to DPAS Lead by the government of the foreign nation or the 
international organization that will use the end product.
    (2) If the Department of Defense endorses the request, it will be 
forwarded to the Department of Commerce for appropriate action.
    (c) Requesting assistance in Finland, Italy, The Netherlands, 
Sweden, and the United Kingdom.
    (1) The U.S. Department of Defense has entered into bilateral 
security of supply arrangements with Finland, Italy, The Netherlands, 
Sweden, and the United Kingdom that allow the U.S. Department of 
Defense to request the priority delivery for U.S. Department of Defense 
contracts, subcontracts, and orders from companies in these countries.
    (2) Any person in the United States requiring assistance in 
obtaining the priority delivery of a contract, subcontract, or order in 
Finland, Italy, The Netherlands, Sweden, or the United Kingdom to 
support an approved program should contact the Department of Defense 
DPAS Lead in the Office of the Director, Industrial Policy for 
assistance. Persons in Finland, Italy, The Netherlands, Sweden, and the 
United Kingdom should request assistance in accordance with paragraph 
(b)(1) of this section.

Sec.  700.46  Critical Infrastructure Assistance programs with other 
nations and international organizations.

    (a) Scope. To promote critical infrastructure assistance to foreign 
nations, this section provides for authorizing priority ratings to 
persons in foreign nations or international organizations to obtain 
items in the United States in support of approved programs.
    (b) Foreign nations and international organizations. (1) Any person 
in a foreign nation or international organization requiring assistance 
in obtaining critical infrastructure items in the United States or 
priority rating authority for critical infrastructure items to be 
purchased in the United States should submit a request for such 
assistance or rating authority to the Office of Policy and Program 
Analysis (OPPA), Federal Emergency Management Agency, U.S. Department 
of Homeland Security, 500 C Street, SW., Washington, DC 20472; 
telephone: (202) 646-3520; Fax: (202) 646-4060.
    (2) The government of the foreign nation or the international 
organization that will use the end product must sponsor all critical 
infrastructure assistance requests prior to submission to the OPPA.
    7. Subpart F is revised to read as follows:
Subpart F--Official Actions
Sec.
700.50 General provisions.
700.51 Rating authorizations.
700.52 Letters of understanding.

Subpart F--Official Actions

Sec.  700.50  General provisions.

    (a) The Department of Commerce may, from time-to-time, take 
specific official actions to implement or enforce the provisions of 
this part.
    (b) Several of these official actions (rating authorizations, and 
letters of

[[Page 32138]]

understanding) are discussed in this subpart. Official actions that 
pertain to compliance (administrative subpoenas, demands for 
information, and inspection authorizations) are discussed in Sec.  
700.72(c) of this part. Prioritization directives and allocation 
directives are discussed in Sec. Sec.  700.12 and 700.62, respectively, 
of this part.

Sec.  700.51  Rating authorizations.

    (a) A rating authorization is an official action granting specific 
priority rating authority that:
    (1) Permits a person to place a priority rating on an order for an 
item not normally ratable under this part; or
    (2) Authorizes a person to modify a priority rating on a specific 
order or series of contracts or orders.
    (b) To request priority rating authority, see Sec.  700.41 of this 
part.

Sec.  700.52  Letters of understanding.

    (a) A Letter of understanding is an official action which may be 
issued to resolve special priorities assistance cases and reflects an 
agreement reached by all parties (the Department of Commerce, the 
Delegate Agency, the supplier, and the customer).
    (b) A Letter of understanding is not used to alter scheduling 
between rated orders, to authorize the use of priority ratings, to 
impose restrictions under this part, or to take other official action. 
Rather, letters of understanding are used to confirm production or 
shipping schedules which do not impact other rated orders.
    8. Subpart G is revised to read as follows:
Subpart G--Allocations in a National Emergency
Sec.
700.61 Allocation orders--when and how used.
700.62 Precedence of allocation orders over rated orders or 
prioritization directives.
700.63 Allocation orders.
700.64 Elements of an allocation order.
700.65 Mandatory acceptance of allocation orders.
700.66 Changes or cancellations of allocation orders.

Subpart G--Allocations in a National Emergency

Sec.  700.61  Allocation orders--when and how used.

    (a) Allocation orders will be used only if:
    (1) Use of priorities (subpart C of this part) does not provide 
sufficient supply of a material, service or facility to satisfy 
national defense requirements; or
    (2) Use of such priorities would cause a severe and prolonged 
disruption in the supply of resources available to support normal U.S. 
economic activities.
    (b) Allocation orders will not be used to ration materials or 
services at the retail level.
    (c) Allocation orders, when imposed, will be distributed equitably 
among the suppliers of the resource(s) being allocated and not require 
any person to relinquish a disproportionate share of the civilian 
market.

