Rules could ease COTS requirements

Proposed rule to exempt COTS items from some restructions

If a proposed rule published today becomes final, agencies could buy commercial off-the-shelf (COTS) items without regard to certain requirements originally designed to encourage the use of goods made in the United States and its formal trade partners.

COTS refers to products that are sold in substantial quantities to companies and/or consumers, and sold to the government in the same form as they are in the commercial marketplace. The new proposal from two acquisition councils would exempt COTS purchases from the requirements of the Trade Agreements or Buy American acts, along with 17 other provisions. Written comments on the proposed rule are due by March 15.

The Trade Agreements Act requires that the government buy only items made or "substantially transformed" in countries with which the United States has trade agreements. The Buy American Act encourages agencies to buy American-made products by adding costs to foreign-made goods.

Numerous exceptions and exemptions exist for both.

The proposed rule, released by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council, is intended to apply part of the Clinger-Cohen Act of 1996 to COTS items. If the rule passes as written, it would free agency officials from having to worry about where merchandise is made, said two attorneys who specialize in procurement law.

Creating a Trade Agreements exemption for COTS would be a significant change for agencies, said Louis Victorino, an attorney at Sheppard, Mullin, Richter and Hampton LLP in Washington, D.C. Agencies would suddenly be able to buy items made in Taiwan, Malaysia, South Africa, China and Australia.

"If it becomes the rule, nobody has to worry about where items are manufactured anymore," Victorino said. "A laptop manufactured in Taiwan would no longer have to be substantially transformed in a designated country."

Trade Agreements requirements have been a major obstacle for technology companies, said Jonathan Aronie, also a lawyer at Sheppard Mullin. "If the Trade Agreements Act no longer applies to COTS items, it really opens up the marketplace," he said.

The net effect of the new rule will be to free up vendors from rules that don't apply in the nongovernment world, he said. "This will bring us closer to letting commercial companies operate more like commercial companies even when selling to the government."

The proposal runs counter to efforts in Congress last year to strengthen the Buy American Act. Some lawmakers tried to add language to the Defense Authorization Act that would have required companies to keep records on the countries of origin of components they use. It also would have raised the threshold of American-made components that systems must contain from 50 percent to 65 percent. Those measures were ultimately stripped out of the bill.

"It was going in the opposite direction," Victorino said of last year's efforts.

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