This subpart implements the customary Defense Appropriation Act restriction on the availability of appropriated funds for the procurement of any article of food, clothing, cotton, wool, woven silk and woven silk blends, or spun silk yarn for cartridge cloth, as it has recurred in Defense Appropriation Acts for several years. However, reference should be made to the current Department of Defense Appropriations Act as a check on the current applicability of this subpart. Nothing in this subpart shall affect the applicability of the Buy American Act (see Subparts A and B of this part). (27 F.R. 11652, Nov. 27, 1962]

Except as provided in § 6.303, there shall not be procured supplies consisting in whole or in part of any food, clothing, cotton, wool, woven silk and woven silk blends, or spun silk yarn for cartridge cloth, which have not been grown or produced in the United States or its possessions; but this does not restrict the procurement of cotton or wool reprocessed or reused in the United States or its possessions or of foods manufactured or processed in the United States or its possessions.

[27 F.R. 11653, Nov. 27, 1962]

§ 6.303 Exceptions.

In general, food, clothing (not covered by § 6.304-2), woven silk and woven silk blends, spun silk yarn for cartridge cloth, or any form of mohair or cotton, will be procured only if grown, reprocessed, reused, or produced in the United States or its possessions. However, if the contracting officer finds that prices for such domestic supplies are unreasonable, he may refer the matter to the Secretary concerned for determination with respect to § 6.303 (g) in accordance with departmental procedures. [27 F.R. 11653, Nov. 27, 1962]

§ 6.305 Contract clause.

In accordance with the requirements of § 6.302, the clause set forth below shall be inserted in all contracts for supplies, and when applicable, in contracts for services. PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES (SEPT. 1962)

The Contractor agrees that there will be delivered under this contract only such articles of food, clothing, cotton, woven silk and woven silk blends, spun silk yarn for cartridge cloth, or wool (whether in the form of fiber or yarn or contained in fabrics, materials, or manufactured articles) as have been grown, reprocessed, reused, or produced in the United States, its possessions, or Puerto Rico; provided, that this clause shall have no effect to the extent that the Secretary has determined as to any such articles that a satisfactory quality and sufficient quantity cannot be procured as and when needed at United States market prices; provided further, that nothing herein shall preclude the delivery of foods under this contract which have been manufactured or processed in the United States, its possessions, or Puerto Rico.

[27 F.R. 11652, Nov. 27, 1962]

Subpart D-Purchases From SovietControlled Areas

CODIFICATION: In § 6.401-2, "Cuba" was added in alphabetical sequence to the list of countries, 27 FR. 6133, June 29, 1962. § 6.403 Contract clause.

(a) Except as provided in paragraph (b) of this section, in contracts for supplies, services, or construction, where acceptance is to take place outside the United States, its possessions, or Puerto Rico, the Soviet-controlled areas listed in § 6.401-2 shall set forth in the contract schedule, and the following clause shall be included in the contract:

SOVIET-CONTROLLED AREAS (APR. 1962)

(a) The Contractor shall not acquire for use in the performance of this contract any supplies or services originating from sources within Soviet-controlled areas, as listed in the Schedule of this contract, or transported from or through Hong Kong or Macao, without the written approval of the Contracting Officer.

(b) The Contractor agrees to insert the provisions of this clause, including this subparagraph (b) and the Soviet-controlled areas listed in the Schedule, in all subcontracts hereunder.

(b) The requirements of paragraph (a) of this section do not apply to purchase orders for small purchases (see Subpart F, Part 3 of this chapter) where there is other reasonable assurance of compliance with the policy set forth in this subpart.

[27 F.R. 6133, June 29, 1962]

Subpart E-Canadian Purchases

§ 6.503 Agreement with Department of Defence Production (Canada).

(a) An agreement, dated July 27, 1956, as amended December 17, 1956, May 31, 1957, January 6, 1961, and October 15, 1962, between the Department of Defence Production (Canada) and the U.S. Departments of the Army, the Navy, the Air Force, and the Defense Supply Agency,

sets forth policies and provides procedures with respect to all contracts for supplies and services placed with the Canadian Commercial Corporation on or after October 1, 1956.

[Paragraph (a) amended, 28 F.R. 4885, May 16, 1963]

(c) Text of agreement.

