Specialty-metals industry clashes with defense giants, Pentagon

A battle over a controversial provision in the 2007 defense authorization bill is pitting the Bush administration and the Senate against the House.

The Aerospace Industries Association (AIA), with support from the Pentagon and White House, is engaged in a lobbying clash with the specialty-metals sector, backed by the House. At issue is enforcement of the so-called Berry Amendment, which mandates that certain materials used in defense procurement contracts be made in the United States.

Congress enacted the amendment in 1941, and it has since become a fundamental principle of the nation’s procurement practices.

In 1973, Congress added a provision called the specialty-metals clause that requires that the titanium and various steel and metal alloys defense contractors use be U.S.-made. The clause was a way to ensure an adequate industrial base and to avoid the need to turn to foreign suppliers in times of emergency. But this year several large and medium-size contractors have run into problems with the Pentagon after disclosing that they did not comply with the provision because some of their suppliers have used foreign-produced specialty metals.

The House Armed Services Committee, chaired by Rep. Duncan Hunter (R-Calif.), added several provisions to the 2007 defense authorization bill to help enforce the Berry amendment.

The panel mandated the creation of a Strategic Materials Board, made up of the secretary of defense as chairman, the undersecretary for acquisition, technology and logistics and the undersecretary for intelligence, as well as the secretaries of the Army, Navy and Air Force. The board is supposed to determine the need to ensure a long-term domestic supply of items designated as critical to national security.

“The board can also determine that there are other strategic materials and expand that definition to include the material” without having to seek congressional approval, a source in the specialty-metals industry said. “It gives the Department of Defense the flexibility to determine whether other materials should be added,” the source said.

The House bill for the first time would codify the Pentagon’s definition of specialty metals, the source added. It also calls for a one-year “get well” period for suppliers that have not complied with the Berry Amendment.

“It is a very strong piece of legislation, but it requires a very strong compromise by the [specialty metals] industry,” a source close to the titanium industry said. “We will let everybody get well; the titanium industry believes that it is a compromise it’s willing to make.”

The House’s 2007 defense authorization bill passed easily but attracted the White House’s opposition. The administration threatened to veto a bill containing the Berry provision.

Now the Senate version of the defense authorization bill, which has not yet been scheduled to go to the floor, has opened the door to a flurry of lobbying efforts either trying to undermine or promote the House provisions.

In its markup, the Senate Armed Services Committee included a provision that would leave only titanium and nickel as part of the Berry Amendment specialty-metals clause and take out all other metals. That provision sent shudders through the specialty-metals industry.

“The Specialty Steel Industry of North America, which represents producers of virtually all of the metals covered by the Berry Amendment specialty-metals clause, is deeply concerned about the Senate Armed Services Committee provision, which would narrow the scope of the Berry Amendment to include only titanium and nickel,” said Larry Lasoff, the counsel to the specialty-steel industry.

The Department of Defense has defined specialty metals historically to include various grades of specialty steels, as well as cobalt- and zirconium-based alloys, he said. “The Senate provision arbitrarily draws a line without any consideration of the critical military applications dependent on the specialty metals that would be excluded,” he said.

The titanium industry is working with the rest of the specialty-metals industry to change the committee’s provision when the bill gets to the floor.

But they will be facing off with heavyweights at the AIA and the Pentagon pressing their own agenda.

The House version “takes the authority of the Department of Defense to deal with any minor infractions that inadvertently occur,” said John Douglass, AIA’s president. “Show me anything in this world that is 100 percent,” he urged. “It is an impossible standard to perform.”

He said the bill “greatly” discriminates against the small suppliers (also known as the fasteners industry, which makes screws, nails, etc.) down the contracting chain who produce for both the military and commercial market.

The AIA is working with the Pentagon to craft an amendment to the defense authorization bill to exempt commercial items from the Berry Amendment, such as global positioning devices for soldiers in Iraq.

The fasteners industry said it is going to work with the House and Senate to find a viable solution and is pushing for the commercial exemption, said Jennifer Baker, the Washington representative for the Industrial Fasteners Institute.

The AIA-crafted amendment would also allow a small amount of non-Berry-compliant material below a certain sum to make it into defense equipment.

The amendment would also push for what is known as a “basket approach”: to allow the defense industry to buy commercially available titanium as long as it also buys the necessary percentage of Berry-compliant material without necessarily having to use it in weapons systems.

“We are not attacking the mainstream of the Berry Amendment,” Douglass said. “When we build fighter planes, we know that we have to use domestic specialty metal.”

“We can’t find a situation where we can no longer buy screws and bolts from the commercial market and have to have a special run of a nut, or bolt or screw just for the 50 tanks that we build,” Douglass added.

But the specialty-metals industry said that the Pentagon created the problem by closing an eye to compliance in the past.

“We find it very troubling that revelations of noncompliance are being utilized as a basis for changing this law and significantly weakening this law rather than seeking ways of bringing noncompliant contractors into compliance,” Lasoff said.