On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Tax Act of 2009 ("the Act" or "the Stimulus Bill") (P.L. 111-5) (H.R. 1). We already have discussed some of the provisions of this Act here and here, focusing on the implications of the various audit and Buy American provisions (including those in Section 1605 of the Act).
One feature of the new Act stands out as deserving further comment. In particular, the ubiquitous “Berry Amendment” (10 U.S.C. § 2533a) (the bane of many a DOD supplier and subcontractor) now has been expanded in large part to include the U.S. Department of Homeland Security. The expansion is not total, and there are some differences, but the policies behind the domestic source restrictions of the Berry Amendment now also apply to DHS.
· The Berry Amendment Extension Act. Section 604 of the Stimulus Act, subtitled “the Berry Amendment Extension Act,” imposes (in large part) the requirements of the Berry Amendment – previously applicable only to DOD purchases – to all funds appropriated or otherwise made available to the Department of Homeland Security. Notably, this new provision applies to DHS agency-wide, not merely with regard to Stimulus monies, so it appears that this provision is here to stay. Interestingly, since section 604 applies to “all funds,” this requirement may also follow the funds if they “trickle down” to state and local levels through grants or other programs.
· The DOD Berry Amendment. Subject to certain exceptions, the DOD Berry Amendment prohibits the purchase of clothing, fabrics, fiber products, food products, as well as hand and measuring tools unless they were grown, reprocessed, reused or produced in the U.S.
· The “Kissell Amendment.” The DHS Berry Amendment (which we refer to as the “Kissell Amendment,” named after newly elected Congressman Lawrence “Larry” Kissell (D-NC) who introduced the amendment) has a slightly different scope. While it similarly prohibits the use of appropriated funds “if the item is not grown, reprocessed, reused, or produced in the United States” and prohibits any exception for commercial products, Congressman Kissell’s amendment focuses on textile products; it does not include food, or hand and measuring tools, as does the DOD Berry Amendment. In introducing the amendment, Congressman Kissell noted that he was particularly interested in supporting the domestic textile industry. See Cong. Rec. H723 (Jan. 28, 2009).
· Scope of the Kissell Amendment? The Kissell Amendment includes curious language that is not included in the Berry Amendment, indicating that the source prohibition applies only “if the item is directly related to the national security interests of the United States.” It is unclear whether this wording implicitly recognizes DHS’s right to grant a national security waiver (which is not immediately available under the Berry Amendment), or if it means that the requirement will only be included in a subset of all DHS contracts – namely those directly relating to the “national security interests of the United States.” Would commercial vendors selling restroom towels and windbreakers to DHS office personnel be exempt from this requirement? We doubt that this is what Congressman Kissell had in mind when he introduced his amendment, but the language is unclear.
· Covered Products Under the Kissell Amendment. The Kissell Amendment applies to:
o Clothing (including the materials and components);
o Canvas or textile products such as tents, tarpaulins, covers, textile belts, bags, protective equipment (including body armor), sleep systems, load carrying equipment (including fieldpacks), textile marine equipment, parachutes, and bandages;
o Natural and synthetic fabrics, such as cotton and other natural fiber products, woven silk or woven silk blends, spun silk yarn for cartridge cloth, synthetic fabric or coated synthetic fabric, canvas products, and wool (whether in the form of fiber or yarn or contained in other fabrics, materials, or manufactured articles);
o Items of individual equipment manufactured from or containing such fibers, yarns, fabrics, or materials.
· Exceptions to the Kissell Amendment. The exceptions for the Kissell Amendment are largely similar to those with which companies may be familiar under the DOD Berry Amendment, namely:
o When DHS issues a domestic non-availability determination (DNAD);
o When the delivered end item contains a de minimis amounts (10% or less of the total value) of non-compliant fibers;
o Procurements by vessels in foreign waters;
o Emergency procurements;
o Purchases beneath the simplified acquisition threshold of $100,000.
· Additional Exception for “Obligations Under International Agreements.” The Kissell Amendment also includes a curious provision requiring that it be applied consistent with U.S. international trade agreements. This provision mirrors that included in Section 1605 of the Stimulus Act. Fundamentally, this provision seems to indicate that the Kissell Amendment will have a much more limited scope in terms of prohibiting international sources than does the current Berry Amendment (which does not currently have an exception for international free-trade partners). This provision seems to add an exception for “qualifying countries,” but it may also have the unintended effect of introducing an anti-American bias into a statute that is designed to look out for American interests first (discussed here). Only time will tell how this provision plays out in reality and whether DHS will avoid the inherent anti-American bias that this exception has previously demonstrated under DOD procurement rules.
· Public Notice Requirements. Similar to the Berry Amendment, the Kissell Amendment requires DHS to issue a public notice within seven days of whenever it invokes the DNAD exception.
· New DHS Training. Trying to avoid the confusion that most DOD (and industry) personnel have about the Berry Amendment, the Kissell Amendment tries to get a head start on educating people. It instructs DHS to ensure that “each member of the acquisition workforce in the Department of Homeland Security who participates personally and substantially in the acquisition of textiles on a regular basis” receives training in 2009 regarding the requirements of the Kissell Amendment. Going forward, training on the Kissell Amendment should be received by all DHS acquisition workforce personnel.
· Effective Date. This new requirement will apply to contracts executed on or after August 16, 2009. Presumably, DHS will issue either interim or final rules implementing this new requirement in the meantime.
There has been talk on Capitol Hill for at least the last few years of expanding the scope of the Berry Amendment to include DHS. Congressman Kissell has not just talked the talk, he walks the walk. Beginning in August 2009, this is the new reality for DHS procurements. Companies selling to DHS should be aware of this new requirement. Additionally, companies should be careful to observe that the Kissell Amendment, while similar to, is not the same as the Berry Amendment. Some of the differences are very curious, such as the provision limiting the statute to items “directly related to the national security interests of the United States.” Others may possibly backfire on U.S. companies, such as the requirement that the law be “applied in a manner consistent with United States obligations under international agreements.” Hopefully, DHS will add some welcome clarity in issuing the implementing rules for the Kissell Amendment.
Companies should also be aware that the new Kissell Amendment does not incorporate the DOD restrictions on acquiring specialty metals (10 U.S.C. § 2533b) (discussed at length here). That unwieldy "Buy American" regime remains applicable only to DOD procurements and has not yet been expanded to civilian agencies such as DHS. We are hopeful that the passage of the Kissell Amendment does not forebode a similar expansion of the specialty metals restrictions.