§2563 Articles and Services of Industrial Facilities: Sale to Persons Outside the Department of Defense

Summary

The Secretary of Defense may sell items and services made in military industrial shops to people or organizations outside the Department of Defense when those items or services are not available from a U.S. commercial source. This does not apply to Army factories that make large-caliber cannons, gun mounts, recoil mechanisms, ammunition, munitions, or parts of those items, because those are covered by other rules. The Secretary can pick which military shops may sell. Sales are allowed only if the item or service truly can’t be bought from a U.S. commercial vendor (unless the Secretary waives that rule for national security and tells Congress), the buyer agrees to protect the United States from most damage or injury claims, the shop can do most of the work itself with only small subcontracting, it is in the public interest, and the sale will not get in the way of the shop’s military work. The buyer protection does not cover willful misconduct, gross negligence, or claims that the government failed to meet agreed quality, schedule, or cost rules. Buyers may pay in partial advance payments. The sale price must at least cover variable costs, capital improvement costs, and equipment depreciation. Contracts must be firm fixed-price or, if the buyer agrees, cost-reimbursement. The facility must keep working capital (from non-appropriated sources) to pay design, planning, procurement, and related costs. Money from sales goes back to the funds that paid the production costs. Export controls still apply. Definitions: “advance incremental funding” = a series of partial payments before and during work; “not available” = not obtainable from a U.S. commercial source in the needed amount, quality, or time; “variable costs” = costs that change with how much is produced or how much service is provided.