Merle M. DeLancey, Jr. and Shane M. Hannon ●
On July 28, 2026, the U.S. Court of Federal Claims issued its decision in AvKare, LLC v. United States[1], upholding the Department of Veterans Affairs’ (“VA”) national contract award for Hydroxychloroquine tablets. The opinion is an important reminder of the discretion contracting officers have to evaluate pharmaceuticals for Trade Agreements Act (“TAA”) compliance and reaffirms that the country where a drug’s active pharmaceutical ingredient (“API”) is synthesized can be its country of origin for TAA purposes. The Court also declined to extend the scope of the Federal Circuit’s 2020 Acetris decision which would have conflated “manufacturing” and “substantial transformation.”
Overview of the TAA
The TAA provides that the Government may only acquire “U.S.-made or designated country end products.” See FAR 52.225-5. The TAA states that if a product comprises materials from multiple countries, its country of origin is where it was “substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.” 19 U.S.C. § 2518(4)(B). If a product is “substantially transformed” in a TAA-designated country, the product complies with the TAA.
The Dispute
The VA solicited proposals for a national contract to supply Hydroxychloroquine tablets to VA and Department of Defense facilities. The solicitation required offerors to certify that their products were either U.S.-made or designated-country end products under the TAA.
The VA awarded the contract to Bryant Ranch Prepack Pharmaceuticals (“Bryant Ranch”), whose product used an API manufactured in Taiwan (a TAA-designated country) but was tableted in India (a non-designated country). AvKare filed a protest at the Court of Federal Claims, alleging that Bryant Ranch’s Hydroxychloroquine tablet was not a “designated-country end product” under the TAA because the finished tablets were produced in India, a non-designated country.
The VA’s TAA Analysis
After an initial protest and a voluntary remand, the VA reopened discussions and required Bryant Ranch to provide additional information supporting its TAA certification, including detailed evidence regarding the synthesis of the API, the dosage-form manufacturing process, and the locations where substantial transformation did or did not occur. In response, Bryant Ranch submitted sworn declarations from its supply chain, including a step-by-step description of the chemical synthesis of the API performed in Taiwan and the tablet compression processing performed in India.
The VA reviewed Bryant Ranch’s submissions as part of its own, independent TAA analysis, including referencing information from public sources as well as U.S. Customs and Border Protection (“CBP”) administrative rulings on country-of-origin determinations for pharmaceutical products. The VA concluded that Bryant Ranch’s Hydroxychloroquine tablets were “designated-country end products” because the API was manufactured in Taiwan, a TAA-designated country. The tablets were therefore “substantially transformed” in Taiwan. Although the tablets underwent subsequent tableting in India, such routine dosage-form finishing did not alter the drug’s molecular structure or pharmacological activity and therefore did not amount to a second substantial transformation. Because the VA found that Bryant Ranch’s tablets complied with the TAA, the VA awarded the contract to Bryant Ranch.
The Court’s Key Findings
Agencies must independently verify TAA compliance—but they maintain discretion. The Court reaffirmed the principle from Acetris Health, LLC v. United States, 949 F.3d 719 (Fed. Cir. 2020) that contracting agencies must independently determine whether an offered product qualifies under the TAA. At the same time, the Court recognized that it is “entirely reasonable for a [contracting officer] to account for another agency’s position or interpretation when that agency has specialized oversight and expertise in a given area.” In this case, the VA looked to CBP decisions for guidance but conducted its own TAA analysis based on the manufacturing process for Bryant Ranch’s product. The Court declined to overturn the VA’s TAA analysis, which “considered the relevant evidence.”
The country of origin of a pharmaceutical product can be the country where its API is made. The Court found as reasonable the VA’s conclusion that substantial transformation of the Hydroxychloroquine occurred in Taiwan, where the key ingredient—the API—was made. The API dictated the drug’s pharmacological activity and therapeutic purpose. Relying on Federal Circuit precent, the Court held that when an intermediate article already possesses its essential character and predetermined use, routine finishing operations that merely convert it into final form do not constitute substantial transformation. Although the Taiwanese API underwent processing in India to create Hydroxychloroquine tablets, that processing did not “substantially transform” the drug.
“Manufacturing” is not necessarily synonymous with “substantial transformation.” The Court also rejected AvKare’s interpretation of the Federal Circuit’s Acetris decision. AvKare argued that under Acetris, the country of origin must be where the product is tableted into its final, consumable product. But the Court noted that Acetris primarily concerned the phrase “U.S.-made end product” and focused on whether the product in that case was “manufactured” in the United States. This case, in contrast, concerned the phrase “designated country end product,” which focuses on where the product was “substantially transformed.” The Court therefore declined to extend Acetris by finding Bryant Ranch’s Hydroxychloroquine was “substantially transformed” where it was “manufactured.”
Practical Implications
This decision has significant implications for government contractors and pharmaceutical suppliers navigating TAA compliance:
- Agencies have broad but bounded discretion. The opinion confirms that contracting officers are expected to perform independent, fact-intensive analyses of where substantial transformation occurs. They may not blindly defer to the CBP, but they may consult CBP rulings, public labeling, and other available evidence as part of their evaluation.
- API origin matters. For multi-country pharmaceutical supply chains, the country where the API is synthesized can be the country of origin of the finished product—particularly where downstream processing consists only of routine dosage-form operations (measuring, mixing, granulating, tableting) that do not alter the drug’s molecular structure or pharmacological activity.
- Routine tableting alone may not constitute substantial transformation. Offerors who rely on performing minimal, non-transformative tableting in a designated country to claim TAA compliance may find their position vulnerable. The Court warned that AvKare’s reading “would create an unintended loophole where companies could perform minimal, non-transformative tableting in a designated country to claim compliance despite all meaningful manufacturing occurring elsewhere.”
- Documentation is key. The VA’s decision was upheld in large part because it was supported by detailed evidence—sworn declarations, certificates of analysis, and independent research. Offerors claiming TAA compliance through multi-country manufacturing should be prepared to substantiate their claims with similar documentation if challenged.
[1] For purposes of full disclosure, the authors represented Bryant Ranch, the intervenor, in AvKare.