[Federal Register: June 7, 2010 (Volume 75, Number 108)]
[Proposed Rules]
[Page 32122-32140]
[DOCID:fr07jn10-10]

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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 700

[Docket No.<PHONE_NUMBER>-0016-01]
RIN 0694-AE81

Revisions to Defense Priorities and Allocations System
Regulations

AGENCY: Bureau of Industry and Security, Department of Commerce.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would reorganize and clarify existing
standards and procedures by which the Bureau of Industry and Security
(BIS) may require that certain contracts or orders that promote the
national defense be given priority over other contracts or orders. This
rule also sets new standards and procedures by which BIS may allocate
materials, services and facilities to promote the national defense. BIS
is publishing this rule to comply with a requirement of the Defense
Production Act Reauthorization of 2009 to publish regulations providing
standards and procedures for prioritization of contracts and orders and
for allocation of materials, services and facilities to promote the
national defense.

DATES: Comments must be received by July 7, 2010.

ADDRESSES: You may submit comments, identified by RIN 0694-AE81, by any
of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
     By e-mail directly to<EMAIL_ADDRESS>
Include RIN 0694-AE81 in the subject line.
     By mail or delivery to Regulatory Policy Division, Bureau
of Industry and Security, U.S. Department of Commerce, Room 2705, 14th
Street and Pennsylvania Avenue, NW., Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT: John Isbell, Director (Acting),
Defense Programs Division, Office of Strategic Industries and Economic
Security, Bureau of Industry and Security;<PHONE_NUMBER>,
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Background

    This rule updates and expands 15 CFR part 700, the Bureau of
Industry and Security's (BIS) Defense Priorities and Allocations System
(DPAS) regulations. The DPAS regulations implement BIS' administration
of priorities and allocations actions involving industrial resources.
BIS administers the DPAS pursuant to authority under Title I of the
Defense Production Act (50 U.S.C. app. 2071 et seq.) (DPA) as delegated
by Executive Order 12919 (June 3, 1994). The DPAS has two principal
components: Priorities and allocations. Under the priorities component,
certain contracts between the government and private parties or between
private parties for the production or delivery of industrial resources
are required to be given priority over other contracts to facilitate
expedited delivery in promotion of the U.S. national defense. Under the
allocations component, materials, services, and facilities may be
allocated to promote the national defense. For both components, the
term ``national defense'' is defined broadly and can include critical
infrastructure protection and restoration, emergency preparedness, and
recovery from natural disasters. BIS has extensive experience using its
prioritizations authorities. However, BIS has not used its allocations
authorities in more than fifty years.
    On September 30, 2009, the Defense Production Act Reauthorization
of 2009 (Pub. L. 111-67, 123 Stat. 2006, September 30, 2009) (DPAR) was
enacted. That act requires that within 270 days of its enactment (that
is, by June 20, 2010), all agencies to which the

President has delegated priorities and allocations authority under
Title I of the DPA must publish final rules establishing standards and
procedures by which that authority will be used to promote the national
defense in both emergency and nonemergency situations. That act also
required all such agencies to consult ``as appropriate and to the
extent practicable to develop a consistent and unified Federal
priorities and allocations system.'' (123 Stat. 2006, at 2009). This
rule is one of several rules to be published to implement the
provisions of the DPAR. The final rules of the agencies with DPAR
authorities, which are the Departments of Commerce, Energy,
Transportation, Health and Human Services, Defense, and Agriculture,
will comprise the Federal Priorities and Allocations System.
    BIS is publishing this proposed rule as the initial rulemaking
stage in compliance with the provision of the DPAR noted above. BIS
believes that its existing rules regarding priorities satisfy the
DPAR's requirement that agencies have standards and procedures in place
to implement the DPA's authorities. However, in the interest of
promoting a unified priorities and allocations system, and to update
many of the existing DPAS procedures, BIS is setting forth in this
proposed rule changes that will clarify and reorganize the DPAS to make
it consistent with the regulations issued by other agencies, and to
make it easier to understand. Additionally, although allocations
provisions were previously contained in the DPAS, this proposed rule
expands those provisions to clearly set forth the procedures to be
followed for allocations actions. The specific changes proposed by this
rule are more fully described below.

Analysis of the Proposed Priorities and Allocations System

Subpart A

    Proposed Subpart A would be titled ``Purpose, Overview and
Definitions'' and would reflect all three concepts.
    Proposed Sec.  700.1 would state the purpose of the DPAS in general
terms and would largely restate information that appears at 15 CFR
700.1 in the existing regulations. However, extensive language about
the source of BIS's legal authority would not be incorporated into the
proposed Sec.  700.1 on the grounds that such language is not
regulatory in nature. BIS believes that the language regarding the
DPAS' purpose would be clearer if it is not submerged in extensive
discussions of legal authority, particularly where those discussions
have no legal effect.
    Proposed Sec.  700.2 would provide an overview of the DPAS program.
This section would incorporate much of the discussion that currently
appears in Subpart B of the existing regulations, but would describe
briefly all aspects of the DPAS, eliminating the need for the more
extensive descriptions found in Sec. Sec.  700.3 through 700.7 of the
existing regulations.
    The ``Definitions'' section, which appears in Sec.  700.8 in
Subpart C of the current regulations, would appear in proposed Sec.
700.3 in Subpart A with the following modifications. Proposed Sec.
700.3 would state that the definitions therein apply to all of part 700
unless otherwise specified in a particular definition. The reference to
the definitions found in the DPA and in the Robert T. Stafford Disaster
Relief and Emergency Assistance Act (42 U.S.C. 5195 et seq.) that
appear in the current regulations would be removed and all relevant
definitions would appear in full in Sec.  700.3, thereby eliminating
the need to consult statutes for definitions. Although references to
these statutes are being removed, the definitions contained in proposed
Sec.  700.3 would be consistent with those set forth in the statutes.
    New definitions would be added for the following terms: Allocation,
allocation authority, allocation order, allotment, critical
infrastructure, prioritization directive, allocation directive,
emergency preparedness, national defense, priorities authority,
priority rating, priority performance, program identification symbols,
resource agency, and short supply item. These new definitions are
needed to promote clarity of meaning, to remove the need to consult
authorizing statutes for definitions, to implement the new provisions
regarding allocations, and to develop a consistent and unified Federal
priorities and allocations system.
    The definition of the term ``MRO'' would be revised to replace the
term ``Maintenance, and repair and operating supplies'' with the term
``Maintenance, repair and/or operating supplies.'' For years, BIS has
interpreted the term MRO to apply to maintenance, to repair, to
operating supplies, to any combination of two of the three, or to all
three. BIS is proposing to revise the language because it believes that
the proposed language more clearly expresses the meaning that BIS has
applied for years. In other respects, the definition is unchanged.
    The definition of the term Person would be expanded to include
international organizations in order to clarify the scope of the
entities subject to or eligible to be a recipient of authority
(delegated or direct) as provided in this part. BIS proposes to modify
the definition to clarify that international organizations are among
the entities eligible to request priority ratings to obtain items in
the United States in support of approved programs. This proposed change
would codify existing agency practice.
    The definition of the term ``Production equipment'' would be
changed to emphasize that the characteristics of the equipment that
give it a useful life of more than one year (as distinct from the
actual amount of time that it actually will be used) is a relevant
factor in determining whether a piece of equipment is production
equipment. The wording of the other factors in the definition, unit
acquisition cost in excess of $2,500 and use in producing materials or
furnishing services, remains unchanged.
    Finally, the definition of the term Set-aside, which appears as a
parenthetical in Sec.  700.30 of the existing regulations, would be
revised to more clearly state what is required of a person who is
issued a set-aside. The current definition uses outdated language that
makes the meaning of the term unclear.

Subpart B

    Proposed Subpart B would be based largely on language that appears
in Subparts D, I and L of the existing regulations and would be titled
``Industrial Priorities and Allocations,'' reflecting the fact that the
subpart will address certain matters that are common to both priorities
and to allocations as opposed to the current title of subpart D
``Industrial Priorities,'' which reflects a narrower scope.
    Proposed Sec.  700.10, ``Authority,'' would incorporate language
that appears in the existing regulations at Sec.  700.10 of existing
Subpart D, however the existing language would be revised to describe
more fully the President's delegations to the Department of Commerce
and to other agencies that have roles in the Federal priorities and
allocation system. It would also describe, in general terms, the items
subject to each agency's jurisdiction and note that the Department of
Commerce has delegated certain authorities to other agencies. BIS is
proposing this change to facilitate public understanding of the role
that each delegate agency plays in the overall priorities and
allocations system.
    Proposed Sec.  700.11, ``Priority ratings,'' which is based on
language that appears in existing Sec.  700.11, would be revised and
shortened to eliminate language newly included in the proposed

definitions section of Subpart A regarding ``program identification
symbols.'' This revision is necessary for clarity and to prevent
redundancy with the definitions in Subpart A.
    Proposed Sec.  700.12, ``Prioritization directives and allocation
orders,'' would incorporate language from existing Sec.  700.62(b) and
(c) and would provide a discussion of the use of prioritization
directives and allocation orders. The definition for ``directive'' in
Sec.  700.62(a) would be replaced by definitions of ``allocation
directive'' and ``prioritization directive'' in proposed Sec.  700.3
along with the other definitions of terms used in this proposed rule.
Paragraphs (b) and (c) of the existing regulations at Sec.  700.62
would become paragraphs (a) and (b) respectively in proposed Sec.
700.12. Proposed paragraph (c) is a new paragraph that provides that
allocation orders take precedence over prioritization directives, DX
rated orders, DO rated orders, and unrated orders, unless a contrary
instruction appears in the allocation order.
    Language in proposed Sec.  700.13, ``Examples of emergency
preparedness,'' provides examples of what constitutes ``emergency
preparedness activities'' and explains how those considerations impact
decisions with regard to priority ratings and allocation orders. The
material in this section is new.
    Language in proposed Sec.  700.14, ``Changes or cancellations of
priority ratings, rated orders and allocation orders,'' is largely
identical to language that appears in existing Sec.  700.16 ``Changes
or cancellations of priority ratings and rated orders.'' However, the
scope would be expanded to include language describing the action
necessary to change an allocation order.
    Proposed Sec.  700.15, ``Adjustments or exceptions,'' incorporates
language that appears in existing Sec.  700.80 ``Adjustment or
exceptions'' found in Subpart K. Proposed Sec.  700.15 would reflect
the time period in which the Office of Strategic Industries and
Economic Security should respond to requests for adjustments to or
exceptions. For such requests related to a priority rated order,
response should occur within 20 business days. For requests for
adjustments to or exceptions from an allocation order, response should
occur within 2 (two) business days. BIS believes that a deadline for
responses to requests for exceptions or adjustments is appropriate to
provide predictability in the priorities and allocations processes. In
addition, because allocations, if used, would address national
emergencies, BIS believes that a shorter deadline to respond in those
instances is appropriate.
    Proposed Sec.  700.16, which incorporates language from Sec.
700.81 of the existing regulations, sets forth the procedures for
appealing to the Assistant Secretary for Export Administration for
review of a decision regarding a request for an exception from or
adjustment to a priority rated order or allocation order. Most of the
language in proposed Sec.  700.16 is taken from language that appears
in Sec.  700.81 of the existing regulations. However, Sec.  700.81
provides no express procedure for appeals from a decision regarding a
request for an exception from or adjustment to allocation orders. This
rule would adopt the appeals procedures currently prescribed for
requests for exceptions from, or adjustments to, priority rated orders
to appeals from allocation orders with one exception. Appeals from
allocation orders would have to be received in the Office of the
Assistant Secretary for Export Administration within 5 (five) business
days of the receipt of the decision by the party appealing that
decision. The Assistant Secretary for Export Administration would have
discretion to accept appeals after the 5 day deadline. For priority
rated orders, the deadline would continue to be 45 calendar days. The
proposed rule also would continue to give the Assistant Secretary
discretion to accept appeals after that 45 day deadline, but would
remove the phrase ``for good cause shown from the sentence authorizing
such acceptances because the phrase adds nothing of substance to the
sentence. Because BIS will issue allocation orders only during a
national emergency, the urgent nature of the circumstance and its
possible impact on industry make a five business day deadline for
filing an appeal necessary.
    Language in proposed Sec.  700.17 ``Protection against claims'' is
identical to the language that appears in existing Sec.  700.90 of
Subpart L. BIS is proposing to move the language to Sec.  700.17 in
Subpart B to emphasize the point that the protections in this section
would apply equally to persons complying with official actions related
to priorities and to allocations.

