The DoD Principal Director of Defense Pricing, Contracting, and Acquisition Policy recently issued a memorandum requiring contracting officers to ensure DFARS 252.225-7013 (“Duty-Free Entry”) is incorporated into new and existing contracts. This clause was designed to prevent defense contractors and their suppliers from incurring unnecessary duties on goods purchased specifically for incorporation into end items delivered to the DoD. The current administration’s aggressive use of tariffs has caused significant uncertainty within the U.S. defense supply base. Many contractors have been unsure whether they would ultimately have to absorb the resulting tariff costs or whether they or their suppliers could recover these costs in their offered pricing or through later price adjustments. There have been conflicting views on whether the Duty-Free Entry clause applied to tariffs, given the clause’s references to “duties.” This memorandum clarifies that DFARS 252.225-7013 does in fact apply to tariffs as well as duties.
Key takeaway
Contractors that fail to comply with the Duty-Free Entry clause could be stuck absorbing tariff costs. The government will likely not reimburse contractors for tariff costs where they or their subcontractors and suppliers fail to properly request or utilize duty-free certificates. Thus, it is important that contractors ensure their contracts include DFARS 252.225-7013, or if not, request contracting officers modify the contracts to insert the clause. Prime contractors must also flow this clause down to their suppliers to avoid being improperly charged tariffs that should be exempt. Bottom line: review your contracts, follow the clause by requesting duty-free certificates, and protect your cost position.
Action items for contractors
- Revise existing contracts: Confirm whether DFARS 252.225-7013 is included. Where the clause is absent, request contract modifications to incorporate it.
- Flow down to suppliers: Ensure subcontract and supply agreements contain the Duty-Free clause so suppliers cannot improperly attempt to pass along tariff costs.
- Educate program teams: Make internal stakeholders aware that tariffs should not be paid on items procured for inclusion in DoD end items.
- Use proper shipping documentation: Confirm that logistics and compliance teams (and suppliers) use the required duty-free entry language and forms when importing covered items. Without the right paperwork, tariff relief won’t apply.
- Act promptly: The longer contractors wait, the greater the risk of being left with unrecoverable tariff costs.
Law clerk Lauren Tesler contributed to this article.
