We consistently receive FAR 52.234-1 as a required flowdown in RFQ/PO's from our customers. Our company has received no assistance under Title III DPA funds to develop any equipment, service, process or manufacturing equipment, nor acted as a Title III project contractor.
In review of the requirements within this clause, it appears this clause would be invoked by the CO when there is Title III resources/funding for the RFQ program/effort submitted to us for response, and we would be required the specific tests, qualifications, contact information for providing the requested tests, which would be sent to Wright Patterson AFB and a modification for funding to the contract made.
In response to my exception (not accepting) to this clause, one major defense contractor insists we are required to accept this clause even if there is not any Title III effort in their prime contract, or in the RFQ effort sent to our company. It must be accepted in case there is a requirement.
Any guidance (in layman's terms please) of when this clause is actually required, when flowed down to all subcontractor tiers would be appreciated.
FAR 34.104 requires the contracting officer to include “the clause at 52.234-1 , Industrial Resources Developed under Title III, Defense Production Act, in all contracts for major systems and items of supply.”
FAR 52.234-1 reads: “As prescribed at 34.104 , insert the following clause:
Industrial Resources Developed Under Title III Defense Production Act (Sept 2016)
(a) Definitions. “Title III industrial resource” means materials, services, processes, or manufacturing equipment (including the processes, technologies, and ancillary services for the use of such equipment) established or maintained under the authority of Title III, Defense Production Act (50 U.S.C. App.2091-2093).
Title III project contractor means a contractor that has received assistance for the development or manufacture of an industrial resource under Title III of Defense Production Act (50 U.S.C. App.2091-2093).
(b) The Contractor shall refer any request from a Title III project contractor for testing and qualification of a Title III industrial resource to the Contracting Officer.
(c) Upon the direction of the Contracting Officer, the Contractor shall test Title III industrial resources for qualification. The Contractor shall provide the test results to the Defense Production Act Office, Title III Program, located at Wright Patterson Air Force Base, Ohio 45433-7739.
(d) When the Contracting Officer modifies the contract to direct testing pursuant to this clause, the Government will provide the Title III industrial resource to be tested and will make an equitable adjustment in the contract for the costs of testing and qualification of the Title III industrial resource.
(e) The Contractor agrees to insert the substance of this clause, including paragraph (e), in every subcontract issued in performance of this contract.
(End of clause)”
Items of supply is further defined as “any individual part, component, subassembly, assembly, or subsystem integral to a major system, and other property which may be replaced during the service life of the system. The term includes spare parts and replenishment parts, but does not include packaging or labeling associated with shipment or identification of an ‘item.’” See FAR 34.101 Definitions.
The clause itself at paragraph (e) requires the Contractor “to insert the substance of this clause, including paragraph (e), in every subcontract issued in performance of this contract.” This continues the mandatory flowdown to suppliers all the way down to the individual part level.
What this means is if you are a supplier to a prime contractor (or subcontractor for that matter) providing an “item of supply”, you are required to comply with the clause. The clause is based in law, specifically Title 50 – WAR AND NATIONAL DEFENSE, CHAPTER 55-DEFENSE PRODUCTION, SUBCHAPTER II-EXPANSION OF PRODUCTIVE CAPACITY AND SUPPLY. The relevant Section of the law for our purposes is:
Ҥ4533. Other presidential action authorized*
(a) In general
(1) In general
To create, maintain, protect, expand, or restore domestic industrial base capabilities essential for the national defense, the President may make provision-
(A) for purchases of or commitments to purchase an industrial resource or a critical technology item, for Government use or resale;
(B) for the encouragement of exploration, development, and mining of critical and strategic materials, and other materials;
(C) for the development of production capabilities; and
(D) for the increased use of emerging technologies in security program applications and the rapid transition of emerging technologies-
(i) from Government-sponsored research and development to commercial applications; and
(ii) from commercial research and development to national defense applications….”
*Section 2093 of Title 50 was administratively moved to Section 4533 of the same Title. That helps to explain the inconsistency in the FAR language at 34.100 where the references are to Appendix. 2091 – 2093. The language that was at Appendix 2093 is now at Section 4533, quoted above.
At FAR 34.102 Policy, it states that the Government will pay for “any testing and qualification required for the use or incorporation of the industrial resources manufactured or developed with assistance provided under Title III of the Defense Production Act of 1950.”
In fact, this is actually required by law. Section 126 of Public Law 102-558 states at (b), “TESTING AND QUALIFICATION- Any testing and qualification required for the use or incorporation of the industrial resource developed or manufactured with such assistance shall be undertaken upon the request of the title III project contractor and the costs of such testing and qualification shall be borne by the department or agency imposing the testing and qualification requirement.” [emphasis added].
Bottom line in layman’s terms as requested:
If you are a supplier at any tier for a major system, if the President makes a determination that the major system you are a supplier to falls under the Defense Production Act requirements, you will have to comply with the clause and those testing and qualification requirements if requested. However, you will be entitled to an Equitable Adjustment that should reimburse all of your allowable costs. The prime contractor is required to accept the clause and then required to flow that clause (or substance of that clause) down to all subcontracting tiers/levels.
As always, it’s a good idea to consult with legal counsel prior to taking any firm actions in matters such as these.