1. This agreement applies to all contracts placed, on or after October 1, 1956, by any of the Military Departments with the Corporation. It shall remain in force from year to year until terminated by mutual consent; however, it can be terminated on the 31st day of December or the 30th day of June in any year by either party provided that six months notice of termination has been given in writing. In addition, this agreement provides for certain reciprocal arrangements facilitating procurement by each of the parties in the country of the other.

2. (a) The Corporation agrees that it will cause all first-tier subcontracts under contracts covered by this agreement to be placed in accordance with the practices, policies and procedures of the Government of Canada covering procurement for defence purposes; and agrees that if the aggregate profit realized under such subcontracts by any first-tier subcontractor exceeds that which is allowed by the Government of Canada under the above mentioned practices, policies and procedures, the amount of such excess will be refunded by the Corporation to the Military Departments. There shall also be refunded profits on any subcontract in excess of amounts which the Minister of Defence Production (Canada) in the exercise of said practices, policies and procedures considers to be fair and reasonable, recovered by the Minister pursuant to Section 21 of the Defence Production Act (Canada) from any individual subcontractor of any tier. It is recognized that the practices, policies and procedures of the Government of Canada referred to above permit varying rates of profit not exceeding in the case of cost reimbursement type contracts 71⁄2 percent of estimated cost plus, in certain cases, a bonus where cost savings have been demonstrated, and not exceeding in the case of negotiated fixed contracts 10 percent of estimated cost. For the purpose of this paragraph, the Corporation will cause to be conducted such audits (in accordance with the Costing Memorandum DDP-31 of the Department of Defence Production (Canada) and such verifications of cost as are in accordance with the said practices, policies and procedures. The Corporation will render to the Military Departments its certificate that the provisions of this paragraph have been observed.

(b) Contracts for communication and transportation services, and the supply of power, water, gas and other utilities shall

be excepted from the provisions of subparagraph (a) above, provided the rates or charges for such services or utilities are fixed by public regulatory bodies; and provided further the Military Departments are accorded any special rates that may be available to the Canadian Government with respect to such contracts.

(c) The Canadian Government, its Departments and Agencies, including but not limited to the Corporation and Canadian Arsenals Limited, a Crown Company wholly owned by the Canadian Government, shall not be entitled to any profit on any contract or contracts covered by this agreement. Any profits which may be realized shall be returned to the Military Departments except as hereinafter provided:

Before refunding profits realized from the following sources

(1) Net profits of the Canadian Government, its Departments and Agencies, as defined above, with respect to contracts and subcontracts covered by this agreement.

(ii) Excess profits referred to in paragraph (a) above, and

(111) Renegotiation recoveries from subcontracts of any tier under contracts covered by this agreement, which recoveries the Military Departments would otherwise be entitled to receive in accordance with the provisions of subparagraph (a) above; the Corporation shall be entitled to deduct any losses it may sustain with respect to contracts covered by this agreement.

(d) Interim adjustments and refunds under this paragraph 2 shall be made at such time or times as may be mutually agreed upon but at least once a year as of June 30th. Such interim adjustments shall apply only to completed contracts. The final adjustment and refund shall be made as soon as practicable after the expiration of this agreement.

(e) The profit and loss provisions of this paragraph 2 shall not apply to contracts awarded to the Corporation as the result of formal competitive bidding (initiated by Invitation for Bids).

3. (a) All contracts placed by the Military Departments with the Corporation, except those placed as a result of formal competitive bidding, shall provide for prices or cost reimbursement, as the case may be, in terms of Canadian currency, and for payment to be made in such currency. Therefore, quotations and invoices shall be submitted by the Corporation to the Military Departments in terms of Canadian currency, and such cost data, vouchers, etc., as the contracts require shall also be submitted in terms of Canadian currency. However, the Corporation may elect in respect of any of such contracts to quote, submit the said cost data, vouchers, etc., and receive payment in United States currency, in which event such contracts shall provide for payment in United States currency and shall not be subject to adjustment for losses or gains resulting from fluctuations in exchange rates.

(b) All formal competitive bids shall be submitted by the Corporation in terms of United States currency and contracts placed as a result of such formal competitive bidding shall not be subject to adjustment for losses or gains resulting from fluctuation in exchange rates.

4. The Military Departments and the Corporation shall avoid, to the extent consistent with the declared policies of the Military Departments and the Canadian Government, the making of any surcharges covering administration costs with respect to contracts placed with the Corporation by any of the Military Departments and contracts placed by the Military Departments in the United States for the Canadian Government.

