CLIENT ALERT

DoD Exempts Purchases of Information Technology Products
from Trade Agreements Act Coverage

On March 9, 1998, the Department of Defense issued an important new rule affecting the procurement of Information Technology ("IT") products. Now, an IT product is a "U.S. end item" -- under the Trade Agreements Act ("TAA") clause -- if it has been substantially transformed in the U.S.

If substantial transformation takes place, then the item is considered as U.S. origin regardless of the source of the components. This places IT products substantially transformed in the United States on a par with IT products from designated countries.

The new rule is effective March 9, 1998 and is contained at Defense FAR Supplement ("DFARS") Part 225; the corresponding DFARS clause is 252.225-7020. It applies to procurements by DoD conducted after the effective date and valued above the current TAA threshold - $190,000.

The former rule required that IT products manufactured in the U.S. contain at least 50% U.S. origin components for TAA purposes. With this change, the TAA rules for IT products become the same for DoD procurements as they are for acquisitions by the General Services Administration, such as Federal Supply Service Schedule contracts.