Buy American creates hurdles for Pentagon's business plans

Over the years, Congress has fought to protect U.S. technology through Buy American and other trade laws, but some of the measures could backfire now that the Pentagon is trying to attract new, innovative businesses that haven’t traditionally worked with the military.

Over the years, Congress has fought to protect U.S. technology through Buy American and other trade laws, but some of the measures could backfire now that the Pentagon is trying to attract new, innovative businesses that haven’t traditionally worked with the military.

The Pentagon, which is always searching for new technology to maintain its competitive advantage in the world, is looking beyond the usual defense giants for fresh ideas.

“To enhance competition and innovation, it would be beneficial for the Department [of Defense] to bring in new firms,” said William Greenwalt, deputy undersecretary of defense for industrial policy at the Pentagon. “The problem with that is that many of these firms choose not to do business with the Defense Department, or if they have some business, it is a very minor portion of their total sales.”

One of Greenwalt’s top priorities is bringing in non-traditional contractors, as well as identifying the barriers to bringing them in.

The Pentagon is trying to attract a large swath of companies with a range of expertise from telecommunications and information technology to robotics and biotechnology.

But some commercial companies are developing concerns about doing business with the Pentagon, Greenwalt said in an interview. 

If these companies sell their products to the U.S. military, they run the risk of the U.S. government imposing export controls on them, which diminishes their ability to make a profit on the global market.

“That could be a real problem for us and one that we may need to look for congressional help,” said Greenwalt, who was recently a top aide on the Senate Armed Services Committee.

“We can’t get in the situation where the most innovative companies in America won’t do business with the Department of Defense for fear of somehow tainting their products,” he added.

As a result, the military may not have access to the best technology in the United States even though “everyone else in the world does,” Greenwalt said.

“Right now it is still in the anecdotal phase, so I am still looking to see if this is a greater trend,” he noted.

Tight export control laws are not the only potential deterrent for commercial companies. The so-called Berry Amendment and its specialty-metals clause and other Buy American laws could also prove troublesome.

Enacted in 1941, the Berry Amendment mandates that certain materials used in defense procurement contracts be made in the United States. In 1973, Congress adopted a key provision, called the specialty-metals clause, requiring that the titanium and various steel and metal alloys defense contractors use be U.S.-made.

The clause is intended to ensure an adequate domestic industrial base and avoid dependence on foreign suppliers in an emergency, the U.S. specialty-metals industry says. 

But this year the specialty-metals clause became a sticking point in negotiations over the 2007 defense authorization bill after several large- and medium-size Pentagon contractors disclosed that they did not comply with the provision because some of their suppliers have used foreign-produced specialty metals.

As a result, the Aerospace Industries Association, with backing from the Pentagon and the White House, lobbied for an exemption from the Berry Amendment for commercial items, among other issues. One of the arguments was that companies could no longer keep track of every nut and bolt from their suppliers.

But the defense industry and the Pentagon faced intense opposition from the specialty-metals industry and its allies in the House. The resulting legislation exempts electronic components containing small amounts of foreign specialty metals from the Berry Amendment. It also provides a four-year “get well” period for defense contractors who did not comply with the law.

Implementing the revised Berry Amendment and figuring out ways to keep the door open to new, innovative companies is going to be “extremely difficult,” Greenwalt added.

The Pentagon is still reviewing the implementation of the new legislation. Depending on any challenges, “the Department may have to determine whether it seeks any additional relief,” he said. “There is some relief” in the legislation passed this year, he added.

Companies that don’t do much business with the Pentagon are not going to track the specialty-metals content of their products. Therefore, should the military want to buy their technology, it would be almost impossible to do so without a lengthy and potentially costly waiver process.

“Is it going to be worth it to these commercial guys to go through that kind of bureaucracy to sell us their product, especially when we may only be 1 percent of their sales?” Greenwalt asked.

A source close to the specialty-metals industry argued that the new legislation allows for waivers to be granted “up and down the chain” of contractors, including subcontractors, a move that should speed up the process. Before, only the prime contractors could apply for a waiver.

But the Pentagon could be caught in a vicious cycle, having to protect those industries, such as the steel and titanium sectors, even though the Pentagon is not their main buyer and does not drive their market. At the same time, the Berry Amendment is important in periods of commercial downtime for the specialty-metals industry. Without it, the industry argues it could go out of business — a scenario that would, in turn, deprive the U.S. government of maintaining strong defense resources in times of emergency.

Attracting new companies willing to do business with the Pentagon is a long-term goal that will need congressional help, according to Greenwalt.

“I truly believe that Congress would like the Department to access the best technology and innovation for the war fighter,” he said.