5. To the extent that contracts placed with the Corporation by the Military Departments provide for the audit of costs and profits, such audit will be made without charge to the Military Departments by the Cost Inspection and Audit Division of the Treasury of Canada in accordance with Costing Memorandum Form DDP-31 of the Department of Defence Production, Canada.

6. The Canadian Government shall arrange for inspection personnel of the Department of National Defence (Canada) to act on behalf of the Military Departments with respect to contracts placed by the Military Departments with the Corporation and with respect to subcontracts placed in Canada by United States contractors which are performing contracts for the Military Departments, and for the use of inspection facilities of the Department of National Defence (Canada) for such purposes, such personnel and facilities to be provided without cost to the Military Departments. The Military Departments shall provide and make no charge for inspection services and inspection facilities in connection with contracts placed in the United States by the Military Departments for the Canadian Government and with respect to subcontracts placed in the United States by Canadian contractors which are performing contracts for the Department of Defence Production (Canada). The Department of

National Defence (Canada) or any Military Department may provide liaison with the other's inspection personnel in connection with the foregoing. It is understood that either the Department of National Defence (Canada) or any Military Department may in appropriate cases arrange for inspection by its own inspection organization in the other's country.

7. Because of the varying arrangements made by the Canadian Government and the Military Departments in furnishing Government-owned facilities (including buildings and machine tools) to contractors, it is recognized that the matter of inclusion in contract prices of charges, through amortization or otherwise, for use of such facilities will be determined in the negotiation of individual contracts. However, there shall be avoided, to the extent consistent with the policies of

the Canadian Government and Military Departments, any such charges for use of Government-furnished facilities.

8. (a) The Corporation agrees that the prices set out in fixed-price type contracts covered by this Agreement will not include any taxes with respect to first-tier subcontracts; nor shall prices include custom duties to the extent refundable in accordance with Canadian law, paid upon the import of any materials, parts, or components incorporated or to be incorporated in the supplies, with respect to first-tier subcontracts.

(b) The Corporation agrees that under cost-reimbursement type contracts the Corporation shall, to the extent practicable with respect to first-tier subcontracts, exclude from its claims all taxes and to the extent refundable in accordance with Canadian law, customs duties, paid upon the import of any materials, parts, or components, incorporated or to be incorporated in the supplies and that any amounts included in such claims representing such taxes and duties shall be refunded or credited to the Military Departments.

(c) The Corporation agrees that to the extent that such taxes and duties can be reasonably and economically identified it will use its best endeavors to cause such taxes and duties to be excluded from all subcontracts below the first-tier and if found to be included to be recoverable and credited to the Military Departments.

9. The Corporation recognizes that existing law of the United States prohibits the use of the cost-plus-a-percentage-of-cost system of contracting.

10. Each contract covered by this agreement shall be deemed to include the provisions required by (1) Public Law 245, 82d Congress of the United States (65 Stat. 700; 41 U.S.C. 153(c)) and (11) Section 719 of Public Law 458, 83d Congress of the United States (68 Stat. 353) or similar provisions that may be required by subsequent legislation.

[Paragraph (c) added, 26 F.R. 5307, June 14, 1961]

Subpart F-Duty and Customs
[Revised]

SOURCE: 6.601 to 6.605-5 appear at 27 F.R. 1705, Feb. 22, 1962, except as otherwise noted.

Prior Amendments

1961: 26 F.R. 2609, Mar. 28.

§ 6.601 Scope of subpart.

(a) This subpart sets forth policies and procedures for excepting from import duty certain supplies that are imported into the United States in connection with Defense contracts. Ordinarily, duty is payable for the importation of supplies obtained outside the United States. Two exceptions to this rule are available to

the Department of Defense; "emergency purchases of war materials abroad” by a Military Department may be imported duty-free pursuant to 10 U.S.C. 2383; and certain supplies (not including equipment) for vessels or aircraft operated by the United States may be imported duty-free pursuant to 19 U.S.C. 1309. This subpart prescribes the uses and limits of these two exceptions.

(b) This subpart does not deal with or affect the evaluation of bids or proRules posals offering foreign supplies. for such evaluation are in Subparts A through C of this part. Although the procedures of this subpart may require or permit duty-free entry to be accorded foreign supplies in a given case, this in itself neither precludes nor requires the inclusion of duty in evaluating a bid offering such supplies.

