the little lip on the black plastic piece does go against the diff hub's outer flanged bearing. That little lip on the plastic piece centers it on the flanged bearing properly. The design intent is for the caged thrust bearing to ride sandwiched between the the two metal washers, and riding in the machined round bottom groove that is provided in one face of each metal washer. Having said that, I've found that the Slapmaster's diff's action is a little more free (albeit perhaps not quite as long lasting) if the flat face of the two metal washers faces the caged balls rather then the grooved side. Please note too that the hole in the middle of the metal washers is a slightly bigger diameter than the other washer. So the order of assembly is - black plastic spacer piece first (flanged lip resting against the hub's outer ball bearing), then the bigger hole metal washer, then the caged thrust bearing, then the smaller hole metal washer, then the adjusting nut. Happy motoring. The Slapmaster diff setup, while not quite as free spinning as a brand new plain bearing, is quite a nice deal because it does last pretty much forever without ever getting a crunchy feel.