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Type: Law Bulletins
Date: 05/22/2019

Application of the Berry Amendment’s Domestic Source Restriction to Items Listed in FAR § 25.104(a)

In Mechanix Wear, Inc., B-416704.3, May 6, 2019, 2019 WL 2052703, the Defense Logistics Agency (DLA) was procuring combat gloves with the capability to be used with touch screens. The RFP required the leather used in the gloves be made from goat and kidskin (goat/kidskin). The initial RFP stated that, while pickled-state goat/kidskin from foreign sources could be used, all tanning and processing of the goat/kidskin must be done domestically. Amendment 1 to the RFP changed this requirement by prohibiting the use of any foreign goat/kidskin, stating: “All Goat/Kidskin ‘MUST’ be 100% Domestic to include all tanning process.” Mechanix Wear filed a pre-award protest of this restriction, arguing the Defense Federal Acquisition Regulation Supplement (DFARS) exception for items listed at FAR § 25.104(a), includes goat/kidskin, and therefore are exempt from the Berry Amendment’s domestic restrictions. In response, the DLA argued that the exception did not apply, because the agency’s market research indicated that goat/kidskins were available domestically in sufficient quantity and quality to meet the agency’s needs.

On Nov. 19, 2018, the Government Accountability Office (GAO) sustained Mechanix Wear’s protest (B-416704, B-416704.2, Nov. 19, 2018, 2018 CPD ¶ 395). The GAO disagreed with the DLA’s interpretation of the regulations and concluded that the DFARS sections implementing the Berry Amendment do not require the agency to impose a domestic restriction on the goat/kidskins because the item qualifies for an applicable exception (i.e., is listed at FAR § 25.104(a)). The GAO recommended that the DLA either provide reasonable support for its decision to require the gloves be made with domestic leather, or amend the solicitation’s restriction on goat/kidskin consistent with the GAO’s decision and the applicable regulations. On Jan. 17, 2019, DLA issued Amendment 7 to the RFP. It deleted the restriction requiring the use of domestic goat/kidskin. In its place, the amendment added the following requirement:

NOTE:  Goat/Kidskin in a pickled state FROM FOREIGN SOURCES may be used; HOWEVER, ALL TANNING AND PROCESSING OF THE GOAT/KIDSKIN MUST BE DONE DOMESTICALLY. 

Mechanix Wear filed a second protest, challenging the amended requirement. Mechanix Wear argued: (1) the GAO’s prior decision already concluded that the agency was not required to impose a domestic restriction on goat/kidskin; (2) the RFP’s restriction against foreign tanning and processing of goat/kidskins is unreasonable and contrary to the Berry Amendment exception for goat/kidskins; and (3) the DLA’s interpretation of the relevant DFARS clause is inconsistent because it asserts that foreign processing of the skins is permissible up to a certain point, but not permissible beyond that point.

First, the GAO noted that its prior decision did not reach the conclusion argued by Mechanix Wear. That is, the prior protest did not address the distinction between goat/kidskins and goat/kidskin leather, and did not address whether the tanning and processing of the goat/kidskins to turn them into leather is subject to the Berry Amendment’s domestic restrictions. Instead, the decision primarily considered whether the regulations permitted DLA to override the FAR § 25.104(a), nonavailability exception for goat/kidskins, where the agency had determined that such skins were available in sufficient quantity and quality.  

Second, Mechanix Wear argued that because DFARS § 252.225-7012(c) states that “[t]his clause does not apply” to items listed at FAR § 25.104(a), and goat/kidskin is listed at FAR § 25.104(a), it is not subject to the Berry Amendment’s domestic processing restrictions. DLA’s response was that DFARS § 252.225-7012 prohibits it from procuring an item (as either an end item or as a component of another item), if it is not grown, reprocessed, reused or produced in the United States. As a result, the production of each glove component, and each successive stage in the manufacturing of the gloves, must be performed domestically unless an exception applies. Although there is an exception for one component of the gloves, that doesn’t mean that subsequent manufacturing steps and components are similarly exempted. In short, the exception for goat/kidskin does not extend to the process used to manufacture goat/kidskin leather.  

Even though the clause affords an exception for goat/kidskins in a pre-leather state, the GAO found the DLA’s interpretation to be reasonable. The GAO noted that its first decision (Mechanix Wear, Inc., B-416704, B-416704.2, Nov. 19, 2018, 2018 CPD ¶ 395) determined that items listed in FAR § 25.104(a), including goat/kidskin, qualify for an exception to the Berry Amendment requirement. The GAO then clarified that FAR § 25.104(a) does not list goat or kidskin leather, and explained that tanning of goat/kidskins is a manufacturing process that results in the production of a new glove component, i.e., goat/kidskin leather. Once the skins have been tanned, they are more aptly characterized as goat/kidskin leather rather than as goat/kidskins. As a result, and in light of the broad scope of the Berry Amendment and the deference afforded to the agency to implement the Amendment, the GAO found the DLA acted reasonably in determining this manufacturing step is subject to the Berry Amendment. So, unless there is an applicable exception, each successive manufacturing stage needed to produce the combat gloves, as well as each component of the gloves, must be performed within the United States. 

Finally, Mechanix Wear argued that DLA’s interpretation was inconsistent because it permits some processing of goat/kidskin outside the United States, while arbitrarily prohibiting other types of foreign processing (the RFP states that goat/kidskin in a pickled state may be used, but restricts further processing of the skins beyond the pickled state). The GAO found the DLA’s implementation of the restriction to be consistent and reasonable. Once the skins undergo tanning, they become leather. The tanning stage is different from earlier processing steps, which were performed on the goat/kidskins, because it can be reasonably characterized as a step in the manufacture of a new component, goat/kidskin leather. Moreover, until the skins have undergone beamhouse processing, which is a set of processes that includes pickling, the skins are not sufficiently stabilized and will generally be unsuitable for transport from overseas. Requiring beamhouse processing to be performed domestically would generally require that the skins themselves be flayed domestically, which would have the practical effect of eviscerating the Berry Amendment exception for goat/kidskins. 

In light of these considerations, the GAO found the DLA reasonably placed a restriction on foreign tanning, but not to earlier processing steps. The restriction was not inconsistent with its decision to permit certain domestic processing steps needed to stabilize the skins. 

This decision demonstrates that analysis of Berry Amendment compliance does not end just because an item or component is included in the list at FAR § 25.104(a). Unless there is an applicable exception, companies need to look at each successive manufacturing stage in producing an item, as well as each component of an item, to ensure it is performed within the United States.

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