Subpart C

    Proposed Subpart C would address matters related to priorities and
would be based largely on language currently in Subpart D and Subpart
F. The proposed subpart would be titled ``Complying with Priority
Ratings and Orders'' to reflect the subpart's narrower scope as
compared to proposed Subpart B. However, as noted above, the language
in Sec.  700.10, ``Delegation of Authority,'' and Sec.  700.16,
``Changes or cancellations of priority ratings and rated orders,'' of
the existing regulations would be modified, retitled, and moved to
proposed Subpart B. BIS is proposing these changes because it believes
that discussing matters related to priorities in the order set forth in
this proposed rule is more logical and easier to follow than the order
in which such matters are discussed in the existing rule.
    Proposed Sec.  700.21, ``Rated Orders,'' would reflect language
that appears in existing Sec.  700.3 but would be revised and shortened
to prevent redundancy with language provided in the proposed
definitions section of Subpart A. The new title also distinguishes this
section from proposed Sec.  700.11.
    Proposed Sec.  700.22, ``Elements of a rated order,'' includes
language that appears in existing Sec.  700.12 but would include the
phrase ``program identification symbol'' in proposed paragraph (a) to
clarify what constitutes an official priority rating in accordance with
Schedule 1. In addition, a new element setting forth language that
should be included in those rated orders for emergency preparedness
requirements for which expedited action is necessary and appropriate to
meet such requirements, would be added. The language would identify the
rated order as one for an emergency preparedness requirement and would
specify that the order must be accepted or rejected within a specified
number of workings days. When issuing the rated order, the rating
agency would insert a number of working days ranging from one through
fourteen as appropriate to the transaction. This section also would be
reworded to clarify the text.
    Proposed Sec.  700.23, ``Use of rated orders,'' incorporates the
text from existing Sec.  700.17. This proposed section would describe
when and how a person would use a rated order. BIS would also
incorporate language that appears in Sec.  700.17 of the existing
regulations into proposed Sec.  700.23 to improve the organization of
the proposed rule.
    Language in proposed Sec.  700.24, ``Limitations on placing rated
orders,'' draws from the language that appears in existing Sec.  700.18
but is modified to recognize that in some instances, other agencies'
regulations would authorize the placement of rated orders. Existing
Sec.  700.18 prohibits placing rated orders that are not authorized by
``this regulation.'' BIS would recognize other agencies' authority by
modifying the language in paragraph (a) of proposed Sec.  700.24 to
state that rated orders issued pursuant to this part (i.e., 15 CFR part
700) may not be used except as

authorized by this part. BIS is making this change because it does not
intend to regulate conduct that is subject to the regulations of other
agencies and not subject to regulations that are administered by BIS.
    In proposed Sec.  700.25, ``Acceptance and rejection of rated
orders,'' the proposed rule would move the language that appears in
Sec.  700.13 of the existing regulations, and modify it to specify the
timeframes within which persons must accept or reject rated orders for
emergency preparedness-related approved programs. This section was also
revised by removing reference to the OMB control number because such
reference is not needed in the regulatory text.
    The proposed rule would add language to proposed Sec.  700.25 to
distinguish the time frame within which persons must respond to
priority rated orders for certain emergency preparedness requirement
orders from other rated orders. The recipient would be required to
accept or reject rated orders that contain the deadline specific
language set forth in proposed Sec.  700.22(b) within the time
specified in the order. That time could be in the range of one through
fourteen working days. The issuing agency would select the number of
days according to the urgency of the situation for which the order is
issued at the time of the order's issuance.
    The timeframe for acceptance or rejection of rated orders for all
other approved programs remains fifteen days for DO programs and ten
days for DX programs. BIS is proposing the shorter time limits in which
the recipient must respond to a rated order issued in connection with
an emergency preparedness program because such programs would involve
disaster assistance, emergency response or similar activities. BIS
believes that the exigent circumstances inherent in emergency
preparedness related programs justify requiring a response time
commensurate with the exigencies of the situation. In addition, a note
would be added to alert the public that in some instances, for example
certain emergency preparedness situations, a shorter time limit may be
specified. The proposed note also alerts the public that priorities
regulations issued by other Delegate Agencies may have shorter time
limits than the time limits provided by BIS, and the recipient of a
rated order must follow the regulations of the Delegate Agency issuing
the rated order.
    The language in proposed Sec.  700.26 ``Preferential scheduling,''
proposed Sec.  700.27 ``Extension of priority ratings,'' and proposed
Sec.  700.28 ``Metalworking machines,'' incorporates the language that
appears in the existing regulations at Sec. Sec.  700.14, 700.15 and
700.31 respectively. BIS is proposing to move the language of these
sections to Subpart C because it believes placing the language
governing priorities in a single subpart would make the regulations
easier to understand and would clarify the organization of these
regulations. The proposed sections retain much of the original language
from those sections, but also have been amended to provide examples in
some instances, and to make the processes described in each section
clearer.

Subpart D

    Proposed Subpart D, ``Industrial Priorities for Energy Programs,''
describes the use of priority rating authority to support energy
programs approved by the Department of Energy.
    Proposed Sec.  700.30, ``Use of priority ratings for energy
programs'' and Sec.  700.31, ``Application for priority rating
authority,'' would use text that appears in the existing regulations at
Sec. Sec.  700.20 and 700.21, respectively. The phrase ``for energy
programs'' would be added to the header of proposed Sec.  700.30 to
describe accurately the scope of the text of that section. Proposed
Sec.  700.31 would not contain language that appears in paragraphs (a)
and (d) of Sec.  700.21 the exiting regulations. Paragraph 700.21(a) of
the existing regulations describes a procedure and process used by the
Department of Energy that is more appropriately addressed in that
agency's regulations, and therefore this proposed rule would not
include that discussion from regulations. Paragraph 700.21(d) of the
existing regulations describes an internal BIS procedure that is not
regulatory in nature and thus would not be included in the regulations.
Apart from those changes, the text of proposed Subpart D is the same as
the text of existing Sec. Sec.  700.20 and 700.21.

Subpart E

    Proposed Subpart E ``Special Priorities Assistance'' describes
instances in which BIS would provide assistance in resolving matters
related to priority rated contracts and orders. The text is taken from
existing Subpart H with principle changes discussed below.
    Proposed Sec.  700.40 ``General provisions'' is based on existing
Sec.  700.50, but has been modified to make it clearer and more
succinct. Discussions unrelated to the special priorities assistance
that BIS can provide would be eliminated as would a recitation of the
OMB Paperwork Reduction Act control number for the form used to request
assistance from BIS because they are unnecessary and detract from the
main point of the section, which is to illustrate when and how BIS can
provide special priorities assistance. Although special priorities
assistance may be requested for any reason, three examples would be
provided. These examples are based on BIS's experience and illustrate
circumstances where BIS has been able to provide assistance in the
past.
    In proposed Sec.  700.41 ``Request for priority rating authority''
is largely the same text that appears in Sec.  700.51 of the existing
regulations, except that the statement in existing Sec.
700.51(c)(3)(v), which states that BIS will consider the political
sensitivity of the project in reviewing requests for rating authority
in advance of a prime contract would not be included, because BIS would
not consider that factor in deciding whether to grant rating authority.
    Proposed Sec.  700.42 and Sec.  700.43 reflect the same text that
appears in existing Sec.  700.53 and Sec.  700.55 respectively, with
one exception. In proposed Sec.  700.42 the word ``develop'' would
replace the word ``effect'' that is currently in Sec.  700.53 to make
that language clearer.
    In some instances, BIS can provide priorities assistance to persons
located in foreign nations or to international organizations (e.g.,
NATO, United Nations agencies, etc.) seeking assistance in obtaining
military and critical infrastructure items in the United States or
priority rating authority for military and critical infrastructure
items to be purchased in the United States. In addition, BIS can
sometimes provide informal assistance to persons in the United States
who are seeking assistance in obtaining items from foreign countries.
In this proposed rule, BIS would expand the language describing this
assistance pursuant to the changes specific to the new availability of
critical infrastructure items to non-U.S. persons set forth in the
DPAR, and for the purpose of clarification.
    This proposed rule would add a new section that specifically
describes military assistance with respect to Canada (proposed Sec.
700.44, ``Military assistance programs with Canada''), and would create
another section describing such assistance with respect to other
nations and international organizations (proposed Sec.  700.45,
``Military assistance programs with other nations and international
organizations''). Currently, information about military assistance with
respect to all eligible foreign nations appears in Sec.  700.55 of the
existing regulations, and that section does not mention international

organizations. BIS is proposing to create a new section that speaks to
military assistance with respect to Canada because the Canadian
Government has been authorized to place priority ratings in the United
States to support approved defense programs without the endorsement of
the U.S. Department of Defense (DOD). Persons in other foreign
countries may place priority ratings in the United States if their
requests for military assistance are sponsored by their government and
have DOD approval and endorsement. BIS believes that this difference
justifies creation of separate sections to address these procedures. In
addition, because BIS has provided assistance to international
organizations in the past, adding a reference to international
organizations in proposed Sec.  700.45 merely codifies existing agency
practice and does not represent a change in policy.
    In addition, this rule proposes to add new Sec.  700.45 that would
add Finland to the list of nations that have bilateral security of
supply arrangements with the U.S. Department of Defense, reflecting an
agreement signed by the United States and Finland in October 2009.
Proposed Sec.  700.45 would also make it clear that persons in
countries that do not have bilateral security of supply arrangements
with the U.S. Department of Defense (DOD) may still seek assistance in
obtaining defense items in the United States or priority rating
authority for defense items to be purchased in the United States.
    Proposed Sec.  700.46, ``Critical infrastructure assistance
programs with other nations and international organizations,'' is also
a new section that would describe how persons in foreign nations or
international organizations may place priority ratings in the United
States if their requests for critical infrastructure assistance are
sponsored by their government or organization and have received the
approval and endorsement of the U.S. Department of Homeland Security.
The Department of Commerce is adding this section pursuant to the
requirements of the DPAR, which include critical infrastructure
protection and restoration assistance to foreign nations and
international organizations.

Subpart F

    Proposed Subpart F ``Official Actions'' is taken largely from
existing Subpart I of the same name. Proposed Sec. Sec.  700.50, 700.51
and 700.52 employ the text of existing Sec. Sec.  700.60, 600.61 and
700.63, respectively, without substantive change. The substance of
existing Sec.  700.62 ``Directives'' has been amended to clarify that
these directives are ``prioritization directives'' and has been
incorporated into the definitions in proposed Sec.  700.3. These
changes are being made to improve the clarity and flow of the
regulations.

