This is the third in a four-part series of articles on the current scrutiny being given to rare earths by the US Congress and US Department of Defense, in the context of national security considerations. The second part can be accessed here. The full white paper can be downloaded as a PDF file from here.
Strategic Materials and the Law – Continued
As to be expected, not everyone disagreed with the SMPB report. David Gallacher, a Washingon, D.C. attorney with the firm Sheppard Mullin, is a practitioner in government contracts and compliance with regulatory requirements. He wrote soon after the publication of the report that to his surprise, “the Board seems to have actually embraced some common sense, running counter to the implicit ‘policy demands’ that protectionists like Senator Evan Bayh (D-IN) seem to be pushing” . This was a reference to a press release issued in May of 2008, by Senator Bayh and then-Senator Hillary Clinton (D-NY) during Clinton’s presidential campaign, demanding that the DoD rigorously enforce laws pertaining to specialty metals .
Gallacher and his Sheppard Mullin colleague John Chierichella have previously called the specialty metals restrictions “a relic of a former age, ill-suited to the realities of our global marketplace and current procurement demands” . Sheppard Mullin’s clients include entities on the other side of the specialty metals debate, such as prime contractors in the aerospace and defense sectors . At the time of the formation of the SMPB, they referred to its creation as “the most irrelevant of the ‘reforms’ implemented by the [NDAA for FY2007]”, calling it “a board that no one asked for and no one except Congress wants”, ensuring that “debate on specialty metals remains alive, even if it does not move toward progress” . In his response to the SMPB’s report, Gallacher hoped that “this latest analysis from the Strategic Materials Protection Board will provide a foundation for some long overdue Congressional action to simplify, if not eliminate, what has become one the most complex aspects of DOD contracting”  i.e. the specialty metals provision.
In her March 2009 update to the ongoing Congressional Research Service report on specialty metals, Valerie Bailey Grasso reviewed the report of the SMPB in the context of the larger debate on specialty metal provisions, noting that “[s]ome policymakers believe that the specialty metal provision conflicts with free trade policies and that the presence and degree of such competition is the most effective tool for promoting efficiencies and improving quality. Others believe that domestic specialty metal suppliers need the protections afforded by domestic source provisions, and that keeping a robust, domestic specialty metal industry is a hedge against any future enemy threat” .
In a subsequent review of the history of the specialty metal provision, Grasso further notes that “[f]rom the inception of the specialty metal provision, both Congress and DoD emphasized that a test of reasonableness would be applied; that the specialty metal provision should not pose an administrative burden upon DoD contractors nor the federal government”. She went on to quote a statement by Lieutenant General Donald J. Hoffman, Military Deputy in the Office of the Assistant Secretary of the Air Force for Acquisition, before the HASC Subcommittee of Air and Land Forces on March 7, 2007. Hoffman said that as part of the waiver process in 2006 for the ARMRAM missile program, “the government contractor spent over 2,200 man hours to review 4,000 parts, and produced a documentation to justify the waiver. This documentation was eight inches tall in printed form. All this work was to justify a waiver for $14,000 on an item that is valued at $566,000” . We’d be hard pressed to find a better example of an “administrative burden”.
In response to such anecdotes, Jeff Green commented that “there have been significant modifications to the specialty metals clause since 2007, to ease the implementation of the law including new authorities that allow the unrestricted use of commercial-off-the-shelf (COTS) items, a de minimis exception that allows unrestricted use of up to 2% of an end item, a national security exception and a co-mingling authority to allowing mixing of foreign and domestic metal” . However, while such modifications have in fact been implemented, for the most part these concessions specifically do not apply to high performance magnets which contain specialty metals (i.e. Sm-Co) and thus complications do remain.
There are those then, within the DoD and outside of it, who, for a variety of reasons do not want to see any further specialty metals-related restrictions or other parameters. This resistance will be encountered by those who would like to see the formal definition of rare earth materials as strategic materials, from a national security point of view – at least, via the specialty metals route. That said, such proponents do have something of an insurance policy. In addition to the mandate for the SMPB to address the issue of rare earth materials, Section 828 of HR 2647 also included a requirement that the Comptroller General (who directs the Government Accountability Office) submit to the House and Senate Armed Services Committees, “a report on the usage of rare earth materials in the supply chain of the Department of Defense”.
The purpose of the report was to “determine the availability of rare earth materials, including ores, semi-finished rare earth products, components containing rare-earth materials, and other uses of rare earths by the Department of Defense in its weapon systems” . The requirements became even more specific, to include:
- an analysis of past procurements and attempted procurements by foreign governments or government-controlled entities, including mines and mineral rights, of rare-earth resources outside such nation’s territorial boundaries;
- an analysis of the worldwide availability of rare earths, such as samarium, neodymium, thorium and lanthanum, including current and potential domestic sources for use in defense systems, including a projected analysis of projected availability of these materials in the export market;
- a determination as to which defense systems are currently dependent on rare earths supplied by non-domestic sources, particularly neodymium iron boron magnets.
There was an interesting minor anomaly in the language of Section 828 here; Sub-section d) defined the term “rare earth”, as used in Section 828, to mean “the chemical elements, all metals, beginning with lanthanum, atomic number 57, and including all of the natural chemical elements in the periodic table following lanthanum up to and including lutetium, element number 71. The term also includes the elements yttrium and scandium” . These are the same seventeen elements that the International Union of Pure and Applied Chemistry defines as rare earth metals  and yet in the specific requirement to analyze the worldwide availability of rare earths noted above, thorium was also listed a rare earth. Was this an inadvertent error, or was the inclusion intentional?
Article continues in Running the Gauntlet: Part 4.
1. HR 2647, ‘National Defense Authorization Act for Fiscal Year 2010’, Sec. 828, 25 Jun 2009.
15. Telephone interview with Jeff Green, J. A. Green & Company, LLC, 24 Aug 2009.
20. David Gallacher, ‘DOD Conclude That Specialty Metals Are Not Materials Critical To The National Security Interests Of The U.S.’, Government Contracts Blog, Sheppard Mullin, 9 Apr 2009.
21. Office of US Senator Evan Bayh, ‘Bayh Presses Pentagon to Comply With Laws to Protect Defense Manufacturing Base’, Press Release, 8 May 2008.
22. David Gallacher & John Chierichella, ‘Berry Amendment Reform – The Sound And The Fury’, The Government Contractor, Vol. 48, No. 39, 370, 25 Oct 2006.
23. Joshua Hamerman, ‘Sheppard Mullin Launches Aerospace / Defense Effort’, Mergers & Acquisitions Report, Vol. 20, No. 39, 15 Jan 2007.
24. Valerie Bailey Grasso, ‘The Specialty Metal Provision and the Berry Amendment: Issues for Congress’, Congressional Research Service, RL33751, 5 Mar 2009.
25. IUPAC, ‘Nomenclature of Inorganic Chemistry: IUPAC Recommendations 2005’, p 51, RSC Publishing, 2005.