Sec.  700.62  Precedence of allocation orders over rated orders or 
prioritization directives.

    If a conflict should occur between an allocation order and an 
unrelated rated order or prioritization directive, the allocation order 
shall take precedence.

Sec.  700.63  Allocation orders.

    The three types of allocation orders that may be used to 
communicate allocation actions are:
    (a) Set-asides;
    (b) Allocation directives; and
    (c) Allotments.

Sec.  700.64  Elements of an allocation order.

    All allocation orders will include:
    (a) A detailed description of the required allocation action(s);
    (b) Specific start and end calendar dates for each required 
allocation action;
    (c) The written signature on a manually placed order, or the 
digital signature or name on an electronically placed order, of the 
head of the Resource Agency placing the order. The signature or use of 
the name certifies that the order is authorized under this part and 
that the requirements of this part are being followed; and
    (d) A statement that reads in substance: ``This is an allocation 
order certified for national defense use. [Insert the legal name of the 
person receiving the order] is required to comply with this order, in 
accordance with the provisions of 15 CFR 700.''

Sec.  700.65  Mandatory acceptance of allocation orders.

    (a) A person shall accept every allocation order received that the 
person is capable of fulfilling, and must comply with such orders 
regardless of any rated order, from any delegate agency, that the 
person may be in receipt of or other commitments involving the 
resource(s) covered by the allocation order.
    (b) A person shall not discriminate against an allocation order in 
any manner such as by charging higher prices for resources covered by 
the order or by imposing terms and conditions for contracts and orders 
involving allocated resource(s) that differ from the person's terms and 
conditions for contracts and orders for the resource(s) prior to 
receiving the allocation order.
    (c) If a person is unable to comply fully with the required 
action(s) specified in an allocation order, the person must notify the 
Department of Commerce immediately at the address, telephone or fax 
number in Sec.  700.81 of this part, explain the extent to which 
compliance is possible, and give the reasons why full compliance is not 
possible. If notification is given verbally, written or electronic 
confirmation must be provided within five (5) working days in 
accordance with the instructions in Sec.  700.81 of this part. Such 
notification does not release the person from complying with the order 
to the fullest extent possible, until the person is notified by the 
Department of Commerce that the order has been changed or cancelled. 
Alternatively, a person may request an adjustment of or exception from 
an allocation order in accordance with the provisions set forth in 
Sec.  700.15 of this part.

Sec.  700.66  Changes or cancellations of allocation orders.

    An allocation order may be changed or canceled by an official 
action from the Department of Commerce.
    9. Subpart H is revised to read as follows:
Subpart H--Compliance
Sec.
700.70 General provisions.
700.71 Records and reports.
700.72 Audits and investigations.
700.73 Compulsory process.
700.74 Notification of failure to comply.
700.75 Violations, penalties, and remedies.
700.76 Compliance conflicts.
Subpart H--Compliance

Sec.  700.70  General provisions.

    (a) Compliance actions may be taken for any reason necessary or 
appropriate to the enforcement or the administration of the Defense 
Production Act, the Selective Service Act, or this part. Such actions 
include audits, investigations, or other inquiries.
    (b) Willful violation of any of the provisions of Title I or 
section 705 of the Defense Production Act, or this part, is a criminal 
act, punishable as provided in the Defense Production Act and as set 
forth in Sec.  700.75 of this part.

Sec.  700.71  Records and reports.

    (a) Persons are required to make and preserve for at least three 
years, accurate and complete records of any transaction covered by this 
part or an official action.
    (b) Records must be maintained in sufficient detail to permit the 
determination, upon examination, of whether each transaction complies 
with the provisions of this part or any official action. However, this 
part does not

[[Page 32139]]

specify any particular method or system to be used.
    (c) Records required to be maintained by this section must be made 
available for examination on demand by duly authorized representatives 
of the Department of Commerce as provided in Sec.  700.72 of this part.
    (d) In addition, persons must develop, maintain, and submit any 
other records and reports to the Department of Commerce that may be 
required for the administration of the Defense Production Act, the 
Selective Service Act, and this part.
    (e) Section 705(d) of the Defense Production Act provides that 
information obtained under this section which the President deems 
confidential, or with reference to which a request for confidential 
treatment is made by the person furnishing such information, shall not 
be published or disclosed unless the President determines that the 
withholding of this information is contrary to the interest of the 
national defense. Information required to be submitted to the 
Department of Commerce in connection with the enforcement or 
administration of the Act, this part, or an official action, is deemed 
to be confidential under section 705(d) of the Act and shall not be 
published or disclosed except as required by law.

Sec.  700.72  Audits and investigations.