Subpart G

    Proposed Subpart G ``Allocations in a National Emergency'' contains
mostly new material and would replace language in existing Subpart F.
Proposed Subpart G would provide the public with detailed information
on the procedures governing allocations actions. Allocations actions
will likely be used in response to a national emergency.
    Proposed Sec.  700.61 describes allocations and when and how
allocation orders would be used. Specifically, allocation orders would
be used only if priorities authority would not provide a sufficient
supply of material, services or facilities for national defense
requirements, or when use of priorities authority would cause a severe
and prolonged disruption in the supply of resources available to
support normal U.S. economic activities. Allocation orders would not be
used to ration materials or services at the retail level. Allocation
orders would be distributed equitably among the suppliers of the
resource(s) being allocated and would not require any person to
relinquish a disproportionate share of the civilian market. BIS is
proposing the standards set forth in proposed Sec.  700.60 because it
believes that they provide reasonable assurance that allocation orders
will be used only in situations were the circumstances justify such
orders.
    Proposed Sec.  700.62 would provide that, in the event of a
conflict between a priority order or prioritization directive and
allocation order or allocation directive, the latter would take
precedence. BIS is proposing this order of precedence because it
believes that given the extreme and rare circumstances under which
allocation orders would be issued as compared to the serious, but more
frequently encountered circumstances under which priority orders are
issued, it can reasonably predict that the justification for the
allocation order will overcome any justification for any priority order
that conflicts with the allocation order.
    Proposed Sec.  700.63 describes the three types of allocation
orders that BIS might issue, which are a set-aside, an allocation
directive, and an allotment. A set-aside is an official action that
would require a person to reserve resource capacity in anticipation of
receipt of rated orders. An allocation directive is an official action
that would require a person to take or refrain from taking certain
actions in accordance with its provisions (an allocation directive can
require a person to stop or reduce production of an item, prohibit the
use of selected items, divert supply of one type of product to another,
or to supply a specific quantity, size, shape, and type of an item
within a specific time period). An allotment is an official action that
would specify the maximum quantity of an item authorized for use in a
specific program or application. The text in proposed Sec.  700.63 is
largely new. BIS is proposing these three types of allocation orders
because it believes that, collectively they describe the types of
actions that might be taken in any situation in which allocation is
justified.
    Proposed Sec.  700.64 ``Elements of an allocation order,'' is a new
section that sets forth the minimum elements of an allocation order.
Those elements are:
    (a) A detailed description of the required allocation action(s);
    (b) Specific start and end calendar dates for each required
allocation action;
    (c) The written signature on a manually placed order, or the
digital signature or name on an electronically placed order, of the
head of the Resource Agency placing the order. The signature or use of
the name certifies that the order is authorized under the DPAS
regulations and that the requirements of those regulation are being
followed; and
    (d) A statement that reads in substance: ``This is an allocation
order certified for national defense use. [Insert the legal name of the
person receiving the order] is required to comply with this order, in
accordance with the provisions of 15 CFR 700.''
    BIS is proposing these elements because it believes that they
provide a proper balance between the need for standards to permit the
public to recognize and understand an allocation order if one is
issued, and the expectation that any actual allocation orders will have
to be tailored to meet unforeseeable circumstances. The language of
proposed Sec.  700.64 would not preclude BIS from including additional
information in an allocation order if circumstances warrant doing so.
    Proposed Sec.  700.65 ``Mandatory acceptance of allocation orders''
would require that an allocation order must be accepted if a person is
capable of fulfilling the order. This section also states that a person
may not discriminate against an allocation order in any manner, such as
by charging higher prices or imposing terms and conditions different
than what the person imposed on contracts or orders

for the same resource(s) that were received prior to receiving the
allocation order. This section also instructs the public on the
procedures to follow to reject an allocation order, and refers the
public to proposed Sec.  700.15 for information on how to seek
adjustment of or exception to an allocation order. BIS is proposing
Sec.  700.65 to make it clear to the public that the limited
circumstances and emergency situations that trigger issuance of an
allocation order require immediate response from the public in order to
address the situation in an expedient fashion.
    Proposed Sec.  700.66 ``Changes or cancellations of allocation
orders'' would provide notice that the Department of Commerce may
modify or cancel an allocation order. BIS is proposing this language
because it believes that the uncertain nature of the events attributed
to allocation orders, and the need for flexibility in dealing with a
national emergency, require that BIS be able to modify or cancel orders
to address changing circumstances as they arise.

Subpart H

    Proposed Subpart H, ``Compliance,'' is taken largely from the
language that appears in Subpart J of the existing regulations with
little change. The language in existing Sec. Sec.  700.70, 700. 71,
700.72, 700.73, 700.74 and 700.75 of Subpart J would appear in
Sec. Sec.  700.70, 700.72, 700.73, 700.74, 700.75, and 700.76,
respectively, in Subpart H. The term ``official actions'' would be
removed from the text of this subpart. This term would be removed
because its inclusion in the text suggested that official actions were
something other than the activities set forth in part 700.
Additionally, throughout Subpart H, references to ``related statutes''
would be removed from the phrase the ``Defense Production Act, the
Selective Service Act and related statutes'' because the Defense
Production Act and the Selective Service Act are the legal basis for
BIS's administrative and enforcement activities set forth in the
Defense Priorities and Allocations System regulations (15 CFR part
700). The removal of the reference to unnamed ``related statutes'' does
not impact BIS's authority or public understanding of the compliance
requirement that Subpart H is intended to address. The language
currently in Sec.  700.70(b) stating that persons who place rated
orders should be familiar with and must comply with this regulation
does not appear in proposed Sec.  700.70 because BIS believes that it
is unnecessary either for public understanding of the rule or as a
basis for enforcement.
    Proposed Sec.  700.71 reflects language that appears in Sec.
700.91 ``Records and reports'' in Subpart L of the existing
regulations. BIS believes that placing all compliance related
previsions in a single subpart improves the organization of the DPAS.
Additionally, the language in proposed Sec.  700.72 would be modified
to clarify that personal service of a demand for information or
inspection authorization may be made by leaving a copy of the document
with a person who is at least eighteen years of age. The language that
appears in Sec.  700.71 of the existing regulations provides that the
person must be of ``suitable age and discretion.'' The Department of
Commerce is proposing this change in conformity with the proposed rules
of other agencies delegated authority under the DPA and in conformity
with the language in existing Sec.  700.71(f)(3), which requires that a
person receiving service of a demand for information or inspection
authorization must be at least eighteen years of age.

Subpart I

    Proposed Subpart I ``Miscellaneous Provisions'' is taken largely
from Subpart L of the existing regulations. The language in existing
Sec. Sec.  700.92 and 700.93 would become Sec. Sec.  700.80 and 700.81,
respectively. Language in proposed Sec.  700.80(c) would mirror the
language that appears in Sec.  700.92(c) of the existing regulations
but would include a reference to the Defense Priorities and Allocations
System because the Defense Priorities and Allocations System superseded
both the Materials System and the Defense Priorities System, in 1984.
Language in proposed Sec.  700.80(d) would reflect the language that
appears in Sec.  700.92(d) of the existing regulations but would
reflect current terminology. Substantively, existing Sec.  700.92(d)
provides that repeals of rules, orders, schedules and delegations of
authority will not affect any penalty or liability incurred while such
rules, orders, schedules and delegations of authority were in force. As
previously noted, the language in Sec.  700.90 ``Protection against
claims'' of the existing regulations would be moved to proposed Sec.
700.17 in proposed Subpart B, and the language in Sec.  700.91
``Records and Reports'' of the existing regulations would be moved to
proposed Sec.  700.71 in proposed Subpart H to make the DPAS
regulations more organized and easier to read. BIS is proposing the
language in proposed Sec.  700.80(c) and (d) to state more precisely
meaning that BIS has attributed to those two paragraphs for years.

Rulemaking Requirements

    1. This rule has been determined to be significant for purposes of
Executive Order 12866.
    2. Notwithstanding any other provision of law, no person is
required to respond to nor be subject to a penalty for failure to
comply with a collection of information, subject to the requirements of
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA),
unless that collection of information displays a currently valid Office
of Management and Budget (OMB) Control Number. This regulation contains
two collections previously approved by OMB. OMB control number 0694-
0053 authorizes the requirement that recipient of rated orders notify
the party placing the order whether or not they will fulfill the rated
order. BIS believes that this rule will not materially change the
burden imposed by this collection. OMB control number 0694-0057
authorizes the collection of information that parties must send to BIS
when seeking special priorities assistance or priority rating
authority. BIS believes that this rule will not materially change the
burden imposed by this collection. Send comments regarding this burden
estimate or any other aspect of these collections of information,
including suggestions for reducing the burden, to Jasmeet K. Seehra,
Office of Management and Budget, by e-mail at<EMAIL_ADDRESS>or by
fax to<PHONE_NUMBER> and to John Isbell<EMAIL_ADDRESS>    3. This rule does not contain policies with Federalism implications
as that term is defined in Executive Order 13132.
    4. The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C.
601 et seq., generally requires an agency to prepare a regulatory
flexibility analysis of any rule subject to the notice and comment
rulemaking requirements under the Administrative Procedure Act (5
U.S.C. 553) or any other statute, unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Under section 605(b) of the RFA, however, if
the head of an agency certifies that a rule will not have a significant
impact on a substantial number of small entities, the statute does not
require the agency to prepare a regulatory flexibility analysis.
Pursuant to section 605(b), the Acting Chief Counsel of Regulations,

Department of Commerce, certified to the Chief Counsel for Advocacy,
Small Business Administration that this proposed rule, if promulgated,
will not have a significant impact on a substantial number of small
entities for the reasons explained below. Consequently, BIS has not
prepared a regulatory flexibility analysis.

Number of Small Entities

    Small entities include small businesses, small organizations and
small governmental jurisdictions. For purposes of assessing the impacts
of this proposed rule on small entities, a small business, as described
in the Small Business Administration's Table of Small Business Size
Standards Matched to North American Industry Classification System
Codes (August 2008 Edition), has a maximum annual revenue of $ 33.5
million and a maximum of 1,500 employees (for some business categories,
these number are lower). A small governmental jurisdiction is a
government of a city, town, school district or special district with a
population of less than 50,000. A small organization is any not-for-
profit enterprise which is independently owned and operated and is not
dominant in its field.
    This rule sets criteria under which BIS (or agencies to which BIS
delegates authority) will authorize prioritization of certain orders or
contracts as well as criteria under which BIS would issue orders
allocating resources or production facilities. Because the rule affects
commercial transactions, BIS believes that small organizations and
small governmental jurisdictions are unlikely to be affected by this
rule. However, BIS has no basis on which to estimate the number of
small businesses that are likely to be affected by this rule.

Impact

    BIS believes that any impact that this rule might have on small
businesses would be minor. The rule has two principle components:
prioritization and allocation. Prioritization is the process that is,
by far, more likely to be used. Under prioritization, BIS designates
certain orders, which may be placed by Government or by private
entities, and assigned under one of two possible priority levels. Once
so designated, such orders are referred to as ``rated orders.'' The
recipient of a rated order must give it priority over an unrated order.
The recipient of a rated order with the higher priority rating must
give that order priority over any rated orders with the lower priority
rating and over unrated orders. A recipient of a rated order may place
two or more orders at the same priority level with suppliers and
subcontractors for supplies and services necessary to fulfill the
recipient's rated order and the suppliers and subcontractors must treat
the request from the rated order recipient as a rated order with the
same priority level as the original rated order. The rule does not
require recipients to fulfill rated orders if the price or terms of
sale are not consistent with the price or terms of sale of similar non-
rated orders. The rule provides a defense from any liability for
damages or penalties for actions or inactions made in compliance with
the rule.
    BIS expects that this rule will not result in any increase in the
use of rated orders. The changes to the provisions of 15 CFR part 700
that apply to rated orders are primarily simplifications and
clarifications. The standards under which a rated order would be issued
are not changed by this rule.
    Although rated orders could require a firm to fill one order prior
to filling another, they would not require a reduction in the total
volume of orders nor would they require the recipient to reduce prices
or provide rated orders with more favorable terms than a similar non-
rated order. Under these circumstances, the economic effects on the
rated order recipient of substituting one order for another are likely
to be mutually offsetting, resulting in no net loss.
    Allocations could be used to control the general distribution of
materials or services in the civilian market. Specific allocation
actions that BIS might take are as follows:
    Set-aside: An official action that requires a person to reserve
resource capacity in anticipation of receipt of rated orders.
    Allocation directive: An official action that requires a person to
take or refrain from taking certain actions in accordance with its
provisions. An allocation directive can require a person to stop or
reduce production of an item, prohibit the use of selected items, or
divert supply of one type of product to another, or to supply a
specific quantity, size, shape, and type of an item within a specific
time period.
    Allotment: An official action that specifies the maximum quantity
of an item authorized for use in a specific program or application.
    BIS has not taken any actions under its existing allocations
authority since the early 1950s (during the Korean conflict) and any
future allocations actions would be used only in extraordinary
circumstances. As required by section 101(b) of the Defense Production
Act of 1950, as amended, (50 U.S.C. app. Sec.  2071), hereinafter
``DPA,'' and by Section 201(d) of Executive Order 12919 of June 3,
1994, as amended, BIS may implement allocations only if the Secretary
of Commerce made, and the President approved, a finding ``(1) that the
material [or service] is a scarce and critical material [or service]
essential to the national defense, and (2) that the requirements of the
national defense for such material [or service] cannot otherwise be met
without creating a significant dislocation of the normal distribution
of such material [or service] in the civilian market to such a degree
as to create appreciable hardship.'' The term ``national defense'' is
defined to mean ``programs for military and energy production or
construction, military or critical infrastructure assistance to any
foreign nation, homeland security, stockpiling, space, and any related
activity. Such term includes emergency preparedness activities
conducted pursuant to title IV of the Robert T. Stafford Disaster
Relief and Emergency Assistance Act (42 U.S.C. 5195 et seq.) and
critical infrastructure protection and restoration.''
    Any allocation actions taken by BIS would also have to comply with
Section 701(e) of the DPA (50 U.S.C. app. 2151(e)), which provides that
``small business concerns shall be accorded, to the extent practicable,
a fair share of the such material [including services] in proportion to
the share received by such business concerns under normal conditions,
giving such special consideration as may be possible to emerging
business concerns.''

