Contracting with qualifying country sources

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1. The public interest determination

The Defense Federal Acquisition Regulation Supplement (DFARS) relaxes the domestic preference rules for a list of allied countries. The basis is a set of memoranda of understanding and other international agreements (DFARS 225.872-1(a)). As a result of them, the Defense Department has determined it inconsistent with the public interest to apply Buy American statute or Balance of Payments Program restrictions to qualifying country end products from listed qualifying countries (DFARS 225.872-1(a)).

The countries listed are Australia, Belgium, Canada, the Czech Republic, Denmark, Egypt, Estonia, the Federal Republic of Germany, Finland, France, Greece, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg and the Netherlands (DFARS 225.872-1(a)). The list continues with Norway, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland, Turkey and the United Kingdom of Great Britain and Northern Ireland.

Austria is treated differently. Individual acquisitions of qualifying country end products from Austria may, on a purchase-by-purchase basis, be exempted from the Buy American statute and the Balance of Payments Program as inconsistent with the public interest (DFARS 225.872-1(b)). The determination does not limit the authority of the Secretary concerned to restrict acquisitions to domestic sources, or to reject an otherwise acceptable offer from a qualifying country source, when necessary for national defense reasons (DFARS 225.872-1(c)).

2. Where the rules apply

The section applies to all acquisitions of supplies, except those restricted by four kinds of rule (DFARS 225.872-2(a)). The first is the U.S. National Disclosure Policy in Department of Defense Directive 5230.11, on disclosure of classified military information to foreign governments and international organizations (DFARS 225.872-2(a)(1)). The second is U.S. defense mobilization base requirements purchased under Federal Acquisition Regulation (FAR) 6.302-3(a)(2)(i), except for quantities in excess of those required to maintain the base (DFARS 225.872-2(a)(2)). That restriction does not apply to Canadian planned producers.

Contracting officers review individual solicitations to determine whether the mobilization base restriction applies (DFARS 225.872-2(a)(2)(i)). Information on restricted items may be obtained from the Deputy Assistant Secretary of Defense for Industrial Base Policy (DFARS 225.872-2(a)(2)(ii)). The other two exceptions are other U.S. laws or regulations, such as the annual Defense appropriations act, and U.S. industrial security requirements (DFARS 225.872-2(a)(3) and DFARS 225.872-2(a)(4)). The section does not apply to construction contracts (DFARS 225.872-2(b)).

3. Soliciting qualifying country sources

Except for items developed under the U.S./Canadian Development Sharing Program, contracting officers use the FAR Part 19 criteria for small business set-asides without regard to whether there are potential qualifying country sources (DFARS 225.872-3(a)). An offer of a qualifying country end product is not considered if the solicitation is identified for the exclusive participation of small business concerns.

Solicitations are sent directly to qualifying country sources, and Canadian sources are solicited through the Canadian Commercial Corporation (DFARS 225.872-3(b)). International air mail is used if solicitation destinations are outside the United States and security classification permits (DFARS 225.872-3(c)). If unusual technical or security requirements preclude otherwise acceptable defense equipment from qualifying country sources, the need for those requirements is reviewed (DFARS 225.872-3(d)). They must not be imposed solely to preclude the acquisition of defense equipment from qualifying countries.

4. Testing and meetings

Qualifying country sources are not automatically excluded because their supplies have not been tested and evaluated by the department or agency (DFARS 225.872-3(e)). Some departments or agencies must limit solicitations to sources whose items they have tested and evaluated. For them, the adequacy of qualifying country service testing is considered case by case, and supplies tested and accepted by the qualifying country for service use are considered (DFARS 225.872-3(e)(1)). The department or agency may perform a confirmatory test if necessary, applying U.S. test and evaluation standards, policies and procedures (DFARS 225.872-3(e)(2) and DFARS 225.872-3(e)(3)). If these provisions might adversely delay service programs, the concurrence of the Under Secretary of Defense (Acquisition and Sustainment) is obtained before excluding the source (DFARS 225.872-3(e)(4)).

Industry representatives from a qualifying country are permitted to attend symposia, program briefings, prebid conferences and similar meetings that address U.S. defense equipment needs (DFARS 225.872-3(f)). When practical, those meetings are structured to allow attendance by representatives of qualifying country concerns.

5. Austria and contract administration

Austria needs an individual determination (DFARS 225.872-4). If an evaluated offer of an end product from Austria is low or otherwise eligible for award, the contracting officer prepares a determination and findings exempting the acquisition from both rules (DFARS 225.872-4). That step is not needed where another exception, such as the Trade Agreements Act, applies. The procedures are at Procedures, Guidance and Information (PGI) 225.872-4.

Arrangements exist with some qualifying countries to provide reciprocal contract administration services, and some are at no cost to either government (DFARS 225.872-5(a)). The Office of the Principal Director, Defense Pricing, Contracting, and Acquisition Policy (Contract Policy) can confirm whether an arrangement exists and what it covers. Contract administration follows the procedures at PGI 225.872-5(b) (DFARS 225.872-5(b)). Information on quality assurance delegations to foreign governments is in Subpart 246.4 (DFARS 225.872-5(c)). Requests for audit services in France, Germany, the Netherlands or the United Kingdom follow PGI 215.404-2(c), plus the additional procedures at PGI 225.872-6 (DFARS 225.872-6).

6. Security and subcontracts

The procedures for safeguarding classified defense information needed to perform contracts awarded to qualifying country sources are in the National Industrial Security Program Operating Manual, title 32 of the Code of Federal Regulations, part 117 (DFARS 225.872-7). DFARS 225.872-7 lists implementing instructions, including Army Regulation 380-49 for the Army, Secretary of the Navy Instruction 5510.1H for the Navy and Air Force Instruction 31-601 for the Air Force.

In reviewing contractor subcontracting procedures, the contracting officer ensures that the contract does not preclude qualifying country sources from competing for subcontracts (DFARS 225.872-8). The exceptions are restrictions for national security interest reasons, mobilization base considerations, or applicable U.S. laws or regulations, and the related clause is 252.225-7002, Qualifying Country Sources as Subcontractors. How Canadian contracts are placed is covered in contracting with Canadian suppliers.

Key terms

Qualifying country	A country listed in DFARS 225.872-1 for relief from domestic preference rules.
Qualifying country end product	An end product from a qualifying country eligible for that relief.
Purchase-by-purchase	The case-by-case exemption basis that applies to Austria.
Mobilization base	Defense production capacity that can limit qualifying country purchases.
Confirmatory test	A test of a qualifying country product the agency may perform if needed.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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