    (a) Audits and investigations are official actions involving the 
examination of books, records, documents, other writings and 
information to ensure that the provisions of the Defense Production 
Act, the Selective Service Act, and this part have been properly 
followed. An audit or investigation may also include interviews and a 
systems evaluation to detect problems or failures in the implementation 
of this part.
    (b) When undertaking an audit, investigation, or other inquiry, the 
Department of Commerce shall:
    (1) Promptly define the scope and purpose in the official action 
given to the person under investigation, and
    (2) Ascertain that the information sought or other adequate and 
authoritative data are not available from any Federal or other 
responsible agency.
    (c) In administering this part, the Department of Commerce may 
issue the following documents which constitute official actions:
    (1) Administrative Subpoenas. An Administrative Subpoena requires a 
person to appear as a witness before an official designated by the 
Department of Commerce to testify under oath on matters of which that 
person has knowledge relating to the enforcement or the administration 
of the Defense Production Act, the Selective Service Act, or this part. 
An Administrative Subpoena may also require the production of books, 
papers, records, documents and physical objects or property.
    (2) Demand for Information. A Demand for Information requires a 
person to furnish to a duly authorized representative of the Department 
of Commerce any information necessary or appropriate to the enforcement 
or the administration of the Defense Production Act, the Selective 
Service Act, or this part.
    (3) Inspection Authorizations. An Inspection Authorization requires 
a person to permit a duly authorized representative of the Department 
of Commerce to interview the person's employees or agents, to inspect 
books, records, documents, other writings and information in the 
person's possession or control at the place where that person usually 
keeps them, and to inspect a person's property when such interviews and 
inspections are necessary or appropriate to the enforcement or the 
administration of the Defense Production Act, the Selective Service 
Act, or this part.
    (d) The production of books, records, documents, other writings and 
information will not be required at any place other than where they are 
usually kept if, prior to the return date specified in the 
Administrative Subpoena or Demand for Information, a duly authorized 
official of the Department of Commerce is furnished with copies of such 
material that are certified under oath to be true copies. As an 
alternative, a person may enter into a stipulation with a duly 
authorized official of the Department of Commerce as to the content of 
the material.
    (e) An Administrative Subpoena, Demand for Information, or 
Inspection Authorization, shall include the name, title or official 
position of the person to be served, the evidence sought to be adduced, 
and its general relevance to the scope and purpose of the audit, 
investigation, or other inquiry. If employees or agents are to be 
interviewed; if books, records, documents, other writings, or 
information are to be produced; or if property is to be inspected; the 
Administrative Subpoena, Demand for Information, or Inspection 
Authorization will describe them with particularity.
    (f) Service of documents shall be made in the following manner:
    (1) Service of a Demand for Information or Inspection Authorization 
shall be made personally, or by Certified Mail--Return Receipt 
Requested at the person's last known address. Service of an 
Administrative Subpoena shall be made personally. Personal service may 
also be made by leaving a copy of the document with someone at least 18 
years of age at the person's last known dwelling or place of business.
    (2) Service upon other than an individual may be made by serving a 
partner, corporate officer, or a managing or general agent authorized 
by appointment or by law to accept service of process. If an agent is 
served, a copy of the document shall be mailed to the person named in 
the document.
    (3) Any individual 18 years of age or older may serve an 
Administrative Subpoena, Demand for Information, or Inspection 
Authorization. When personal service is made, the individual making the 
service shall prepare an affidavit as to the manner in which service 
was made and the identity of the person served, and return the 
affidavit, and in the case of subpoenas, the original document, to the 
issuing officer. In case of failure to make service, the reasons for 
the failure shall be stated on the original document.

Sec.  700.73  Compulsory process.

    (a) If a person refuses to permit a duly authorized representative 
of the Department of Commerce to have access to any premises or source 
of information necessary to the administration or the enforcement of 
the Defense Production Act, the Selective Service Act, or this part, 
the Department of Commerce representative may seek compulsory process. 
Compulsory process means the institution of appropriate legal action, 
including ex parte application for an inspection warrant or its 
equivalent, in any forum of appropriate jurisdiction.
    (b) Compulsory process may be sought in advance of an audit, 
investigation, or other inquiry, if, in the judgment of the Director of 
the Office of Strategic Industries and Economic Security, U.S. 
Department of Commerce, in consultation with the Chief Counsel for 
Industry and Security, U.S. Department of Commerce, there is reason to 
believe that a person will refuse to permit an audit, investigation, or 
other inquiry, or that other circumstances exist which make such 
process desirable or necessary.

Sec.  700.74  Notification of failure to comply.

