More American than Ever: Biden Administration Proposes the Most Significant Changes to the Buy American Act in Decades
9.13.21 – Posted on E&B Alerts – Government Contracts
In what President Biden claims would be the “biggest enforcement changes to the Buy American Act in 70 years,” the Federal Acquisition Regulations (FAR) Council has published a Proposed Rule (FAR-2021-0008) designed to carry out the administration’s stated goal to strengthen American manufacturing. The Buy American Act (BAA), a Depression-era law designed to grow the American manufacturing industry, generally requires the federal government to buy domestically produced goods and materials. However, after various iterations and amendments, the FAR now considers domestic products and materials to be “domestic” if they were “substantially made” in the United States, which under the current regime requires product components to be only 55% made, produced, or manufactured in the U.S.
On July 28, 2021 – seven months after President Biden called for an overhaul of the Buy American Act by signing Executive Order 14005 (“EO”) – the FAR Council proposed three significant amendments to the BAA regulations. Notably, the Proposed Rule would increase the domestic purchasing requirements for federal government procurements. These amendments also aim to maximize the federal government’s domestic product purchasing and increase accountability for contractors that source American products.
What does this mean for federal government contractors? There are three specific changes proposed to the implementing regulations in FAR part 25:
- Scheduled Increases to the Domestic Content Threshold
Under the BAA, a two-part test is used to determine whether a manufactured end product or construction material qualifies as “domestic.” First, the end product or construction material must be manufactured in the United States. 48 CFR §§ 25.101(a)(1), 25.201(b)(1). Second, more than 55% of all components’ parts (determined by cost of the components) must also be mined, produced or manufactured in the United States. Id. at §§ 25.101(a)(2), 25.201(b)(2). If a product meets this two-part test, then it can be considered a “domestic end product” or “domestic construction material.” Otherwise, products that fail this test are considered “foreign.”
The Proposed Rule raises this domestic content threshold percentage by mandating a series of increases, beginning with an immediate increase from 55% to 60%, then to 65% in two years, and then to 75% five years after the second increase. Consequently, upon timely approval of this Proposed Rule in 2021, domestic end products and construction materials will have to contain 75% of U.S. made products by 2028. Thus, suppliers with contracts that span the scheduled increases must maintain compliance with each increasing threshold.
However, the Proposed Rule also contains a “Fallback Threshold” which allows, until one year after the increase of the domestic content threshold to 75%, acceptance of the former threshold where end products or construction materials are not available or are of unacceptable cost. This provision only applies to construction materials that do not predominantly consist of iron or steel, or a combination of both.
- Enhanced Price Preference for Critical Products and Components
Currently, the regulations implementing the BAA encourages the use of domestic end products and construction materials by applying a “price preference” for domestic goods. 48 C.F.R. § 25.105. To carry out this goal, Contracting Officers attach an evaluation penalty to the price of a contractor’s foreign product proposal. If the adjusted price of the foreign product is lower than the domestic products even with the addition of the price preference, then the domestic proposal is deemed unreasonable, and award made to the foreign product proposal. Id.
The Proposed Rule’s new evaluation preference framework applies stronger price preferences for domestic products deemed “critical products” or made up of “critical components.” (The process for identifying what products and components qualify as “critical” will be addressed in a separate rulemaking to allow time for review of the supply chain and trade pact waivers.) In addition, offerors would be required to identify the domestic end products that contain critical components in their offer. This proposed clause would allow contracting officers to apply the higher price preferences where required.
- Post-award Domestic Content Reporting
Finally, the Proposed Rule strives to hold contractors accountable to their obligations under the BAA by imposing a new reporting requirement. After receiving a contract award, Contractors will be required to report (1) specific domestic content of critical items, (2) domestic end products containing a critical component, and (3) domestic construction material containing a critical component that will be used in the performance of the contract. However, this reporting requirements does not apply to commercial off-the-shelf items. Two new FAR clauses would implement this reporting requirement, including one for supplies and one for construction materials, to be located at FAR 25.1101 and 25.1102. These clauses will not be operational until after the critical items and critical components lists are finalized in FAR 25.105.
Overall, this Proposed Rule, if adopted, would significantly overhaul the BAA and increase the sourcing of American made products by the largest consumer in the world––the federal government. With a heightened standard for qualifying products and materials as “domestic,” contractors will need to review their supply chains and assess their sourcing or manufacturing processes to ensure continued compliance with the BAA’s domestic preference regulations. Furthermore, contractors would be burdened with ascertaining the true sources of their products to comply with the new post-award reporting requirement. With those changes, it is also likely that federal agencies will engage in a heightened analysis of contractors’ Buy American representations and increase enforcement actions against potential false representations.
Comments on the Proposed Rule are due on or before September 28, 2021. For additional information regarding the impact of this Proposed Rule, or for assistance ensuring your business’ compliance with the Buy American Act, please contact the government contract attorneys at Eckland & Blando LLP.
Remarks by President Biden on the Importance of American Manufacturing, The White House, (July 28, 2021), (https://www.whitecase.com/publications/alert/biden-administration-issues-proposed-rule-increase-domestic-content-requirements).
Federal Acquisition Regulation: Amendments to the FAR Buy American Act Requirements, 85 Fed. Reg. 40980 (proposed July 30, 2021) (to be codified at 48 C.F.R. pt. 1, 25, 52), (https://www.govinfo.gov/content/pkg/FR-2021-07-30/pdf/2021-15881.pdf).