Example 2: Company A, a U.S. company, manufactures and sells a delivery truck for
$30,000. Company A purchases the engine for its delivery truck from Subcontractor X, a
first-tier subcontractor, for $10,000. Subcontractor X, a U.S. company, manufactures its
truck engines in the United States. About 70% of Subcontractor X’s costs to produce the
engine consist of imported parts from various overseas sources. As disclosed in the First-
Tier Certification, none of the non-US content is attributable to the host nation. Since
assembly of Subcontractor X’s engine takes considerable skill and expertise,
Subcontractor X’s engine is substantially transformed in the U.S. and considered to be of
U.S. origin for purposes of the Trade Agreements Act. However, since Subcontractor
X’s cost of its domestic U.S. costs for the engine is less than 50% of the engine’s total
cost, Subcontractor X’s engine does not qualify as a U.S. Origin item under the DSCA
DCC Guidelines. DCC Guidelines regarding substantial transformation apply only to
COTS IT hardware. As a result, Company A must consider the entire cost of the $10,000
engine as non-US content.
Example 3: Company B, a U.S. company, manufactures a video surveillance and motion
detector security system for large installations. Company B purchases cameras from
Subcontractor X, a U.S. company, for $50,000. Subcontractor X, a U.S. company,
manufactures its cameras in the United States. About 10% of Subcontractor X’s costs to
produce the cameras consists of imported parts from various overseas sources, including
$1,000 in costs from the host nation. Subcontractor X’s camera qualifies as a U.S. Origin
item under the DSCA DCC Guidelines. As a result, Company B may attribute $49,000
of the cost of the cameras as US content. However, Company B must also report $1,000
of the cost of the cameras as host nation content.
D. Second-Tier Subcontractors: From the perspective of the prime contractor, first-tier
subcontractors account for and capture all second-tier subcontractor costs. Therefore, a prime
contractor does not need to quantify U.S. and non-U.S. content costs for its second-tier or below
subcontractors when determining non-U.S. content under these guidelines.
E. Subsidiaries. If a prime contractor owns a majority share of another company, the other
company is a subsidiary. For the purposes of these guidelines, subsidiary costs towards a prime
contractor’s end item are considered direct costs to the prime contractor. Expenses incurred by
non-U.S. (foreign) subsidiaries of U.S. prime contractors are considered to be non-U.S. content
and must be declared. If a prime contractor or a subsidiary buys components from a company in
which the prime company has a minority ownership interest, the costs of the components are
considered as a cost from a first-tier subcontractor.
Example 4: Company A manufactures and sells a delivery truck for $30,000. Company
A purchases the engine for its truck from Subsidiary X, for $10,000. Subsidiary X, a
U.S. company, manufactures truck engines in the United States. About 30% of the cost
of Subsidiary X’s engine consists of imported parts from various overseas sources. None
of the non-U.S. content is attributable to the host nation. Since Subsidiary X’s cost of its
domestic U.S. costs for the engine is greater than 50% of the engine’s total cost,
Subsidiary X’s engine qualifies as a US Origin item under the DSCA DCC Guidelines.
However, Company A cannot report the cost of the engine as 100% U.S. content. Since