    (a) At the conclusion of an audit, investigation, or other inquiry, 
or at any other time, the Department of Commerce may inform the person 
in writing where compliance with the requirements of the Defense 
Production

[[Page 32140]]

Act, the Selective Service Act, or this part were not met.
    (b) In cases where the Department of Commerce determines that 
failure to comply with the provisions of the Defense Production Act, 
the Selective Service Act, or this part was inadvertent, the person may 
be informed in writing of the particulars involved and the corrective 
action to be taken. Failure to take corrective action may then be 
construed as a willful violation of the Defense Production Act, this 
part, or an official action.

Sec.  700.75  Violations, penalties, and remedies.

    (a) Willful violation of the provisions of the Defense Production 
Act, the priorities provisions of the Selective Service Act, or this 
part is a crime and upon conviction, a person may be punished by fine 
or imprisonment, or both. The maximum penalty provided by the Defense 
Production Act is a $10,000 fine, or one year in prison, or both. The 
maximum penalty provided by the Selective Service Act is a $50,000 
fine, or three years in prison, or both.
    (b) The government may also seek an injunction from a court of 
appropriate jurisdiction to prohibit the continuance of any violation 
of, or to enforce compliance with, the Defense Production Act, this 
part, or an official action.
    (c) In order to secure the effective enforcement of the Defense 
Production Act, this part, and official actions, the following are 
prohibited (see section 704 of the Defense Production Act; see also, 
for example, sections 2 and 371 of Title 18, United States Code):
    (1) No person may solicit, influence or permit another person to 
perform any act prohibited by, or to omit any act required by, the 
Defense Production Act, this part, or an official action.
    (2) No person may conspire or act in concert with any other person 
to perform any act prohibited by, or to omit any act required by, the 
Defense Production Act, this part, or an official action.
    (3) No person shall deliver any item if the person knows or has 
reason to believe that the item will be accepted, redelivered, held, or 
used in violation of the Defense Production Act, this part, or an 
official action. In such instances, the person must immediately notify 
the Department of Commerce that, in accordance with this provision, 
delivery has not been made.

Sec.  700.76  Compliance conflicts.

    If compliance with any provision of the Defense Production Act, the 
Selective Service Act, or this part would prevent a person from filling 
a rated order or from complying with another provision of the Defense 
Production Act, this part, or an official action, the person must 
immediately notify the Department of Commerce or the appropriate 
Delegate Agency for resolution of the conflict.
    10. Subpart I is revised to read as follows:
Subpart I--Miscellaneous Provisions
Sec.
700.80 Applicability of this part and official actions.
700.81 Communications.

Subpart I--Miscellaneous Provisions

Sec.  700.80  Applicability of this part and official actions.

    (a) This part and all official actions, unless specifically stated 
otherwise, apply to transactions in any state, territory, or possession 
of the United States and the District of Columbia.
    (b) This part and all official actions apply not only to deliveries 
to other persons but also include deliveries to affiliates and 
subsidiaries of a person and deliveries from one branch, division, or 
section of a single entity to another branch, division, or section 
under common ownership or control.
    (c) This part and its schedules shall not be construed to affect 
any administrative actions taken by the Department of Commerce, or any 
outstanding contracts or orders placed pursuant to any of the 
regulations, orders, schedules or delegations of authority under the 
Defense Materials System, Defense Priorities System or the Defense 
Priorities and Allocations System previously issued by the Department 
of Commerce. Such actions, contracts, or orders shall continue in full 
force and effect under this part unless modified or terminated by 
proper authority.
    (d) Any repeal of any provision of this part or any order, schedule 
or delegation of authority issued pursuant to this part shall not 
release or extinguish any penalty or liability incurred under that 
provision, order, schedule or delegation of authority. That provision, 
order, schedule or delegation of authority shall be treated as still 
remaining in force for the purpose of sustaining any action for the 
enforcement of such penalty or liability.

Sec.  700.81  Communications.

    All communications concerning this part, including requests for 
copies of the regulation and explanatory information, requests for 
guidance or clarification, and requests for adjustment or exception 
shall be addressed to the Office of Strategic Industries and Economic 
Security, Room 3876, U.S. Department of Commerce, Washington, DC 20230, 
Ref: DPAS; telephone: (202) 482-3634, fax: (202) 482-5650. 
Communications may also be submitted electronically at 
DPAS@bis.doc.gov, with reference to the topic of the communication in 
the subject line.

Subpart J--[Removed]

    11. Subpart J is removed.

Subpart K--[Removed]

    12. Subpart K is removed.

Subpart L--[Removed]

    13. Subpart L is removed.

    Dated: May 28, 2010.
Kevin J. Wolf,
Assistant Secretary for Export Administration.
[FR Doc. 2010-13395 Filed 6-4-10; 8:45 am]
BILLING CODE 3510-JT-P