Duty-Free Entry on a FFP contract?

[Sixth_WIFCON_Registration]

I am the CO for a Firm-Fixed-Price civilian agency contract for the detailed design and construction of a medium-sized vessel. The Contractor is issuing purchase orders for the various materials, components, and pieces of equipment to support the contstruction of the vessel. For a particular piece of equipment, which is a foreign supply, the Contractor has requested per FAR 52.225-8, Duty-Free Entry, that I make a determination as to whether I will issue a duty-free certificate for the foreign supply. Surely there would be many other requests as well.

After conducting my research I have found that the Government's administrative costs to entertain this certificate for this supply, and surely for subsequent supplies, would outweigh any benefit. And under a FFP contract, I don't see what the benefit to the Government would be. The clause prescription makes no distinction between cost type or fixed-price contracts when describing when to include the clause. I estimate the cost to the Government to be roughly $1,751 per duty-free certificate based on an old DFARS figure that I found of $1,162 in 1992 dollars.

I am almost considering proposing to the Contractor an arrangement where we share the savings of the duty-free entry. This would involve crafting a clause to allow for that and modifying it into the contract by mutual agreement.

Does anyone have any insight as to what purpose a duty-free certificate would serve to benefit the Government in any way on a FFP contract?

Thanks in advance!

[Guest Vern Edwards]

Does anyone have any insight as to what purpose a duty-free certificate would serve to benefit the Government in any way on a FFP contract?

FAR 25.901 provides as follows:

25.901 Policy. United States laws impose duties on foreign supplies imported into the customs territory of the United States. Certain exemptions from these duties are available to Government agencies. Agencies must use these exemptions when the anticipated savings to appropriated funds will outweigh the administrative costs associated with processing required documentation.

The purpose of the clause is to save money for the Government. The clause requires the contractor to notify the Government of any pending importations and the estimated amount of the duty. If the contracting officer signs a duty free certificate, the clause provides as follows:

( c)(3) Except as otherwise approved by the Contracting Officer, the contract price shall be reduced by (or the allowable cost shall not include) the amount of duty that would be payable if the supplies were not entered duty-free.

The Government gets the savings, not the contractor. The benefit to the Government under an FFP contract is a reduced price.