Buy American Act – More Big Changes Ahead

Scott Arnold

“Buy American” is one of few policy areas where the Biden and Trump administrations appear to generally agree. The Trump administration expressed support for strengthening regulatory implementation of the Buy American Act (“BAA”), and, in Executive Order 13881 (July 15, 2019), directed the Federal Acquisition Regulatory Council (“FAR Council”) to consider proposed regulations to increase and create new domestic content thresholds required for a product to qualify for domestic preference treatment. We wrote four months ago about the FAR Council’s proposed regulations to do just that, and to increase the price evaluation credit given to domestic products subject to the BAA. (See Proposed Rule Portends Increased Contractor BAA Obligations.) On January 19, 2021, the FAR Council published its final rule, largely adopting the proposed version.

Ironically, these changes were issued on the last full day of the Trump administration and went into effect January 21, 2021—the first full day of the Biden administration. And while there is no indication that the Biden administration believes the new BAA thresholds were bad ideas, President Biden wasted no time signaling his desire for further strengthening of the BAA as well as domestic content requirements in federal procurement and grant programs generally. President Biden’s Executive Order on Ensuring the Future Is Made in All of American by All of America’s Workers (“EO”) issued on January 25, 2021, makes this clear.

Key Elements of the EO

  1. The EO has broad application and intends to strengthen laws promoting use of American products in connection with federal procurement and grants. This includes the BAA (applicable to federal procurement) as well as “Buy America” requirements (applicable to U.S. Department of Transportation grants subsidizing state and local government construction projects). The EO also applies to laws requiring domestic preference for maritime transport, including the Merchant Marine Act of 1920 (known as the Jones Act). We focus here on procurement and the BAA.
  2. The FAR Council is directed to consider additional changes to the FAR, within 180 days after issuance of the EO, that would:
    • Replace the BAA’s “component test” with a test “under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S.-job supporting economic activity;” and
    • Increase the numerical domestic content requirements for end products and construction materials, and increase the price preferences for domestic end products and domestic construction materials.

The EO provides no guidance on how the value added through U.S.-based production or U.S.-job supporting economic activity would be measured; the FAR Council is tasked with devising a methodology. Also, given the context here—requesting that the FAR Council consider additional increases above those just implemented in the FAR less than two weeks ago—it is unclear how much higher the FAR Council will believe it should go. Is it practical to raise the domestic content for end items and construction materials made predominantly of iron or steel—or a combination of both—higher than the 95 percent threshold just added to the FAR? And what would raising this threshold actually mean, if the current thresholds are based on a component test and new tests would instead measure U.S.-based production or job supporting activity?  These are questions that the FAR Council will need to grapple with.

  1. The FAR Council is also directed to review existing constraints on applicability of the BAA to commercial item information technology (“IT”). In other words, the FAR Council is to make recommendations on whether the BAA exception for commercial item IT should be lifted.
  2. The BAA waiver process will become more centralized and more transparent.
    • Historically, BAA waivers have been approved at the contracting activity level. However, the EO directs the Director of the Office of Management and Budget (“OMB”) to establish within OMB a new “Made in America Office,” headed by a Made in America Director, who will be required to establish a process in which procurement agencies interested in BAA waivers must refer waiver requests to the Made in America Office for approval. To the extent the head of a procuring agency and the Made in America Office cannot agree on whether a waiver is appropriate, the EO provides for disagreements to be resolved at a high level in the White House.
    • The EO directs the Administrator of General Services to establish a website where information about proposed waivers and whether they have been granted will be published.
  1. The EO mandates an interagency process aimed at more rigorously scrutinizing the List of Unavailable Articles at FAR 25.104(a), which is a list of products for which the BAA is presumed not to apply due to lack of domestic availability. Before the FAR Council updates this list, it must coordinate with the Administrator of the Office of Federal Procurement Policy, who in turn is to consult with the Department of Commerce and the Made in America Director, to ensure that availability determinations are reasonable.

Takeaways

    • The new EO focuses on strengthening not only the substantive regulations implementing the BAA, but also the infrastructure within the Executive Branch that will ensure that the regulations are more effectively enforced.
    • To the extent your company has or plans to bid on BAA-covered contracts, it is necessary to make supply chain adjustments in order to comply with the recently amended implementing provisions in the FAR, and to prepare for even more stringent requirements likely to be implemented over the next year or two based on the policy directives in the new EO.