There is something that the Trump and Biden Administrations agree on:
Whenever possible, the Federal Government should buy American products with the goal of helping American businesses compete in strategic industries to help U.S. workers thrive.
Both administrations issued EOs and rules with this goal in mind.
Current Buy American Act
Currently, the Buy American Act (BAA) creates a preference for the U.S. Government to purchase “U.S. end products.”
The BAA promotes the goal of producing goods in the U.S. which supports the American economy and American workers. A product is a U.S product if it meets any of the following requirements:
- The good was mined or produced in the United States.
- The final product is manufactured in the United States .
- The final product is either a Commercial-Off-The-Shelf-Item (COTS) (a surprisingly complicated analysis, but for this context, it is something anyone can buy as it is).
- 50% of the component costs of the product were of U.S. origin.
Goods that don’t meet these requirements are given a “price penalty” – that is, when offering the non-US good for sale to the U.S. Government, the price of the good is marked up. The idea is that U.S. goods are then more appealing for the U.S. Government to buy because they will be cheaper.
Currently, non-U.S. products receive a 6% penalty, a 12% penalty when compared to a small business offering, and a 50% penalty on DoD contracts.
Falsely representing that goods are U.S. produced or manufactured when they are not carries serious penalties, including fines, debarment and even criminal sanctions if the misrepresentation was serious enough.
Trump & Biden Administrations Moving In Sync On Preferences For U.S. Products
In July 2020, the Trump Administration issued an executive order, which was finalized as a regulation on January 19, 2021 on American products. On January 25, 2021, the Biden Adminstration issued an order on buying American products as well.
The Trump Administration made several changes to Buy American requirements:
Domestic Content Increase
For most items to be considered made in the U.S., a certain percent of the product must be produced domestically. The new Trump rule increased the amount of domestic content that must be produced in the U.S. for a product to be considered made in America from 50% to 55%.
Iron and Steel
For items mostly made of iron and steel, 99% of the iron or steel used must be of U.S. origin.
No “Commercial-Off-The-Shelf” Exception For Iron & Steel Items
Normally, commercial off-the-shelf items, regardless of where they are produced, are considered to be produced in the U.S..
The Trump Administration changed that for goods made out of iron and steel but for very limited exceptions. So now, iron and steel items that are commercial off-the-shelf must be 55% made in the U.S. to be considered made in the U.S.
Price Penalty Increase
Trump also increased, making U.S. goods even cheaper than non-U.S. goods for government buyers:
- Trump’s rule put in place a 30% price penalty on foreign goods when compared to domestic small business offerings, up from 12%
- Trump’s rule put in place a 20% price penalty on foreign goods when compared to domestic large business offerings, up from 6%.
These rules started appearing in government solicitations and contracts in February 2021.
Biden Executive Order Expands Buy American Regulations
On January 25th, 2021, the Biden Administration put out an Executive Order that builds on the Trump rules:
New Oversight
Under Buy American laws and regulations, agencies can give waivers in some instances. The Biden team wants these waivers to be reviewed by a newly created Made in America Office to make sure the waiver is justified. This should assure more consistency across agencies.
Increased Transparency
This Made in America Office will maintain a website that posts all waivers and provides contact information for the agency responsible for the waiver.
Subsidy Check
When a waiver for iron or steel is sought, the Made in America Office will consider whether the foreign-source is cheaper due to an iron and steel subsidy.
Component Test Changes: A Big Shift Will Occur To The Component Test
- Under current Buy American rules, an item is a Domestic End Product if 55% of the cost of components have a domestic source.
- This test does not consider the source of subcomponents.
- Biden’s rule will consider the percent of the product’s cost that supports U.S. job activity.
- This essentially means that the Biden rule will require subcomponents to meet the made in America thresholds.
Increase Made In America Threshold
Finally, in a move that truly does build on the Trump work on domestic preference, Biden wants regulators to examine the possibility of further increasing both the threshold for domestic content and the price penalty for foreign products.
The Federal Acquisition Regulator Council (FAR), which is the agency that reviews rules, will be evaluating the Biden Executive Order with the goal of implementing these changes, and they will likely go into effect in February 2022.
What This Means For Your Business
Domestic preference requirements will likely become more stringent. Federal government contractors will face more scrutiny, more audits and more investigations given the increased monitoring and the centralized review of the new Made in America Office.
Now is a great time to look at your sourcing and supply chains to determine the extent of your non-U.S. sourcing and non-U.S. products. And, as part of that, assure your organization is complying with Buy American requirements to include assuring your System for Award management and contract reps and certs on the source of your supplies are accurate.
To learn more about Buy American regulations and how they impact government contractors, contact Cassidy Law today.