§ 6.602 Policy.

The issuance of duty-free entry certificates in appropriate situations will result in important savings to military appropriations. Such certificates must be limited to carefully selected situations lest they result in unanticipated profits to contractors, especially under fixedprice type contracts, and involve the Government in administrative expenses outweighing any possible savings to military appropriations. It is Defense policy to use duty-free entry certificates whereever there is reasonable assurance that advantages in the form of savings to military appropriations will outweigh the administrative and other costs of processing duty-free entry certificates and of maintaining controls to verify that the full benefit of the certificates inures to the Government.

§ 6.603 Emergency purchases of war materials abroad.

§ 6.603-1 Definition.

Any procurement of foreign supplies constitutes "an emergency purchase of war material" if:

(a) The supplies comprise:

(b) The procurement:

(1) Is made in time of war or during a national emergency;

(2) Is made because of a shortage of domestic supply, pursuant to a decision that the supplies are necessary for the adequate maintenance of the Armed Services;

(3) Is made for the use of United States forces abroad or United States vessels in foreign waters; or

(4) Consists of captured enemy war material, materials requistioned by United States forces abroad, or materials rebuilt from other materials owned by, captured by, or turned over to United States forces.

(a) To assure that the policy of § 6.602 is carried out for emergency purchases of war materials abroad, one or both of the clauses in § 6.603-3 shall be included in each negotiated contract in excess of $100,000 unless the minimum dollar limits in § 6.603-3 (a) and (b), respectively, apply. Notwithstanding these dollar limits, either or both of the clauses in § 6.603-3 may be inserted in any other negotiated contract where the contracting officer determines that to do so would further the policy in § 6.602 and would be consistent with the limitations in paragraph (c) of this section, and in any such case the dollar figures in paragraph (a) and (c) of the clause in § 6.603-3(b) may be reduced appropriately.

(b) The requirements in paragraph (a) of this section are in addition to and independent of the requirements in § 6.605 concerning duty-free entry clauses for Canadian supplies.

(c) Duty-free entry certificates shall be issued as required by contracts containing any of the contract clauses described in §§ 6.603-3 and 6.605. Consistent with § 6.602, duty-free entry certificates may be issued in connection with any other contract for an "emergency purchase of war material" that falls within one of the following categories:

(1) Direct purchases abroad regardless of whether title passes at point of origin or at destination in the United States, providing the contract states that the final price is exclusive of duty;

(2) Purchases abroad by a Government prime contractor under a cost-reimbursement type contract or by a costreimbursement type subcontractor

(where no fixed-price prime or fixedprice subcontract intervenes between the purchaser and the Government), regardless of whether title passes at point of origin or at destination in the United States. If a fixed-price prime or fixedprice subcontract intervenes, the criteria stated in subparagraph (3) of this paragraph should be followed; and

(3) Purchases abroad by a fixed-price contractor, fixed-price subcontractor, or cost-type subcontractor where a fixedprice prime, or fixed-price subcontract intervenes, provided (i) the fixed-price prime and, where applicable, fixed-price subcontract prices are, or are amended to be, exclusive of duty; (ii) the prime contractor and, where applicable, the subcontractors concerned certify that the supplies so purchased are to be delivered to the Government or incorporated in Government-owned property or in an end product to be furnished to the Government, and that the duty will be paid if such supplies or any portion thereof are utilized for other than the performance of the Government contract or disposed of other than for the benefit of the Government in accordance with the contract terms; and (iii) such procurement abroad is authorized by the terms of the prime contract, the applicable subcontract, or by the contracting officer.

In any such case the procedures required by the clauses in § 6.603-3 and by § 6.603-4 shall be followed to the extent practicable.

(a) Duty-free entry for designated items. Within the limits of § 6.603-2(a) the following clause shall be used where the contracting officer definitely knows at the time of execution of the contract that foreign supplies (other than those for which duty-free entry is to be accorded pursuant to a clause authorized by 6.605), on which the estimated aggregate duty exceeds $1,000, are to be imported into the United States, its possessions, or Puerto Rico, in connection with performance of the contract.

DUTY-FREE ENTRY FOR CERTAIN SPECIFIED ITEMS (NOV. 1961)

(a) Except as otherwise approved by the Contracting Officer, no amount is or will be included in the contract price on account of duty with respect to those supplies that are specifically identified in the schedule as supplies to be accorded duty-free entry.