Conclusion

    Although BIS cannot determine precisely the number of small
entities that would be affected by this rule, BIS believes that the
overall impact on such entities would not be significant. With respect
to priorities authority, this rule is not likely to increase the number
of priority rated contracts compared to the number being issued
currently. In addition, in most instances, rated contracts would be in
addition to other (unrated) contracts and not reduce the total amount
of business of the firm that receives a rated contract.
    BIS's lack of experience with allocations makes gauging the impact
of an allocation, should one occur, difficult. Because allocations can
be imposed only after a determination by the President, and the fact
that BIS has taken no allocations actions in more than fifty years, one
can expect allocations will be a rare occurrence. However, BIS believes
that the requirement for a Presidential

determination and the provisions of section 701 of the DPA provide
reasonable assurance that any impact on small business will not be
significant.
    Therefore, for the reasons set forth above, the Chief Counsel for
Regulations at the Department of Commerce certified that this action
would not have a significant impact on a substantial number of small
entities.

List of Subjects in 15 CFR Part 700

    Administrative practice and procedure, Business and industry,
Government contracts, National defense, Reporting and recordkeeping
requirements, Strategic and critical materials.
    For the reasons stated in the preamble, 15 CFR part 700, is
proposed to be revised as follows:

PART 700--[AMENDED]

    1. The authority citations paragraph for part 700 is revised to
read as follows:

    Authority: 50 U.S.C. App. 2061, et seq.; 42 U.S.C. 5195, et
seq.; 50 U.S.C. App 468; 10 U.S.C. 2538; 50 U.S.C. 82; E.O. 12919,
59 FR 29525, 3 CFR, 1991 Comp. 901; E.O. 13286, 68 FR 10619, 3 CFR,
2003 Comp. 166; E.O. 12742, 56 FR 1079, 3 CFR, 1991 Comp. 309; E.O.
12656, 53 FR 226, 3 CFR, 1988, Comp. 585.

    2. Subpart A is revised to read as follows:
Subpart A--Purpose, Overview and Definitions.
Sec.
700.1 Purpose.
700.2 Overview.
700.3 Definitions.

Subpart A--Purpose, Overview and Definitions.

Sec.  700.1  Purpose.

    This part implements the Defense Priorities and Allocations System
(DPAS) that is administered by the U.S. Department of Commerce, Bureau
of Industry and Security. The DPAS implements the priorities and
allocations authority of the Defense Production Act specific to
industrial resources, including use of that authority to implement
emergency preparedness activities pursuant to Title VI of the Stafford
Act (Title VI (Emergency Preparedness) of the Robert T. Stafford
Disaster Relief and Emergency Assistance Act (42 U.S.C. 5195 et seq.),
and the priorities authority of the Selective Service Act, all with
respect to industrial resources. The DPAS ensures the timely
availability of industrial resources for approved programs and provides
an operating system to support rapid industrial response to a national
emergency.

Sec.  700.2  Overview.

    (a) Certain national defense and energy programs (including
emergency preparedness activities) are approved for priorities and
allocations support. For example, military aircraft production,
ammunition, and certain programs which maximize domestic energy
supplies are ``approved programs.'' A complete list of currently
approved programs is provided at Schedule I to this part.
    (b) The Department of Commerce administers the DPAS and may
exercise priorities or allocation authority to ensure the timely
delivery of industrial items to meet approved program requirements.
    (c) The Department of Commerce has delegated authority to place
priority ratings on contracts or orders necessary or appropriate to
promote the national defense to certain government agencies that issue
such contracts or orders. Such delegations include authority to
authorize recipients of rated orders to place ratings on contracts or
orders to suppliers and subcontractors. Schedule I includes a list of
agencies to which the Department of Commerce has delegated authority.

Sec.  700.3  Definitions.

    The definitions in this section apply to the entirety of this part
unless otherwise stated in a specific definition.
    Allocation. The control of the distribution of materials, services
or facilities for a purpose deemed necessary or appropriate to promote
the national defense.
    Allocation Authority. The authority to allocate materials,
facilities and services for use in approved programs.
    Allocation Directive. An official action that requires a person to
take or refrain from taking certain actions in accordance with its
provisions. An allocation directive can require a person to stop or
reduce production of an item, prohibit the use of selected items,
divert the supply of one type of product to another, or to supply a
specific quantity, size, shape, and type of an item within a specific
time period.
    Allocation Order. An official action to control the distribution of
materials, services or facilities for a purpose deemed necessary or
appropriate to promote the national defense.
    Allotment. An official action that specifies the maximum quantity
of an item for specified use to promote the national defense.
    Approved Program. A program determined by the Secretary of Defense,
the Secretary of Energy or the Secretary of Homeland Security as
necessary or appropriate for priorities and allocations support to
promote the national defense.
    Construction. The erection, addition, extension, or alteration of
any building, structure, or project, using materials or products which
are to be an integral and permanent part of the building, structure, or
project. Construction does not include maintenance and repair.
    Critical Infrastructure. Any systems and assets, whether physical
or cyber-based, so vital to the United States that the degradation or
destruction of such systems and assets would have a debilitating impact
on national security, including, but not limited to, national economic
security and national public health or safety.
    Delegate Agency. A government agency authorized by delegation from
the Department of Commerce to place priority ratings on contracts or
orders for industrial resources needed to support approved programs.
    Defense Production Act. The Defense Production Act of 1950, as
amended (50 U.S.C. App. 2061, et seq.), is the statute authorizing the
President to require the priority performance of contracts and orders
necessary or appropriate to promote the national defense over other
contracts or orders and to require the allocation of materials,
services, and facilities as necessary or appropriate to promote the
national defense.
    Emergency Preparedness. All activities and measures designed or
undertaken to prepare for or minimize the effects of a hazard upon the
civilian population, to deal with the immediate emergency conditions
which would be created by the hazard, and to effectuate emergency
repairs to, or the emergency restoration of, vital utilities and
facilities destroyed or damaged by the hazard.
    Industrial Resources. All materials, services, and facilities,
including construction materials that are needed to establish or
maintain an efficient and modern defense industrial capacity, the
authority for which has not been delegated to other agencies under
Executive Order 12919. This term also includes the term ``item'' as
defined and used in this part.
    Item. Any raw, in process, or manufactured material, article,
commodity, supply, equipment, component, accessory, part, assembly, or
product of any kind, technical information, process, or service.
    MRO. Maintenance, repair and/or operating supplies as those three
terms are defined in this section. However, MRO does not include items
produced or obtained for sale to other persons or

for installation upon or attachment to the property of another person,
or items required for the production of such items; items needed for
the replacement of any plant, facility, or equipment; or items for the
improvement of any plant, facility, or equipment by replacing items
which are still in working condition with items of a new or different
kind, quality, or design. The elements of MRO are defined as follows:
    (1) Maintenance is the upkeep necessary to continue any plant,
facility, or equipment in working condition,
    (2) Operating supplies are any items carried as operating supplies
according to a person's established accounting practice. Operating
supplies may include hand tools and expendable tools, jigs, dies,
fixtures used on production equipment, lubricants, cleaners, chemicals
and other expendable items, and
    (3) Repair is the restoration of any plant, facility, or equipment
to working condition when it has been rendered unsafe or unfit for
service by wear and tear, damage, or failure of parts.
    National Defense. Programs for military and energy production or
construction, military or critical infrastructure assistance to a
foreign nation, homeland security, stockpiling, space, and any directly
related activity. Such term includes emergency preparedness activities
conducted pursuant to Title VI of The Robert T. Stafford Disaster
Relief and Emergency Assistance Act (42 U.S.C. 5195 et seq.) and
critical infrastructure protection and restoration.
    Official action. An action taken by the Department of Commerce
under the authority of the Defense Production Act, the Selective
Service Act, and this part. Subparts B, F and H describe the official
actions that may be taken by the Department of Commerce. Official
actions include the issuance of set-asides, rating authorizations,
allocation or prioritization directives, letters of understanding,
demands for information, inspection authorizations, and administrative
subpoenas.
    Person. Any individual, corporation, partnership, association, or
any other organized group of persons, or legal successor or
representative thereof; or any authorized State or local government or
agency thereof; and for purposes of administration of this part,
including the United States Government and any authorized foreign
government or agency thereof, or international organization delegated
authority as provided in this part.
    Priorities Authority. The authority of the Department of Commerce,
pursuant to Section 101 of the Defense Production Act, to require
priority performance of contracts and orders for industrial resource
items for use in approved programs.
    Priority Rating. An identifying code assigned by a delegate agency
or authorized person placed on all rated orders and consisting of the
rating symbol and the program identification symbol. The Department of
Commerce uses the priority rating DO and DX; with DX having priority
over DO.
    Prioritization Directive. An official action which requires a
person to take or refrain from taking certain actions in accordance
with its provisions. A prioritization directive may require a person to
satisfy a rated requirement within a specific time period.
    Production Equipment. Any item of capital equipment used in
producing materials or furnishing services that has a unit acquisition
cost of $2,500 or more and the potential for maintaining its integrity
as a capital item in excess of one year.
    Program Identification Symbols. Abbreviations used to indicate
which approved program is supported by a rated order. The list of
approved programs and their identification symbols is found in Schedule
I of this part. For example, A1 identifies defense aircraft programs
and A7 signifies defense electronic programs. Program identification
symbols, in themselves, do not connote any priority.
    Rated Order. A prime contract, a subcontract, or a purchase order
in support of an approved program issued in accordance with the
provisions of this part.
    Resource Agency. Any U.S. Government agency delegated priorities
and allocations authority in Section 201 of Executive Order 12919.
    Selective Service Act. Section 18 of the Selective Service Act of
1948 (50 U.S.C. app. 468), authorizes the President to place an order
with a supplier for any articles or materials required for the
exclusive use of the U.S. armed forces whenever the President
determines that in the interest of national security, prompt delivery
of the articles and materials is required. The supplier must give
precedence to the order so as to deliver the articles or materials in a
required time period.
    Set-Aside. An official action that requires a person to reserve
resource capacity in anticipation of the receipt of rated orders.
    Short Supply Item. An item that is in short supply due to a sudden
and substantial increase in demand or decrease in supply.
    Stafford Act. Title VI (Emergency Preparedness) of the Robert T.
Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5195
et seq.).
    3. Subpart B is revised to read as follows:
Subpart B--Industrial Priorities and Allocations
Sec.
700.10 Authority.
700.11 Priority ratings.
700.12 Prioritization directives and allocation orders.
700.13 Examples of emergency preparedness.
700.14 Changes to or cancellations of priority ratings, rated orders
and allocation orders.
700.15 Adjustments or exceptions.
700.16 Appeals.
700.17 Protection against claims.

Subpart B--Industrial Priorities and Allocations

Sec.  700.10  Authority.

    (a) Delegations to the Department of Commerce. The priorities and
allocations authorities of the President under Title I of the Defense
Production Act with respect to industrial resources have been delegated
to the Secretary of Commerce under Executive Order 12919 of June 3,
1994 (59 FR 29525, 3 CFR, 1991 Comp., p. 901). The priorities
authorities of the President under the Selective Service Act with
respect to industrial resources have also been delegated to the
Secretary of Commerce under Executive Order 12742 of January 8, 1991
(56 FR 1079, 3 CFR 1991 Comp., p. 309).
    (b) Delegations by the Department of Commerce. In turn, the
Department of Commerce has authorized the Delegate Agencies to assign
priority ratings to orders for industrial resources needed for use in
approved programs.
    (c) Jurisdiction limitations. (1) The priorities and allocations
authority for certain items have been delegated under Executive Order
12919, other executive orders, or Interagency Memoranda of
Understanding between other agencies. Unless otherwise agreed to by the
concerned agencies, the provisions of this part are not applicable to
those other items which include:
    (i) Food resources, food resource facilities, and the domestic
distribution of farm equipment and commercial fertilizer (delegated to
the Department of Agriculture);
    (ii) All forms of energy (delegated to the Department of Energy);
    (iii) Health resources (delegated to the Department of Health and
Human Services);
    (iv) All forms of civil transportation (delegated to the Department
of Transportation); and

    (v) Water resources (delegated to the Department of Defense/U.S.
Army Corps of Engineers).
    (2) The priorities and allocations authority set forth in this part
may not be applied to communications services (delegated to the
National Communications System under Executive Order 12472 of April 3,
1984, 49 FR 13471, 3 CFR, 1985 Comp., p. 193).

