The U.S. Department of Defense (DoD) has recently issued an interim rule that proposes to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to limit, with some exceptions, the acquisition of personal protective equipment (PPE) and certain other products from non-allied foreign nations, including the Democratic People’s Republic of North Korea, the People’s Republic of China, the Russian Federation, and the Islamic Republic of Iran. Some of the covered items include surgical masks, face shields and protective eyewear, vinyl gloves, isolation gowns, and sanitizing and disinfecting wipes, test swabs, bandages, and gauze. This rule is intended to implement section 802 of the National Defense Authorization Act (NDAA) for fiscal year 2022 (Pub. L. 117–81) (10 U.S.C. 2533e) and section 881 of the NDAA for fiscal year 2023 (Pub. L. 117–263). Though broad in its objective, the rule only applies to a relatively narrow band of contracts that fall within $150,000 to $250,000 in value. The government has not yet proposed a similar limitation on contracts in excess of the simplified acquisition threshold (SAT), which is currently set at $250,000.
If enacted in its proposed form, the new rule will establish a new contract clause, DFARS 252.225-7061, Restriction on the Acquisition of Personal Protective Equipment and Certain Other Items from Non-Allied Foreign Nations. This clause will be applied to solicitations and contracts, including for the acquisition of commercial products, commercial services, and commercially available off-the-shelf items, with an estimated value in excess of $150,000 and below the SAT. The restriction would not apply to acquisitions for covered items to be used outside of the United States. In addition, the rule would leave open the option for the head of the contracting activity to waive the restriction if they determine that the agency cannot otherwise procure covered items of satisfactory quality and quantity at a reasonable price. As the rule is still in interim format, many questions remain regarding its implementation, for example, whether the rule would apply retroactively and/or allow contracting officers to amend existing contracts to add this supply chain restriction.
Takeaway:
The goal of this rule is to decrease the DoD’s dependence on PPE and other items identified in section 802 that originate from non-allied countries, while also promoting national security and public health, and aiming to decrease the number of counterfeit PPE within the U.S. supply chain. However, as a practical matter, the rule change may create hardships by increasing supply chain costs for government contractors that have contracts that exceed the $150,000 threshold and that presently acquire covered items from covered countries.
China, for example, is a major U.S. and global supplier of PPE. Accordingly, if the new DFARS clause is implemented as written, contracting officers will be burdened with the task of searching for, identifying, and securing PPE suppliers in the United States or other allied nations. Additional challenges and time-consuming efforts on the part of the contracting officers will also be required to ensure that any potential supplier can provide the PPE that meet the quality and quantity standards required by each respective contract. By eliminating China from the pool of potential suppliers, contracting officers will have limited options and must prepare for increased costs as demand rises.
The DoD has invited comments on the interim rule. Contractors that are currently supplying PPE from China to the United States via a government contract should consider providing a comment to the proposed rule. All comments on the interim rule must be submitted in writing on or before April 3, 2023, to be considered in the formation of the final rule. If you would like assistance in submitting a comment, please reach out to one of the Reed Smith attorneys named in this article.
