Well one of the endless numbers of administratively burdensome requirements the Federal Government places on your contracts may just be the silver bullet you need. Review your contracts and look for FAR 52.225-8, Duty-Free Entry, and DFARS 252.225-7013, Duty-Free Entry.
What Do These Clauses Allow?
These clauses allow you to work through the contracting officer to have material amounts of duties (i.e., tariffs) applied to foreign goods used in direct support of Federal Government contracts removed.
The clauses address a specific notification process, forms to be completed, and required markings for the shipments. The DFARS clause even provides an address and spells out that the DCMA Commander in New York will help facilitate the process.
When Are These Clauses Included in Your Contracts?
FAR 25.1101(e) provides that FAR 52.225-8 may be incorporated into contracts for supplies that may be imported into the United States and for which duty-free entry may be obtained in accordance with FAR 25.903(a), when the value of your contract exceeds the simplified acquisition threshold or the savings from waiving the duty is anticipated to be more than the administrative cost of waiving the duty. FAR 52.225-8 can be included in both fixed-price and cost-type contracts.
As contracting officers have enough trouble remembering to include clauses that are straight-up required, you cannot rely on the contracting officer to include this clause without some engagement on your part. For a cost-type contract where the Government will benefit, sure the contracting officer is likely to add the clause after the award. For a fixed-price contract, it's a fat chance. Remember, the Christian Doctrine only works in the favor of the Government.
DFARS 225.1101(4) provides that for DoD contracts, FAR 52.225-8 is replaced with DFARS 252.225-7013 when it is appropriate to do so.
So, the way I read this, anytime the cost-benefit to the Government outweighs the administrative burden to the Government, the contracting officer should include one of these clauses to reduce contract cost to the Government.
As a side note, I am really surprised that some innovative DCAA auditors have not figured out how to use these clauses to question cost during price proposal audits. Well, I guess there are benefits to having so many requirements that the auditors cannot think of everything.
What About Your Subcontractors?
Both clauses have a flow-down provision:
- Under FAR 52.225-8, you are required to include the substance of this clause in any subcontract for supplies you identified in your proposal to the Government from a foreign source or other foreign supplies of more than $15,000.
- Under DFARS 252.255-7013, you are required to include the substance of this clause in any subcontract for supplies from qualifying countries or a nonqualifying country for which the duty will exceed $200 per unit.
Steps to Take Now
- Review your supply chain (yes, go down the chain) to determine the risk associated with foreign supplies. You should have been doing this to support your Buy American requirements anyway.
- Review your current contracts to determine which ones have FAR 52.225-8, Duty-Free Entry, or DFARS 252.225-7013, Duty-Free Entry.
- If your risk is high:
- Start working with your contracting officers to add one of the clauses, and
- Make sure you get one of the clauses into your future contracts.
- Flow down the duty-free provisions when they are in your contract.
- Develop policies and procedures to leverage the duty-free provisions.
Strengthen Your Compliance and Purchasing Systems
Redstone Government Consulting, Inc. supports contractors across the U.S. and internationally in understanding and complying with federal purchasing requirements. Our team provides tailored consulting, policy templates, and training to help you develop and maintain an adequate purchasing system including processes to leverage duty-free entry clauses effectively. Whether you need help reviewing your current practices, preparing for a Contractor Purchasing System Review (CPSR), or strengthening your compliance programs, Redstone GCI is ready to be a trusted part of your team.