Buy American Act Content Requirements Are Tightening Again, Are You Prepared?
With Dave Yang
Numerous changes to the Buy American Act (“BAA”) have been proposed and implemented in recent years, with another one coming this week. Beginning tomorrow, on October 25, 2022, the domestic content requirement for components in non-ferrous manufactured end products and construction materials will increase from 55% to 60%. This increase will be the first of three phased increases for such products implemented under the Biden Administration.
As a brief recap, the BAA is a domestic preference statute that encourages federal agencies to procure manufactured end products or construction materials from domestic sources of supply unless a waiver applies (most notably under the Trade Agreements Act). For such products, the BAA does so pursuant to a two-part test: first, the end product or construction material must be manufactured in the United States; and second (with limited exceptions), a certain percentage of the components that constitute the end product or construction material also must be manufactured in the United States. The BAA further requires procuring agencies to apply various price penalties to foreign offers for evaluation purposes, such that if the foreign offer is still less expensive than a domestic source after applying the evaluation penalty, the agency may select the foreign offer. While this framework remains intact, the BAA has been refined through Executive Orders and rulemaking by the Federal Acquisition Regulation (“FAR”) Council in both the prior and current Administrations.
President Trump issued Executive Order (“EO”) 13881, Maximizing Use of American-Made Goods, Products, and Materials, pursuant to which the FAR Council published its final rule on January 19, 2021. The final rule amended the FAR to increase the domestic content requirements for components from 50% to 55% for manufactured end products or construction materials and substantially increased the content requirement for wholly or predominantly iron and steel end products and manufactured construction materials to 95%. The final rule also removed the long-standing commercial-off-the-shelf (“COTS”) exception from the BAA’s domestic component content requirements for COTS components that are wholly or predominantly of iron or steel (except for fasteners). Finally, the final rule increased the price evaluation penalties in civilian acquisitions from 12% to 30% for small business offerors and from 6% to 20% for large businesses. DoD acquisitions, however, remained unchanged at a 50% price evaluation penalty.
Building upon these changes, President Biden issued EO 14005, Ensuring the Future Is Made in All of America by All of America’s Workers, to further strengthen American manufacturing. EO 14005’s whole-of-government initiative not only required the Office of Management and Budget (“OMB”) to create an OMB-level Made in America Office (“MIAO”) but also directed the FAR Council to consider replacing the domestic component content test with a test that instead would measure domestic content based on the value added to the end product through U.S. based production or in support of U.S. jobs. EO 14005 also required the FAR Council to review whether the commercial information technology exemption from the BAA should be retained.
Based on these policy objectives, the FAR Council’s July 30, 2021 proposed rule raised an issue as to whether enhanced preferences should be applied to critical products and/or critical components and for awardees to report the domestic content of these items. While the FAR Council’s March 7, 2022 final rule implementing EO 14005 ultimately did not address these more challenging aspirations and objectives (and while we may nonetheless see the issues addressed through further rulemaking), the final rule imposed several domestic component content increases. Beginning on October 25, 2022, the domestic content component requirement for non-ferrous manufactured end products and construction materials under the BAA will increase from 55% to 60%, with follow-on increases to 65% in 2024 and to 75% in 2029. Accordingly, contractors that have multi-year contracts will need to assess their ability to comply with these progressive threshold increases during their periods of performance because, unless they receive an exception, they may have to comply with the threshold that is in effect at the time of delivery rather than the threshold that was applicable at the time of contract award.
Although these content increases may seem small, when coupled with proposed or actual eliminations or restrictions on exceptions for commercial items or COTS products, it remains to be seen whether the current domestic manufacturing base and supply chain are sufficient to accommodate these heightened requirements. Indeed, at least in part this for this reason, the final rule also contains a fallback provision to maintain the content threshold at 55% until 2030 if there are no end products or construction materials that meet the increased thresholds or where such products would be unreasonably expensive when compared to foreign sources.
Finally, although not a change to the BAA, the Bipartisan Infrastructure Law, which included the Build America, Buy America (“BABA”) Act, raises relevant cross-over considerations to federal procurements under which the BAA applies. That is, even though BABA is directed at grants and other federal financial assistance programs, as opposed to federal procurements, the issues inherent with BABA may influence federal procurements. In that regard, like the prior changes to the BAA, the BABA also imposed a 55% domestic component content requirement, but unlike the changes to the BAA, the threshold under the BABA – at present – is not tied to the escalations applicable under the BAA.
Unless this changes, this disconnect will likely create confusion (and certainly increased compliance risks) for industry in attempting to assess and comply with differing domestic content requirements when contracting with the federal government, whether under a FAR-based procurement or under a grants-based program. A second, and perhaps more likely, impact is the increased oversight that the MIAO will have on any proposed individual or general class waiver from domestic sourcing requirements. While more attention has been paid to the MIAO’s efforts on the grant side of the proverbial playing field, it would not be surprising if the added scrutiny does not eventually impact the procurement side of the fence.
At bottom, and while only time will tell, it appears that agencies and industry may face more difficulty and increased burden not only in determining whether the current state of U.S. manufacturing can support these goals but also in navigating what will likely be a more restrictive environment in securing waivers from domestic content requirements.
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