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.