Sec.  700.11  Priority ratings.

    (a) Levels of priority. (1) There are two levels of priority
authorized by this subpart, identified by the rating symbols ``DO'' and
``DX.''
    (2) All DO rated orders have equal priority with each other and
take precedence over unrated orders. All DX rated orders have equal
priority with each other and take precedence over DO rated orders and
unrated orders. (For resolution of conflicts among rated orders of
equal priority, see Sec.  700.12(c) of this part.)
    (3) In addition, a prioritization directive issued by the
Department of Commerce takes precedence over any DX rated order, DO
rated order or any unrated order, as stipulated in the prioritization
directive. (For a full discussion of prioritization directives, see
Sec.  700.12 of this part.)
    (b) Program identification symbols. The list of approved programs
and their identification symbols are listed in Schedule I. For example,
A1 identifies defense aircraft programs and A7 signifies defense
electronic programs.

Sec.  700.12  Prioritization directives and allocation orders.

    (a) A person must comply with each prioritization directive issued.
However, a person may not use or extend a prioritization directive to
obtain any items from a supplier, unless expressly authorized to do so
in the prioritization directive.
    (b) Prioritization directives take precedence over all DX rated
orders, DO rated orders and unrated orders previously or subsequently
received, unless a contrary instruction appears in the prioritization
directive.
    (c) Allocation orders take precedence over prioritization
directives, DX rated orders, DO rated orders and unrated orders
previously or subsequently received, unless a contrary instruction
appears in the allocation order.

Sec.  700.13  Examples of emergency preparedness.

    There are instances where emergency preparedness is a basis for
issuance of a priority rating or allocation order. Emergency
preparedness is defined in Sec.  700.3 of this part, and largely
depends on the nature of the hazards encountered. Examples of hazards
that relate to emergency preparedness include the following:
    (a) Measures to be undertaken for anticipated hazards (including
the establishment of appropriate organizations, the conduct of
research, the procurement and stockpiling of necessary materials and
supplies, the provision of suitable warning systems, the construction
or preparation of shelters, shelter areas, and control centers, and
when appropriate, the nonmilitary evacuation of the civilian
population);
    (b) Measures to be undertaken during a hazard (including the
evacuation of personnel to shelter areas and the control and use of
lighting and civil communications); and
    (c) Measures to be undertaken following a hazard (including
activities for fire fighting, rescue, emergency medical, health and
sanitation services, monitoring for specific dangers of special
weapons, unexploded bomb reconnaissance, essential debris clearance,
and immediately essential emergency repair or restoration of damaged
vital facilities).

Sec.  700.14  Changes to or cancellations of priority ratings, rated
orders and allocation orders.

    (a) The priority rating on a rated order may be changed or
cancelled by:
    (1) An official action of, or an allocation order from, the
Department of Commerce; or
    (2) Written notification from the person who placed the rated order
(including a Delegate Agency).
    (b) If an unrated order is amended to make it a rated order, or if
a DO rating is changed to a DX rating, the supplier must give the
appropriate preferential treatment to the order as of the date the
change is received by the supplier.
    (c) An amendment to a rated order that significantly alters a
supplier's original production or delivery schedule shall constitute a
new rated order as of the date of its receipt. The supplier must accept
or reject the amended order according to the provisions of Sec.  700.24
of this part.
    (d) The following amendments do not constitute a new rated order: A
change in shipping destination; a reduction in the total amount of the
order; an increase in the total amount of the order which has
negligible impact upon deliveries; a minor variation in size or design
(prior to the start of production); or a change which is agreed upon
between the supplier and the customer.
    (e) If a person no longer needs items to fill a rated order, any
rated orders placed with suppliers for the items, or the priority
rating on those orders, must be cancelled.
    (f) When a priority rating is added to an unrated order, or when a
priority rating is changed or cancelled, all suppliers must be promptly
notified in writing by the person adding, changing or canceling the
priority rating.
    (g) An allocation order may be changed by an official action of the
Department of Commerce.

Sec.  700.15  Adjustments or exceptions.

    (a) A person may submit a request to the Office of Strategic
Industries and Economic Security, U.S. Department of Commerce, for an
adjustment or exception on the ground that:
    (1) A provision of this part or an official action results in an
undue or exceptional hardship on that person not suffered generally by
others in similar situations and circumstances; or
    (2) The consequence of following a provision of this part or an
official action is contrary to the intent of the Defense Production
Act, the Selective Service Act, or this part.
    (b) Each request for adjustment or exception must be in writing and
contain a complete statement of all the facts and circumstances related
to the provision of this part or official action for which adjustment
or from which an exception is sought and a full and precise statement
of the reasons why relief should be provided. Requests for adjustment
or exception pursuant this section should be sent to: Office of
Strategic Industries and Economic Security, Bureau of Industry and
Security, U.S. Department of Commerce, Room 3876, 14th Street and
Pennsylvania Avenue, NW., Washington, DC 20230, Ref: DPAS Adjustments;
Fax:<PHONE_NUMBER>.
    (c) The submission of a request for adjustment or exception shall
not relieve any person from the obligation of complying with the
provision of this part or official action in question while the request
is being considered unless such interim relief is granted in writing by
the Office of Strategic Industries and Economic Security.
    (1) The Office of Strategic Industries and Economic Security shall
respond to request for adjustment of or exceptions to priority orders
within 20 (twenty) business days of the date of receipt.
    (2) The Office of Strategic Industries and Economic Security shall
respond to request for adjustment of allocation orders or exceptions to
within 2 (two) business days of receipt.

    (d) A decision of the Office of Strategic Industries and Economic
Security under this section may be appealed to the Assistant Secretary
for Export Administration, U.S. Department of Commerce in accordance
with Sec.  700.16 of this part.

Sec.  700.16  Appeals.

    (a) Any person who has had a request for adjustment or exception
denied by the Office of Strategic Industries and Economic Security
under Sec.  700.15 of this part, may appeal to the Assistant Secretary
for Export Administration, U.S. Department of Commerce, who shall
review and reconsider the denial. Such appeals should be submitted to
the Office of the Assistant Secretary for Export Administration, Bureau
of Industry and Security, U.S. Department of Commerce, Room 3886,
Washington, DC 20230, Ref: DPAS Appeals.
    (b) Appeals of denied requests of exceptions from or adjustments to
priority orders must be received by the Assistant Secretary for Export
Administration no later than 45 days after receipt of a written notice
of denial from the Office of Strategic Industries and Economic
Security. After this 45-day period, an appeal may be accepted at the
discretion of the Assistant Secretary for Export Administration.
    (c) Appeals of denied requests of exception from or adjustment to
allocation orders must be received by the Assistant Secretary for
Export Administration no later than 5 business days after receipt of a
written notice of denial from the Office of Strategic Industries and
Economic Security. After this 5 day period, an appeal may be accepted
at the discretion of the Assistant Secretary for Export Administration.
    (d) Each appeal must be in writing and contain a complete statement
of all the facts and circumstances related to the action appealed from
and a full and precise statement of the reasons the decision should be
modified or reversed.
    (e) In addition to the written materials submitted in support of an
appeal, an appellant may request, in writing, an opportunity for an
informal hearing. This request may be granted or denied at the
discretion of the Assistant Secretary for Export Administration.
    (f) When a hearing is granted, the Assistant Secretary for Export
Administration may designate an employee of the Department of Commerce
to conduct the hearing and to prepare a report. The hearing officer
shall determine all procedural questions and impose such time or other
limitations deemed reasonable. In the event that the hearing officer
decides that a printed transcript is necessary, all expenses shall be
borne by the appellant.
    (g) When determining an appeal, the Assistant Secretary for Export
Administration may consider all information submitted during the appeal
as well as any recommendations, reports, or other relevant information
and documents available to the Department of Commerce, or consult with
any other persons or groups.
    (h) The submission of an appeal under this section shall not
relieve any person from the obligation of complying with the provision
of this part or official action in question while the appeal is being
considered, unless such relief is granted in writing by the Assistant
Secretary for Export Administration.
    (i) The decision of the Assistant Secretary for Export
Administration shall be made within a reasonable time after receipt of
the appeal and shall be the final administrative action. It shall be
issued to the appellant in writing with a statement of the reasons for
the decision.

Sec.  700.17  Protection against claims.

    A person shall not be held liable for damages or penalties for any
act or failure to act resulting directly or indirectly from compliance
with any provision of this part, or an official action, notwithstanding
that such provision or action shall subsequently be declared invalid by
judicial or other competent authority.
    4. Subpart C is revised to read as follows:
Subpart C--Complying With Priority Ratings and Orders.
Sec.
700.21 Rated orders.
700.22 Elements of a rated order.
700.23 Use of rated orders.
700.24 Limitations on placing rated orders.
700.25 Acceptance and rejection of rated orders.
700.26 Preferential scheduling.
700.27 Extension of priority ratings.
700.28 Metalworking machines.

Subpart C--Complying With Priority Ratings and Orders.

Sec.  700.21  Rated orders.

    (a) Rated orders are identified by a priority rating and a program
identification symbol. Rated orders take precedence over all unrated
orders as necessary to meet required delivery dates. Among rated
orders, DX rated orders take precedence over DO rated orders. Program
identification symbols indicate which approved program is attributed to
the rated order.
    (b) Persons receiving rated orders must give them preferential
treatment as required by this part.
    (c) All rated orders must be scheduled, to the extent possible, in
a manner to ensure delivery by the required delivery date.
    (d) Persons who receive rated orders must in turn place rated
orders with their suppliers for the items they need to fill the orders.
This provision ensures that suppliers will give priority treatment to
rated orders throughout the procurement chain.
    (e) Persons may place a priority rating on orders only when they
are in receipt of a rated order, have been explicitly authorized to do
so by the Department of Commerce or a Delegate Agency, or are otherwise
permitted to do so by this part.

Sec.  700.22  Elements of a rated order.

    (a) Elements required for all rated orders. Each rated order must
include:
    (1) The appropriate priority rating and program identification
symbol (e.g., DO-A1, DX-A4, DO-H1);
    (2) A required delivery date or dates. The words ``immediately'' or
``as soon as possible'' do not constitute a delivery date. When a
``requirements contract,'' ``basic ordering agreement,'' ``prime vendor
contract,'' or similar procurement document bearing a priority rating
contains no specific delivery date or dates, but provides for the
furnishing of items from time-to-time or within a stated period against
specific purchase orders, such as ``calls,'' ``requisitions,'' and
``delivery orders,'' the purchase orders supporting such contracts or
agreements must specify a required delivery date or dates and are to be
considered as rated as of the date of their receipt by the supplier and
not as of the date of the original procurement document;
    (3) The written signature on a manually placed order, or the
digital signature or name on an electronically placed order, of an
individual authorized to sign rated orders for the person placing the
order. The signature, manual or digital, certifies that the rated order
is authorized under this part and that the requirements of this part
are being followed; and
    (4) A statement that reads in substance:

This is a rated order certified for national defense use and you are
required to follow all the provisions of the Defense Priorities and
Allocations System regulation in the execution of this rated order
(15 CFR part 700).

    (b) If the rated order is placed in support of emergency
preparedness requirements and expedited action is

necessary and appropriate to meet these requirements, the following
sentences should be added following the statement set forth in
paragraph (a)(4) of this section: ``This rated order is placed for the
purpose of emergency preparedness. It must be accepted or rejected
within (the rating agency will insert a time frame in the range of one
through fourteen working days) working days in accordance with Section
700.25(d)(3) of the Defense Priorities and Allocations System
regulation (15 CFR part 700).''

Sec.  700.23  Use of rated orders.

