Rift over specialty-metals use in contracts develops

A renewed fight over the use of U.S. specialty metals in Pentagon contracts is brewing as Congress takes up the annual defense authorization bill.

Last year, after intense negotiations over the enforcement of a “Buy America” provision, known as the Berry Amendment, held up the defense authorization bill, Senate and House conferees reached a compromise agreeable to the U.S. specialty-metals sector as well as U.S. defense contractors.

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Now tension is growing over the Pentagon’s enforcement of the law passed in the fall.
Although fully implementing the new legislation will take time, House defense authorizers already have stepped in to curb an emerging Pentagon practice of issuing broad waivers to defense contractors, allowing them to include items made with foreign specialty metals.

The defense and aerospace industry is preparing for a fight against the provisions in the House version of the defense authorization bill, relying on allies in the Senate who last year fought alongside the defense industry for a looser interpretation of the Berry Amendment.

The Senate takes up its version of the bill next week, and members of the defense industry hope conference negotiations will result in the elimination of the House language.

Last year, defense and aerospace contractors represented by the Aerospace Industries Association (AIA) and the specialty-metals sector clashed over the enforcement of the decades-old Berry Amendment, which mandates that the titanium and various steel and metal alloys used by defense contractors be U.S.-made.

The Senate and the White House sided with the defense contractors, while the House supported the specialty-metals sector.
The compromise legislation, among other things, exempts electronic components containing small amounts of foreign specialty metals from the Buy America law. The final language also provides a four-year “get-well” period for defense contractors to disclose non-compliance with the Berry Amendment in order to avoid scrapping existing inventories.

Days before the House Armed Services Committee’s markup of the 2008 defense authorization bill, panel Chairman Ike Skelton (D-Mo.) and ranking member Duncan Hunter (R-Calif.) wrote a letter to the Pentagon’s acquisition chief, Kenneth Krieg, expressing concern about waivers issued to industry based on claims that domestic specialty metal was not
available. The waivers exempt large categories of fasteners from the law, according to the lawmakers.

“We have great concern about the submission of class, corporate-wide or multi-service level non-availability determinations,” the two lawmakers wrote. The aim of last year’s legislation “was to create an executable framework for balancing the interests of acquiring defense articles as efficiently as possible, while also ensuring the domestic supply of strategic materials critical to national security.”

The panel leaders said it was their understanding that the Pentagon did not contact special-metals manufacturers about production lead time, cost and quality of the metals — all factors cited as reasons for the waivers.

“If true this lack of consultation undermines the public policy process,” the lawmakers wrote.

Language in the House defense authorization bill reflects the committee’s focus on limiting waivers to the duration of the non-availability of a domestic specialty metals. The committee also requires the Pentagon to keep close accounting of all non-compliant specialty metals purchased under certain contracts.

Rep. Robin Hayes (R-N.C.), a strong supporter of the Berry Amendment, succeeded in passing an amendment during the committee markup to clarify last year’s legislation.

AIA is hitting back at the House move, expressing concern that this year’s language is premature and would force the Pentagon into an unworkable situation.

“The industry is fairly disappointed that the House has seen the need to come with new legislation somewhat prematurely, because they did not give the law that they passed last year a chance to be fully implemented,” AIA’s vice president of acquisition policy, Terry Marlow, said. “We have been reassured along the way that the House and the Senate were not interested in new legislation this year.”

He said that AIA is reviewing the legislation and that he hopes the Senate won’t let things “slide back” and “hopefully will convince the House to take [the language] out of the bill.”

“It is worrisome to us because we worked very hard to come up with something that was very fair to the specialty-metals industry,” he said.

Marlow argued that the legislation comes at a time when the specialty-metals and titanium industries are posting solid profits.

“There is no evidence that the bill that passed last year and is being implemented by the department has damaged and is in the process of damaging the specialty-metals industry,” he said.

A specialty-metals industry source said the law is designed specifically to protect the sector during downturns. Broad waiver processes can become “dangerous precedent” and ultimately hurt the industry.

“No one expected to need any new legislation,” said the source, who asked not to be named. “They got waivers about titanium without contacting the titanium industry.” The source added that fasteners, which were at the center of the
waivers, could represent up to 25 percent of the specialty-metals output.

“All the facts they put into the waivers were wrong,” the source said.

The specialty-metals industry and its representatives argue the Pentagon misinterpreted last year’s law and say the language in this year’s House bill simply ensures that last year’s legislation is followed.