Effective October 25, 2022, the domestic content requirements for government purchases subject to the Buy American Act (“BAA”) will increase. A March 7, 2022, final rule implemented significant domestic content threshold increases over a seven-year timeframe for procurements subject to the BAA requirements of FAR Part 25. These increases were based on President Biden’s January 25, 2021, Executive Order 14005, Ensuring the Future Is Made in All of America by All of America’s Workers. (See, Buy American Act—Final Rule: What Has Changed?) Note that these changes apply to the BAA as implemented in non-Department of Defense (“DoD”) purchases—the rules for implementing the BAA in DoD acquisitions are set forth in the DFARS, and differ from the FAR implementation in several important respects that we will address in a future post.
Unlike the Trade Agreements Act (“TAA”), which bans government purchases of non-compliant products, the BAA applies pricing preferences to encourage government agencies to purchase “domestic end products.” Thus, items that are not BAA compliant may still be purchased by government agencies, but they must be significantly less expensive. Currently, FAR Part 25 provides that large businesses offering domestic end products receive a 20 percent price preference and small businesses offering domestic end products receive a 30 percent price preference. The FAR sets forth a two-part test to determine whether a manufactured end product or construction material qualifies as a domestic end product: (1) the end product or construction material must be manufactured in the United States; and (2) the cost of any components mined, produced, or manufactured in the United States must exceed a certain percentage of the cost of all components.
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On March 7, 2022, the FAR Council published the final rule containing changes to Buy American Act (“BAA”) domestic preference requirements.
This final rule is a significant step towards implementation of a policy to enhance domestic preferences announced by President Biden in E.O. 14005 just a few days after taking office. You may recall that the FAR Council previously issued a proposed rule that contemplated (1) phased increases in domestic content thresholds, (2) enhanced preferences for critical products and components, and (3) post-award reporting requirements for critical products and components. See our prior posts addressing President Biden’s E.O. 14005 and the proposed rule.
The final rule retained most of what the FAR Council initially proposed, but there are a few changes that we discuss below. We also point out some aspects of the new policy that remain to be fleshed out in future rulemaking.
Increased Domestic Content Thresholds
The proposed rule contemplated increasing the current domestic content threshold from 55 percent to 60 percent, with subsequent increases to 65 percent and 75 percent beginning in calendar years 2024 and 2029, respectively. The final rule retains these increases but allows for a longer period than typically provided before the first increase to 60 percent becomes effective. The 60 percent threshold will take effect October 25, 2022—over six months after publication, rather than the customary 30 or 60 days after publication. Thus, contractors and agencies have several more months to plan for the new threshold.
As directed in President Biden’s January 25, 2021, Executive Order we discussed six months ago, last week the FAR Council proposed increases to the Buy American Act (“BAA”) domestic content requirements, and previewed enhanced price preferences and reporting obligations for “critical” domestic products and components under the BAA.
The proposed rule, issued on July 30, 2021, contains three key elements: (1) Phased increases in domestic content thresholds from the current 55% to 75% by 2029, (2) enhanced price preferences for critical products and components, and (3) post-award reporting requirements for critical products and components.
A virtual public meeting to discuss the proposed rule will be held on August 26, 2021, and comments are due by September 28, 2021. The DAR Council also has an open DFARS Case relating to BAA provisions (2019-D045).
We provide an overview of the rule below along with practical takeaways for contractors to consider in light of these potentially significant changes.
“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. (SeeProposed Rule Portends Increased Contractor BAA Obligations.) On January 19, 2021, the FAR Council published its final rule, largely adopting the proposed version.
On September 14, 2020, the FAR Council published a proposed rule, Case 2019-016 “Maximizing Use of American-Made Goods, Products, and Materials,” 85 FR 56558, which proposes certain increased and new thresholds for contractors subject to the Buy American Act (“BAA”). The proposed changes implement Executive Order 13881 (July 15, 2019). There is a November 13, 2020, deadline for interested parties to submit written comments for consideration in the final rule.
The key proposed changes are as follows:
Items subject to a minimum domestic component test would need to meet a new threshold of 55 percent, an increase of five percent from the current 50 percent threshold. Domestic end items and construction materials would need to be manufactured in the United States, and would need to be manufactured from components which, based on cost, are over 55 percent domestic (components mined, produced, or manufactured in the United States).
A new, distinct threshold would be created for end items and construction materials that are made predominantly of iron or steel or a combination of both—meaning that the iron and steel content of the item exceeds half of the total cost of all components in the item. For such items, the domestic component content threshold would be 95 percent. In other words, for items made predominantly of iron or steel to be considered domestic, they would need to be manufactured in the United States and contain less than 5 percent non-domestic components by cost. This is a significant change; currently these items are subject to a much lower domestic content requirement—anything over 50 percent.
The commercially available off-the-shelf (“COTS”) exception to the cost of component requirements would still apply to end items and construction materials that are not made predominantly of iron or steel. In other words, such COTS items would need to be mined, manufactured, or produced in the United States, but there would be no requirement that any portion of the components of such COTS items be domestic.
The COTS exception to the cost of component requirements would not apply to end items and construction materials that are made predominantly of iron or steel. The rule set forth in (2) above would apply—to be considered domestic, such COTS items would need to be manufactured in the United States and contain less than five percent non-domestic components by cost.
However, the rule set forth in (4) above would not apply to fasteners—hardware devices that mechanically join or affix two or more objects together—such as nuts, bolts, pins, rivets, nails, clips, and screws. Fasteners, even if made predominantly of iron or steel, would still fall within the COTS exception in (3) above, such that they only need to be manufactured in the United States. The source of components would not matter.
Price evaluation adjustments made to bids for non-domestic items would increase from six percent to 20 percent (if bidder is not small) and from 12 percent to 30 percent (if bidder is a small business). For Department of Defense procurements, the existing 50 percent price evaluation adjustment applied to offers of non-domestic items would still apply.
On August 6, 2020, President Trump issued another Executive Order (“EO”) that will likely have dramatic and long-lasting effects on the pharmaceutical industry. The impact of the EO may be far greater than currently anticipated. It is well-considered, well drafted, and structured in a way that is likely to survive if there is a change in Administration. The EO will have a greater and immediate impact on Medical Counter Measures (“MCMs”) for chemical, biological, radiological, and nuclear threats, and emerging infectious diseases than on Essential Medicines. The inclusion of Critical Inputs (i.e., active pharmaceutical ingredients (“API”)) and starting materials potentially makes the impact far reaching, especially when coupled with the significant funding from the federal government to support onshoring efforts as a result of the COVID-19 pandemic. Continue reading “Executive Order Regarding Domestic Production and Purchase of Essential Medicines: A Lot to Unpack and More Than Meets the Eye”
Comstor involved a False Claims Act (“FCA”) action filed by a serial whistleblower who alleged two contractors violated the FCA by selling non-TAA compliant products on their General Services Administration (“GSA”) Federal Supply Schedule (“FSS”) contracts to federal government customers. Depending on the dollar value of the acquisition, most procurements are subject to either the Buy American Act (“BAA”) or TAA. Currently (2018), the BAA applies to supply procurements valued at or below $180,000. Accordingly, the TAA currently applies to such procurements valued in excess of $180,000. GSA has determined the TAA applies to FSS contracts. Continue reading “Trade Agreements Act Compliance: Some Welcome News for Some Federal Contractors, But Will It Last?”