    (a) Use of rated orders. A person may use rated orders to obtain:
    (1) Items which will be physically incorporated into other items to
fill rated orders, including that portion of such items normally
consumed, or converted into scrap or by-products, in the course of
processing;
    (2) Containers or other packaging materials required to make
delivery of the finished items against rated orders;
    (3) Services, other than contracts of employment, needed to fill
rated orders; and
    (4) MRO needed to produce the finished items to fill rated orders.
However, for MRO, the priority rating used must contain the program
identification symbol H7 in addition to the rating symbol contained on
the customer's rated order. For example, a person in receipt of a DO-A3
rated order who needs MRO would place a DO-H7 rated order with the
person's supplier.
    (b) Use of rated orders to replace inventoried items. A person may
use a rated order to replace inventoried items (including finished
items) if such items were used to fill rated orders, as follows:
    (1) The order must be placed within 90 days of the date of use of
the inventory.
    (2) A DO rating symbol and the program identification symbol
indicated on the customer's rated order must be used on the order. A DX
rating symbol may not be used even if the inventory was used to fill a
DX rated order.
    (3) If the priority ratings on rated orders from one customer or
several customers contain different program identification symbols, the
rated orders may be combined. In this case, the program identification
symbol H1 must be used (i.e., DO-H1).
    (c) Combining rated orders. A person may combine DX and DO rated
orders from one customer or several customers if the items covered by
each level of priority are identified separately and clearly. If
different program identification symbols are indicated on those rated
orders of equal priority, the person must use the program
identification symbol H1 (i.e., DO-H1 or DX-H1).
    (d) Combining rated and unrated orders. (1) A person may combine
rated and unrated order quantities on one purchase order provided that:
    (i) The rated quantities are separately and clearly identified; and
    (ii) The four elements of a rated order, as required by Sec.
700.22 of this part, are included on the order with the statement
required in Sec.  700.22(d) of this part modified to read in substance:
    ``This purchase order contains rated order quantities certified for
national defense use, and you are required to follow all the provisions
of the Defense Priorities and Allocations System regulation (15 CFR
part 700) as it pertains to the rated quantities.''
    (2) A supplier must accept or reject the rated portion of the
purchase order as provided in Sec.  700.21 of this part and give
preferential treatment only to the rated quantities as required by this
part. This part may not be used to give preferential treatment to the
unrated portion of the order.
    (3) Any supplier who believes that rated and unrated orders are
being combined in a manner contrary to the intent of this part or in a
fashion that causes undue or exceptional hardship may submit a request
for adjustment or exception under Sec.  700.15 of this part.
    (e) Rated orders and minimum commercially procurable quantities. A
person may place a rated order for the minimum commercially procurable
quantity even if the quantity needed to fill a rated order is less than
that minimum. However, a person must combine rated orders as provided
in paragraph (c) of this section, if possible, to obtain minimum
procurable quantities.
    (f) Federal Acquisition Regulation. A person is not required to
place a priority rating on an order for less than $50,000, or one-half
Simplified Acquisition Threshold (as established in the Federal
Acquisition Regulation (FAR) (48 CFR chapter 1), see FAR 2.101 or in
other authorized acquisition regulatory or management systems)
whichever amount is greater, provided that delivery can be obtained in
a timely fashion without the use of the priority rating.

Sec.  700.24  Limitations on placing rated orders.

    (a) General limitations. (1) A person may not place a rated order
pursuant to this part unless entitled to do so under the provisions of
this part.
    (2) Rated orders may not be used to obtain:
    (i) Delivery on a date earlier than needed;
    (ii) A greater quantity of the item than needed, except to obtain a
minimum procurable quantity. Separate rated orders may not be placed
solely for obtaining minimum procurable quantities on each order if the
minimum procurable quantity would be sufficient for all of the rated
orders if combined.
    (iii) Items in advance of the receipt of a rated order, except as
specifically authorized by the Department of Commerce (see Sec.
700.41(c) for information on obtaining authorization for a priority
rating in advance of a rated order); or
    (iv) Any of the following items unless specific priority rating
authority has been obtained from a Delegate Agency or the Department of
Commerce:
    (A) Items for plant improvement, expansion or construction, unless
they will be physically incorporated into a construction project
covered by a rated order; and
    (B) Production or construction equipment or items to be used for
the manufacture of production equipment (for information on requesting
priority rating authority, see Sec.  700.41 of this part).
    (v) Any items related to the development of chemical or biological
warfare capabilities or the production of chemical or biological
weapons, unless such development or production has been authorized by
the President or the Secretary of Defense.
    (b) Limitations on Use of Ratings. Rated orders may not be placed
on the following items under the jurisdiction of the Department of
Commerce; however, these items must be supplied if request is pursuant
to an allocation directive described under Subpart G. These excluded
items are:
    (1) Copper raw materials.
    (2) Crushed stone.
    (3) Gravel.
    (4) Sand.
    (5) Scrap.
    (6) Slag.
    (7) Steam heat, central.
    (8) Waste paper.

Sec.  700.25  Acceptance and rejection of rated orders.

    (a) Mandatory acceptance. (1) Except as otherwise specified in this
section, a person capable of fulfilling a rated order shall accept
every rated order received and must fill such orders in due
consideration of any other rated order, and regardless of unrated
orders that have been accepted.
    (2) A person shall not discriminate against rated orders in any
manner such

as by charging higher prices or by imposing different terms and
conditions than are imposed for comparable unrated orders.
    (b) Mandatory rejection. Unless otherwise directed by the
Department of Commerce:
    (1) A person shall not accept a rated order for delivery on a
specific date if unable to fill the order by that date. However, the
person must inform the customer of the earliest date on which delivery
can be made and offer to accept the order on the basis of that date.
Scheduling conflicts with previously accepted lower rated or unrated
orders are not sufficient reason for rejection under this section.
    (2) A person shall not accept a DO rated order for delivery on a
date which would interfere with delivery of any previously accepted DO
or DX rated orders. However, the person must offer to accept the order
based on the earliest delivery date otherwise possible.
    (3) A person shall not accept a DX rated order for delivery on a
date which would interfere with delivery of any previously accepted DX
rated orders, but must offer to accept the order based on the earliest
delivery date otherwise possible.
    (4) If a person is unable to fill all the rated orders of equal
priority status received on the same day, the person must accept, based
upon the earliest delivery dates, only those orders which can be
filled, and reject the other orders. For example, a person must accept
order A requiring delivery on December 15 before accepting order B
requiring delivery on December 31. However, the person must offer to
accept the rejected orders based on the earliest delivery dates
otherwise possible.
    (c) Optional rejection. Unless otherwise directed by the Department
of Commerce, rated orders may be rejected in any of the following cases
as long as a supplier does not discriminate among customers:
    (1) If the person placing the order is unwilling or unable to meet
regularly established terms of sale or payment;
    (2) If the order is for an item not supplied or for a service not
performed;
    (3) If the order is for an item produced, acquired, or provided
only for the supplier's own use for which no orders have been filled
for two years prior to the date of receipt of the rated order. If,
however, a supplier has sold some of these items, the supplier is
obligated to accept rated orders up to that quantity or portion of
production, whichever is greater, sold within the past two years;
    (4) If the person placing the rated order, other than the U.S.
Government, makes the item or performs the service being ordered;
    (5) If acceptance of a rated order or performance against a rated
order would violate any other regulation, official action, or order of
the Department of Commerce issued under the authority of the Defense
Production Act or the Selective Service Act (see Sec.  700.76 of this
part).
    (d) Customer notification requirements. (1) A person must accept or
reject a rated order for all approved programs and, except as provided
in paragraph (d)(2) of this section, must transmit the acceptance or
rejection in writing (hard copy), or in electronic format, within
fifteen (15) working days after receipt of a DO rated order and within
ten (10) working days after receipt of a DX rated order.
    (2) For rated orders involving emergency preparedness requirements
and containing the language specified in Sec.  700.22(b) of this part,
notification of acceptance or rejection must be transmitted in writing
or electronically within the time specified in the rated order.

    Note to Paragraph (d)(2): There may be certain instances,
including, for example, the emergency preparedness requirements
listed in Sec.  700.13 of this part, where a shorter time period for
acceptance or rejection of the rated order may apply. The time
period for acceptance and rejection of rated orders is dictated by
the regulations of the Delegate Agency issuing the rating. The
contract or the contracting official should identify which agency
has issued the rated order and provide reference to the regulations
that apply to that rated order.

    (3) If the rated order is rejected, the person must provide reasons
in writing (hard copy) or electronically for the rejection.
    (4) If a person has accepted a rated order and subsequently finds
that shipment or performance will be delayed, the person must notify
the customer immediately, give the reasons for the delay, and advise of
a new shipment or performance date. If notification is given verbally,
written (hard copy) or electronic confirmation must be provided within
five (5) working days of the verbal notice.

Sec.  700.26  Preferential scheduling.

    (a) Scheduling requirement, modification of non-rated order
delivery dates. A person must schedule operations, including the
acquisition of all needed production items, in a timely manner to
satisfy the delivery requirements of each rated order. Modifying
production or delivery schedules for other orders is necessary only
when required delivery dates for rated orders cannot otherwise be met.
    (b) Precedence of orders. DO and DX rated orders must be given
production precedence over unrated orders, if necessary to meet
required delivery dates, even if this requires the diversion of items
being processed or ready for delivery against unrated orders.
Similarly, DX rated orders must be given precedence over DO rated
orders and unrated orders.

    Examples: If a person receives a DO rated order with a delivery
date of June 3 and if meeting that date would mean delaying
production or delivery of an item for an unrated order, the unrated
order must be delayed. If a DX rated order is received calling for
delivery on July 15 and a person has a DO rated order requiring
delivery on June 2 and business operations can be scheduled to meet
both deliveries, there is no need to alter production schedules to
give any additional preference to the DX rated order. However, if
business operations cannot be altered to meet both the June 3 and
July 15 delivery dates, then the DX rated order must be given
priority over the DO rated order.

    (c) Conflicting rated orders. (1) If a person finds that delivery
or performance against any accepted rated orders conflicts with the
delivery or performance against other accepted rated orders of equal
priority status, the person shall give precedence to the conflicting
orders in the sequence in which they are to be delivered or performed
(not to the receipt dates). If the conflicting rated orders are
scheduled to be delivered or performed on the same day, the person
shall give precedence to those orders which have the earliest receipt
dates.
    (2) If a person is unable to resolve rated order delivery or
performance conflicts under this section, the person should promptly
seek special priorities assistance as provided in Subpart E of this
part. If a customer placing a rated order objects to the rescheduling
of delivery or performance of a rated order, the customer should
promptly seek special priorities assistance as provided in Subpart E of
this part. For any rated order against which delivery or performance
will be delayed, the person must notify the customer as provided in
Sec.  700.24(d)(3) of this part.
    (d) Use of inventoried items to fill rated orders. If a person is
unable to purchase needed production items in time to fill a rated
order by its required delivery date, the person must fill the rated
order by using inventoried production items. A person who uses
inventoried items to fill a rated order may replace those items with
the use of the rated order as provided in Sec.  700.23(b) of this part.

Sec.  700.27  Extension of priority ratings.

    (a) A person must use rated orders with suppliers to obtain items
needed to fill a rated order. The person must use the priority rating
indicated on the customer's rated order, except as otherwise provided
in this part or as directed by the Department of Commerce. For example,
if a person is in receipt of a DO-A3 rated order for a navigation
system and needs to purchase semiconductors for its manufacture, that
person must use a DO-A3 rated order to obtain the needed
semiconductors.
    (b) The priority rating must be included on each successive order
placed to obtain items needed to fill a customer's rated order.
Therefore, the inclusion of the rated order will continue from
contractor to subcontractor to supplier throughout the entire
procurement chain.

Sec.  700.28  Metalworking machines.

    (a) ``Metalworking machines'' include power driven, manual or
automatic, metal cutting and metal forming machines and complete
machines not supported in the hands of an operator when in use. Basic
machines with a list price of $2,500 or less are not covered by this
section.
    (b) Metalworking machines covered by this section include:
    (1) Bending and forming machines.
    (2) Boring machines.
    (3) Broaching machines.
    (4) Drilling and tapping machines.
    (5) Electrical discharge, ultrasonic and chemical erosion machines.
    (6) Forging machinery and hammers.
    (7) Gear cutting and finishing machines.
    (8) Grinding machines.
    (9) Hydraulic and pneumatic presses, power driven.
    (10) Machining centers and way-type machines.
    (11) Manual presses.
    (12) Mechanical presses, power driven.
    (13) Milling machines.
    (14) Miscellaneous machine tools.
    (15) Miscellaneous secondary metal forming and cutting machines.
    (16) Planers and shapers.
    (17) Polishing, lapping, boring, and finishing machines.
    (18) Punching and shearing machines.
    (19) Riveting machines.
    (20) Saws and filing machines.
    (21) Turning machines, lathes, including automatic.
    (22) Wire and metal ribbon forming machines.
    (c) A metalworking machine producer is not required to accept DO or
DX rated orders calling for delivery in any month of a total quantity
of any size of machine in excess of 60 percent of scheduled production
of that size of machine for that month, or any DO or DX rated orders
received less than three months prior to the beginning of the month for
which delivery is requested. However, DX and DO rated orders must be
accepted without regard to a set-aside or the lead time, if delivery
can be made by the required date.
    5. Subpart D is revised to read as follows:
Subpart D--Industrial Priorities for Energy Programs
Sec.
700.30 Use of priority ratings for energy programs.
700.31 Application for priority rating authority.

