Earlier this week, the Department of Defense (“DoD”) issued a proposed rule to revise (and make stricter) the unique sourcing requirements applicable to certain photovoltaic devices that are used in the performance of DoD contracts. Specifically, unless an exception under the Trade Agreements Act applies or a contractor secures a waiver based on public interest or unreasonable cost, the proposed rule would require photovoltaic devices provided under a covered contract to be both manufactured in the United States and made “substantially all” from components or materials that are also mined, produced, or manufactured in the United States. DoD contracts covered by the proposed rule involve the provision of photovoltaic devices that are—within the United States—either (i) installed on DoD property or in a DoD facility or (ii) reserved for the DoD’s exclusive use for their full economic life. Although the proposed rule does not apply to contracts under which the DoD directly acquires photovoltaic devices as end products, it does extend to energy savings performance contracts and power purchase agreements under which the DoD effectively acquires electricity produced by photovoltaic devices that are installed and managed by contractors. As we have previously discussed, these contracts represent significant opportunities, especially given the DoD’s continued focus on securing sources of renewable energy.
The proposed rule implements new sourcing requirements set forth in the National Defense Authorization Act for Fiscal Year 2015, which overlap with existing requirements established in the National Defense Authorization Act for Fiscal Year 2011 that are contained largely in DFARS 252.225-7017. Although the new requirements are largely consistent with existing requirements, which make the Buy American Act applicable to photovoltaic devices provided under similar contracts, the new requirements contain key differences that may complicate existing supply chains. Importantly, the DoD has interpreted the new requirements to foreclose existing exceptions and waivers on which contractors may currently rely to provide photovoltaic devices that are manufactured outside the United States or made from foreign components. In addition, whereas existing requirements apply only when both the DoD has reserved the exclusive use of a photovoltaic device and the device is to be installed on DoD property or in a DoD facility, the new requirements apply when either condition is satisfied. As a result, a number of contracts will suddenly be subject to new sourcing requirements under the proposed rule, including contracts under which the DoD does not have an exclusive right to power generated from a photovoltaic device installed on DoD property or in a DoD facility, such as when a contractor is authorized to export power produced by such a device to a commercial grid, as well as contracts which have a term that is less than the full economic life of such a device.