Earlier today, the Department of Defense (DoD) issued an interim rule that seeks to clarify when a contractor may use a non-U.S. manufactured photovoltaic (PV) device in certain government contracts.  The rule offers guidance to contractors in determining whether a PV device qualifies as a permissible “designated country” device, explaining that the test should focus on the country in which the “final substantial transformation occurred.”

The list of “designated countries” is quite lengthy, and includes those subject to the World Trade Organization Government Procurement Agreement.  The rule further explains that a PV device manufactured in a designated country, but subsequently substantially transformed outside of the country, should not be regarded as a product of the designated country.

The sourcing requirements applicable to PV devices were established in early 2011 by Section 846 of the National Defense Authorization Act for FY 2011, Pub. L. 111-383.  The Act mandates that certain contracts awarded by DoD contain a provision requiring PV devices acquired by the contractor during performance of the contract comply with the Buy American Act, absent an exception under the Trade Agreements Act or other law.  Covered contracts include energy savings performance contracts, utility service contracts, land leases, and private housing contracts where the contract results in DoD ownership of a PV device.  DoD owns a device when it is installed on DoD property and reserved for the exclusive use of the DoD for the full economic life of the device.

In December 2011, DoD created two clauses in the Defense Federal Acquisition Regulation Supplement — DFARS 252.225-7017 and DFARS 252.225-7018 — to implement the requirements of Section 846.  Since then, many contractors have been puzzled as they try to figure out whether PV devices that they are planning to purchase under a covered contract comply with Section 846’s sourcing requirements.

Today’s interim rule provides some further guidance to contractors, though questions will no doubt remain as the “substantial transformation” test involves a highly fact-specific analysis.  Because a contractor must certify as to its compliance with these requirements and because the penalties for a false certification can be quite significant, contractors performing contracts involving PV devices are well advised to seek guidance on whether the devices proposed for use are indeed compliant.

Tags: Department of Defense, Photovoltaic
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Photo of Scott A. Freling Scott A. Freling

Scott Freling divides his practice between representing civilian and defense contractors in traditional government contracts matters and guiding buyers and sellers—including a number of leading private equity firms—through the regulatory aspects of complex government contracts M&A deals. Scott co-chairs the firm’s Government Contracts…

Scott Freling divides his practice between representing civilian and defense contractors in traditional government contracts matters and guiding buyers and sellers—including a number of leading private equity firms—through the regulatory aspects of complex government contracts M&A deals. Scott co-chairs the firm’s Government Contracts practice.

Scott is sought after for his regulatory expertise and his ability to apply that knowledge to the transactional environment. Scott has deep experience leading classified and unclassified due diligence reviews of government contractors, negotiating transaction documents, and assisting with integration and other post-closing activities. He has been the lead government contracts lawyer in dozens of M&A deals, with a combined value of more than $79 billion. This has included Warburg Pincus and Berkshire Partners’ pending deal to acquire TRIUMPH for approximately $3 billion, Advent’s acquisition of Maxar Technologies for $6.4 billion, Aptiv’s acquisition of Wind River for $3.5 billion, and Veritas Capital’s sale of Alion Science and Technology to Huntington Ingalls for $1.65 billion.

Scott also represents contractors at all stages of the procurement process and in their dealings with federal, state, and local government customers. He handles a wide range of government contracts matters, including compliance counseling, claims, disputes, audits, and investigations. In addition, Scott counsels clients on risk mitigation strategies, including obtaining SAFETY Act liability protection for anti-terrorism technologies.

Scott has been recognized by Law360 as a MVP in government contracts. He is a past co-chair of the Mergers and Acquisitions Committee of the ABA’s Public Contract Law Section.

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