Subpart D--Industrial Priorities for Energy Programs

Sec.  700.30  Use of priority ratings for energy programs.

    (a) Section 101(c) of the Defense Production Act authorizes the use
of priority ratings for projects which maximize domestic energy
supplies.
    (b) Projects which maximize domestic energy supplies include those
which maintain or further domestic energy exploration, production,
refining, and transportation; maintain or further the conservation of
energy; or are involved in the construction or maintenance of energy
facilities.

Sec.  700.31  Application for priority rating authority.

    (a) For projects believed to maximize domestic energy supplies, a
person may request priority rating authority for scarce, critical, and
essential supplies of materials, equipment, and services (related to
the production of materials or equipment, or the installation, repair,
or maintenance of equipment) by submitting a request to the Department
of Energy. Further information may be obtained from the U.S. Department
of Energy, Office of Electricity Delivery and Energy Reliability, 1000
Independence Avenue, SW., Washington, DC 20585.
    (b) If the Department of Energy notifies the Department of Commerce
that the project maximizes domestic energy supplies and that the
materials, equipment, or services are critical and essential, the
Department of Commerce must make two findings; whether the items in
question are scarce, and whether there is a need to use the priorities
authority.
    (1) Scarcity implies an unusual difficulty in obtaining the
materials, equipment, or services in a timeframe consistent with the
timely completion of the energy project. Among the factors to be used
in making the scarcity finding will be the following:
    (i) Value and volume of material or equipment shipments;
    (ii) Consumption of material and equipment;
    (iii) Volume and market trends of imports and exports;
    (iv) Domestic and foreign sources of supply;
    (v) Normal levels of inventories;
    (vi) Rates of capacity utilization;
    (vii) Volume of new orders; and
    (viii) Lead times for new orders.
    (2) In finding whether there is a need to use the priorities
authority, the Department of Commerce will consider alternative supply
solutions and other measures.
    (c) After the Department of Commerce has conducted its analysis, it
will advise the Department of Energy whether the two findings have been
satisfied. If the findings are satisfied, the Department of Commerce
will authorize the Department of Energy to grant the use of a priority
rating to the applicant.
    (d) Schedule I includes a list of approved programs to support the
maximization of domestic energy supplies. A Department of Energy
regulation setting forth the procedures and criteria used by the
Department of Energy in making its determination and findings is
published in 10 CFR part 216.
    6. Subpart E is revised to read as follows:
Subpart E--Special Priorities Assistance
Sec.
700.40 General provisions.
700.41 Requests for priority rating authority.
700.42 Criteria for assistance.
700.43 Instances where assistance will not be provided.
700.44 Military Assistance programs with Canada.
700.45 Military Assistance programs with other nations and
international organizations.
700.46 Critical Infrastructure Assistance programs with other
nations and international organizations.

Subpart E--Special Priorities Assistance

Sec.  700.40  General provisions.

    (a) To resolve problems or conflicts that may arise in the
execution of priorities and allocations authorities, the Department of
Commerce may exercise its authority to provide special priorities
assistance to resolve such problems or conflicts. The Department of
Commerce can provide special priorities assistance for any reason in

support of this part, such as assisting in obtaining timely deliveries
of items needed to satisfy rated orders or authorizing the use of
priority ratings on orders to obtain items not automatically ratable
under this part.
    (1) Examples of Special Priorities Assistance Requests. Special
priorities assistance requests may be made for a variety of reasons
including:
    (i) A person may request special priorities assistance to obtain
priority rating authority for an item from a U.S. supplier in support
of an approved program to ensure timely delivery ahead of unrated
orders;
    (ii) A person may request special priorities assistance to obtain
priority rating authority for an item to ensure timely delivery when
there are one or more rated orders for the same item; or
    (iii) A person may request special priorities assistance when a
U.S. supplier is unable to ensure the timely delivery of a rated order
due to the production schedules of other rated orders.
    (2) Assistance for persons executing priority ratings or orders.
Persons executing priority ratings or orders may apply directly to the
Department of Commerce for special priorities assistance.
    (b) In the event a problem arises in the fulfillment of a rated
order or other action authorized by a Delegate Agency, a person should
immediately contact the appropriate contract administration officer for
guidance or assistance. In turn, the contract administration officer
should request assistance from that Delegate Agency to resolve the
problem. If the Delegate Agency is unable to resolve the problem, then
the Delegate Agency may instruct the contract administration officer to
request special priorities assistance from the Department of Commerce.
    (c) The Department of Commerce makes the following types of special
priorities assistance available: Priority rating authority; ensuring
that rated orders receive preferential treatment by suppliers;
resolution of production or delivery conflicts between various rated
orders; assistance in placing rated orders with suppliers; verification
of the urgency of rated orders; and determination of the validity of
rated orders.
    (d) A request for special priorities assistance or priority rating
authority must be submitted on Form BIS-999 to the local contract
administration representative. Form BIS-999 may be obtained from the
Delegate Agency representative or from the Department of Commerce. A
sample Form BIS-999 is attached at Appendix I.

Sec.  700.41  Requests for priority rating authority.

    (a) Reason for request. If a rated order is likely to be delayed
because a person is unable to obtain items not normally rated under
this part, the person may request the authority to use a priority
rating in ordering the needed items. Examples of items for which
priority ratings can be authorized include:
    (1) Production or construction equipment;
    (2) Computers when not used as production items; and
    (3) Expansion, rebuilding or replacing plant facilities.
    (b) Rating authority for production or construction equipment. (1)
A request for priority rating authority for production or construction
equipment must be submitted to the appropriate Delegate Agency. The
Delegate Agency may establish particular forms to be used for these
requests (e.g., Department of Defense Form DD 691.).
    (2) When the use of a priority rating is authorized for the
procurement of production or construction equipment, a rated order may
be used either to purchase or to lease such equipment. However, in the
latter case, the equipment may be leased only from a person engaged in
the business of leasing such equipment or from a person willing to
lease rather than sell.
    (c) Rating authority in advance of a rated prime contract. (1) In
certain cases and upon specific request, the Department of Commerce, in
order to promote the national defense, may authorize a person to place
a priority rating on an order to a supplier in advance of the issuance
of a rated prime contract. In these instances, the person requesting
advance rating authority must obtain sponsorship of the request from
the appropriate Delegate Agency. The person shall also assume any
business risk associated with the placing of rated orders if these
orders have to be cancelled in the event the rated prime contract is
not issued.
    (2) The person must state the following in the request:

    It is understood that the authorization of a priority rating in
advance of our receiving a rated prime contract from a Delegate
Agency and our use of that priority rating with our suppliers in no
way commits the Delegate Agency, the Department of Commerce or any
other government agency to enter into a contract or order or to
expend funds. Further, we understand that the Federal Government
shall not be liable for any cancellation charges, termination costs,
or other damages that may accrue if a rated prime contract is not
eventually placed and, as a result, we must subsequently cancel
orders placed with the use of the priority rating authorized as a
result of this request.

    (3) In reviewing requests for rating authority in advance of a
rated prime contract, the Department of Commerce will consider, among
other things, the following criteria:
    (i) The probability that the prime contract will be awarded;
    (ii) The impact of the resulting rated orders on suppliers and on
other authorized programs;
    (iii) Whether the contractor is the sole source;
    (iv) Whether the item being produced has a long lead time; and
    (v) The time period for which the rating is being requested.
    (4) The Department of Commerce may require periodic reports on the
use of the rating authority granted under paragraph (c) of this
section.
    (5) If a rated prime contract is not issued, the person shall
promptly notify all suppliers who have received rated orders pursuant
to the advanced rating authority that the priority rating on those
orders has been cancelled.

Sec.  700.42  Criteria for assistance.

    Requests for special priorities assistance should be timely, i.e.,
the request must be submitted promptly and with enough time for the
Delegate Agency or the Department of Commerce to develop a meaningful
resolution to the problem, and must establish that:
    (a) There is an urgent need for the item; and
    (b) The applicant has made a reasonable effort to resolve the
problem.

Sec.  700.43  Instances where assistance will not be provided.

    Special priorities assistance is provided at the discretion of the
Department of Commerce when it is determined that such assistance is
warranted to meet the objectives of this part. Examples where
assistance may not be provided include situations when a person is
attempting to:
    (a) Secure a price advantage;
    (b) Obtain delivery prior to the time required to fill a rated
order;
    (c) Gain competitive advantage;
    (d) Disrupt an industry apportionment program in a manner designed
to provide a person with an unwarranted share of scarce items; or
    (e) Overcome a supplier's regularly established terms of sale or
conditions of doing business.

Sec.  700.44  Military Assistance programs with Canada.

    To promote military assistance to Canada, this section provides for
authorizing priority ratings to persons in Canada to obtain items in
the United States in support of approved programs.

Although priority ratings have no legal authority outside of the United
States, this section also provides information on how persons in the
United States may obtain informal assistance in Canada in support of
approved programs.
    (a) The joint United States-Canadian military arrangements for the
defense of North America and the integrated nature of United States and
Canadian their defense industries require close coordination and the
establishment of a means to provide mutual assistance to the defense
industries located in both countries.
    (b) The Department of Commerce coordinates with the Canadian Public
Works and Government Services Canada on all matters of mutual concern
relating to the administration of this part.
    (c) Any person in the United States ordering defense items in
Canada in support of an approved program should inform the Canadian
supplier that the items being ordered are to be used to fill a rated
order. The Canadian supplier should be informed that if production
materials are needed from the United States by the supplier or the
supplier's vendor to fill the order, the supplier or vendor should
contact the Canadian Public Works and Government Services Canada, for
authority to place rated orders in the United States: Public Works and
Government Services Canada, Acquisitions Branch, Business Management
Directorate, Phase 3, Place du Portage, Level 0A1, 11 Laurier Street,
Gatineau, Quebec, K1A 0S5, Canada; Telephone:<PHONE_NUMBER>; Fax:
(819) 956-7827, or electronically at
<EMAIL_ADDRESS>    (d) Any person in Canada producing defense items for the Canadian
government may also obtain priority rating authority for items to be
purchased in the United States by applying to the Canadian Public Works
and Government Services Canada, Acquisitions Branch, Business
Management Directorate, in accordance with its procedures.
    (e) Persons in Canada needing special priorities assistance in
obtaining defense items in the United States may apply to the Canadian
Public Works and Government Services Canada, Acquisitions Branch,
Business Management Directorate, for such assistance. Public Works and
Government Services Canada will forward appropriate requests to the
Department of Commerce.
    (f) Any person in the United States requiring assistance in
obtaining items in Canada must submit a request through the Delegate
Agency to the Department of Commerce on Form BIS-999. The Department of
Commerce will forward appropriate requests to the Canadian Public Works
and Government Services Canada.

Sec.  700.45  Military Assistance programs with other nations and
international organizations.

    (a) Scope. To promote military assistance to foreign nations and
international organizations, this section provides for authorizing
priority ratings to persons in foreign nations or international
organizations to obtain items in the United States in support of
approved programs. Although priority ratings have no legal authority
outside of the United States, this section also provides information on
how persons in the United States may obtain informal assistance in
Finland, Italy, The Netherlands, Sweden, and the United Kingdom in
support of approved programs.
    (b) Foreign nations and international organizations. (1) Any person
in a foreign nation other than Canada, Finland, Italy, The Netherlands,
Sweden, or the United Kingdom, or any person in an international
organization, requiring assistance in obtaining defense items in the
United States or priority rating authority for defense items to be
purchased in the United States, should submit a request for such
assistance or rating authority to: The Department of Defense DPAS Lead
in the Office of the Director, Industrial Policy, 3330 Defense
Pentagon, Washington, DC 20301; Telephone:<PHONE_NUMBER>; Fax: (703)
695-4885.
    (i) If the end product is being acquired by a U.S. Government
agency, the request should be submitted to the DPAS Lead through the
U.S. contract administration representative.
    (ii) If the end product is being acquired by a foreign nation or
international organization, the request must be sponsored prior to its
submission to DPAS Lead by the government of the foreign nation or the
international organization that will use the end product.
    (2) If the Department of Defense endorses the request, it will be
forwarded to the Department of Commerce for appropriate action.
    (c) Requesting assistance in Finland, Italy, The Netherlands,
Sweden, and the United Kingdom.
    (1) The U.S. Department of Defense has entered into bilateral
security of supply arrangements with Finland, Italy, The Netherlands,
Sweden, and the United Kingdom that allow the U.S. Department of
Defense to request the priority delivery for U.S. Department of Defense
contracts, subcontracts, and orders from companies in these countries.
    (2) Any person in the United States requiring assistance in
obtaining the priority delivery of a contract, subcontract, or order in
Finland, Italy, The Netherlands, Sweden, or the United Kingdom to
support an approved program should contact the Department of Defense
DPAS Lead in the Office of the Director, Industrial Policy for
assistance. Persons in Finland, Italy, The Netherlands, Sweden, and the
United Kingdom should request assistance in accordance with paragraph
(b)(1) of this section.

Sec.  700.46  Critical Infrastructure Assistance programs with other
nations and international organizations.

    (a) Scope. To promote critical infrastructure assistance to foreign
nations, this section provides for authorizing priority ratings to
persons in foreign nations or international organizations to obtain
items in the United States in support of approved programs.
    (b) Foreign nations and international organizations. (1) Any person
in a foreign nation or international organization requiring assistance
in obtaining critical infrastructure items in the United States or
priority rating authority for critical infrastructure items to be
purchased in the United States should submit a request for such
assistance or rating authority to the Office of Policy and Program
Analysis (OPPA), Federal Emergency Management Agency, U.S. Department
of Homeland Security, 500 C Street, SW., Washington, DC 20472;
telephone:<PHONE_NUMBER>; Fax:<PHONE_NUMBER>.
    (2) The government of the foreign nation or the international
organization that will use the end product must sponsor all critical
infrastructure assistance requests prior to submission to the OPPA.
    7. Subpart F is revised to read as follows:
Subpart F--Official Actions
Sec.
700.50 General provisions.
700.51 Rating authorizations.
700.52 Letters of understanding.

Subpart F--Official Actions

Sec.  700.50  General provisions.

    (a) The Department of Commerce may, from time-to-time, take
specific official actions to implement or enforce the provisions of
this part.
    (b) Several of these official actions (rating authorizations, and
letters of

understanding) are discussed in this subpart. Official actions that
pertain to compliance (administrative subpoenas, demands for
information, and inspection authorizations) are discussed in Sec.
700.72(c) of this part. Prioritization directives and allocation
directives are discussed in Sec. Sec.  700.12 and 700.62, respectively,
of this part.

Sec.  700.51  Rating authorizations.

    (a) A rating authorization is an official action granting specific
priority rating authority that:
    (1) Permits a person to place a priority rating on an order for an
item not normally ratable under this part; or
    (2) Authorizes a person to modify a priority rating on a specific
order or series of contracts or orders.
    (b) To request priority rating authority, see Sec.  700.41 of this
part.

Sec.  700.52  Letters of understanding.

    (a) A Letter of understanding is an official action which may be
issued to resolve special priorities assistance cases and reflects an
agreement reached by all parties (the Department of Commerce, the
Delegate Agency, the supplier, and the customer).
    (b) A Letter of understanding is not used to alter scheduling
between rated orders, to authorize the use of priority ratings, to
impose restrictions under this part, or to take other official action.
Rather, letters of understanding are used to confirm production or
shipping schedules which do not impact other rated orders.
    8. Subpart G is revised to read as follows:
Subpart G--Allocations in a National Emergency
Sec.
700.61 Allocation orders--when and how used.
700.62 Precedence of allocation orders over rated orders or
prioritization directives.
700.63 Allocation orders.
700.64 Elements of an allocation order.
700.65 Mandatory acceptance of allocation orders.
700.66 Changes or cancellations of allocation orders.

Subpart G--Allocations in a National Emergency

Sec.  700.61  Allocation orders--when and how used.

    (a) Allocation orders will be used only if:
    (1) Use of priorities (subpart C of this part) does not provide
sufficient supply of a material, service or facility to satisfy
national defense requirements; or
    (2) Use of such priorities would cause a severe and prolonged
disruption in the supply of resources available to support normal U.S.
economic activities.
    (b) Allocation orders will not be used to ration materials or
services at the retail level.
    (c) Allocation orders, when imposed, will be distributed equitably
among the suppliers of the resource(s) being allocated and not require
any person to relinquish a disproportionate share of the civilian
market.

Sec.  700.62  Precedence of allocation orders over rated orders or
prioritization directives.

    If a conflict should occur between an allocation order and an
unrelated rated order or prioritization directive, the allocation order
shall take precedence.

Sec.  700.63  Allocation orders.

    The three types of allocation orders that may be used to
communicate allocation actions are:
    (a) Set-asides;
    (b) Allocation directives; and
    (c) Allotments.

Sec.  700.64  Elements of an allocation order.

    All allocation orders will include:
    (a) A detailed description of the required allocation action(s);
    (b) Specific start and end calendar dates for each required
allocation action;
    (c) The written signature on a manually placed order, or the
digital signature or name on an electronically placed order, of the
head of the Resource Agency placing the order. The signature or use of
the name certifies that the order is authorized under this part and
that the requirements of this part are being followed; and
    (d) A statement that reads in substance: ``This is an allocation
order certified for national defense use. [Insert the legal name of the
person receiving the order] is required to comply with this order, in
accordance with the provisions of 15 CFR 700.''

Sec.  700.65  Mandatory acceptance of allocation orders.

    (a) A person shall accept every allocation order received that the
person is capable of fulfilling, and must comply with such orders
regardless of any rated order, from any delegate agency, that the
person may be in receipt of or other commitments involving the
resource(s) covered by the allocation order.
    (b) A person shall not discriminate against an allocation order in
any manner such as by charging higher prices for resources covered by
the order or by imposing terms and conditions for contracts and orders
involving allocated resource(s) that differ from the person's terms and
conditions for contracts and orders for the resource(s) prior to
receiving the allocation order.
    (c) If a person is unable to comply fully with the required
action(s) specified in an allocation order, the person must notify the
Department of Commerce immediately at the address, telephone or fax
number in Sec.  700.81 of this part, explain the extent to which
compliance is possible, and give the reasons why full compliance is not
possible. If notification is given verbally, written or electronic
confirmation must be provided within five (5) working days in
accordance with the instructions in Sec.  700.81 of this part. Such
notification does not release the person from complying with the order
to the fullest extent possible, until the person is notified by the
Department of Commerce that the order has been changed or cancelled.
Alternatively, a person may request an adjustment of or exception from
an allocation order in accordance with the provisions set forth in
Sec.  700.15 of this part.

Sec.  700.66  Changes or cancellations of allocation orders.

    An allocation order may be changed or canceled by an official
action from the Department of Commerce.
    9. Subpart H is revised to read as follows:
Subpart H--Compliance
Sec.
700.70 General provisions.
700.71 Records and reports.
700.72 Audits and investigations.
700.73 Compulsory process.
700.74 Notification of failure to comply.
700.75 Violations, penalties, and remedies.
700.76 Compliance conflicts.
Subpart H--Compliance

Sec.  700.70  General provisions.

    (a) Compliance actions may be taken for any reason necessary or
appropriate to the enforcement or the administration of the Defense
Production Act, the Selective Service Act, or this part. Such actions
include audits, investigations, or other inquiries.
    (b) Willful violation of any of the provisions of Title I or
section 705 of the Defense Production Act, or this part, is a criminal
act, punishable as provided in the Defense Production Act and as set
forth in Sec.  700.75 of this part.

Sec.  700.71  Records and reports.

    (a) Persons are required to make and preserve for at least three
years, accurate and complete records of any transaction covered by this
part or an official action.
    (b) Records must be maintained in sufficient detail to permit the
determination, upon examination, of whether each transaction complies
with the provisions of this part or any official action. However, this
part does not

specify any particular method or system to be used.
    (c) Records required to be maintained by this section must be made
available for examination on demand by duly authorized representatives
of the Department of Commerce as provided in Sec.  700.72 of this part.
    (d) In addition, persons must develop, maintain, and submit any
other records and reports to the Department of Commerce that may be
required for the administration of the Defense Production Act, the
Selective Service Act, and this part.
    (e) Section 705(d) of the Defense Production Act provides that
information obtained under this section which the President deems
confidential, or with reference to which a request for confidential
treatment is made by the person furnishing such information, shall not
be published or disclosed unless the President determines that the
withholding of this information is contrary to the interest of the
national defense. Information required to be submitted to the
Department of Commerce in connection with the enforcement or
administration of the Act, this part, or an official action, is deemed
to be confidential under section 705(d) of the Act and shall not be
published or disclosed except as required by law.

Sec.  700.72  Audits and investigations.

    (a) Audits and investigations are official actions involving the
examination of books, records, documents, other writings and
information to ensure that the provisions of the Defense Production
Act, the Selective Service Act, and this part have been properly
followed. An audit or investigation may also include interviews and a
systems evaluation to detect problems or failures in the implementation
of this part.
    (b) When undertaking an audit, investigation, or other inquiry, the
Department of Commerce shall:
    (1) Promptly define the scope and purpose in the official action
given to the person under investigation, and
    (2) Ascertain that the information sought or other adequate and
authoritative data are not available from any Federal or other
responsible agency.
    (c) In administering this part, the Department of Commerce may
issue the following documents which constitute official actions:
    (1) Administrative Subpoenas. An Administrative Subpoena requires a
person to appear as a witness before an official designated by the
Department of Commerce to testify under oath on matters of which that
person has knowledge relating to the enforcement or the administration
of the Defense Production Act, the Selective Service Act, or this part.
An Administrative Subpoena may also require the production of books,
papers, records, documents and physical objects or property.
    (2) Demand for Information. A Demand for Information requires a
person to furnish to a duly authorized representative of the Department
of Commerce any information necessary or appropriate to the enforcement
or the administration of the Defense Production Act, the Selective
Service Act, or this part.
    (3) Inspection Authorizations. An Inspection Authorization requires
a person to permit a duly authorized representative of the Department
of Commerce to interview the person's employees or agents, to inspect
books, records, documents, other writings and information in the
person's possession or control at the place where that person usually
keeps them, and to inspect a person's property when such interviews and
inspections are necessary or appropriate to the enforcement or the
administration of the Defense Production Act, the Selective Service
Act, or this part.
    (d) The production of books, records, documents, other writings and
information will not be required at any place other than where they are
usually kept if, prior to the return date specified in the
Administrative Subpoena or Demand for Information, a duly authorized
official of the Department of Commerce is furnished with copies of such
material that are certified under oath to be true copies. As an
alternative, a person may enter into a stipulation with a duly
authorized official of the Department of Commerce as to the content of
the material.
    (e) An Administrative Subpoena, Demand for Information, or
Inspection Authorization, shall include the name, title or official
position of the person to be served, the evidence sought to be adduced,
and its general relevance to the scope and purpose of the audit,
investigation, or other inquiry. If employees or agents are to be
interviewed; if books, records, documents, other writings, or
information are to be produced; or if property is to be inspected; the
Administrative Subpoena, Demand for Information, or Inspection
Authorization will describe them with particularity.
    (f) Service of documents shall be made in the following manner:
    (1) Service of a Demand for Information or Inspection Authorization
shall be made personally, or by Certified Mail--Return Receipt
Requested at the person's last known address. Service of an
Administrative Subpoena shall be made personally. Personal service may
also be made by leaving a copy of the document with someone at least 18
years of age at the person's last known dwelling or place of business.
    (2) Service upon other than an individual may be made by serving a
partner, corporate officer, or a managing or general agent authorized
by appointment or by law to accept service of process. If an agent is
served, a copy of the document shall be mailed to the person named in
the document.
    (3) Any individual 18 years of age or older may serve an
Administrative Subpoena, Demand for Information, or Inspection
Authorization. When personal service is made, the individual making the
service shall prepare an affidavit as to the manner in which service
was made and the identity of the person served, and return the