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Proposed Rulemaking Changes the Application of the Buy American Act

Posted: 08/06/2021
Industries: Government Contracts

The Federal Acquisition Regulation (“FAR”) Council published a proposed rule on July 30, 2021 implementing portions of President Biden’s January 2021 Executive Order No. 14005. That Order directed Federal agencies to maximize the use of goods, products, and materials produced in, and services offered in, the United States.

What you need to know:

These changes include:

  • Increasing the threshold for compliance with Act on a step basis from 55% domestic content to 75% by the year 2029;
  • Singling possible future action to extend narrow or eliminate the current exemption from the BAA for information technology; and
  • Singling  possible future action to extend the application of the Act from construction and end items to performance of services

The proposed rule includes several significant changes to the Buy American Act, 41 U.S.C. §§ 8301–8303, (“BAA”) that will impact all companies who do business with the Government either as a prime contractor or subcontractor. The proposed changes include:

  • Increasing the domestic content threshold for acquisitions subject to BAA on a graduated basis over several years. The proposed rule initially increases the current 55% domestic content requirement to 60%, then going to 65% for deliveries in years 2024 to 2028, further increasing to 75% for deliveries in 2029. The increase will affect existing contracts.  For example, a supplier holding a contract with a period of performance that spans the schedule of threshold increases will be required to comply with each increased threshold for the items in the year of delivery. The proposed rule does not modify the existing requirement that construction materials “wholly or predominately of iron or steel or a combination of both” be comprised of less than 5% of foreign iron and steel.
  • Creating a so-called “Fallback Threshold” of 55%. The “Fallback Threshold” affords Federal agencies the option of purchasing products meeting the 55% domestic content requirement for one year after that requirement reaches 75%, when items satisfying the then current, higher, threshold are unavailable or too expensive. Importantly, the Fallback Threshold does not apply to construction material or end products that consist wholly or predominately of iron or steel or a combination of both.
  • Establishing a framework by which higher price evaluation preferences will be applied to end products and construction material deemed to be “critical” or comprised of “critical components.” The definition of “critical” and “critical components” will be the subject of a separate rulemaking, and will align with the ongoing with the quadrennial critical supply chain review instituted in Executive Order 14017, America's Supply Chains, as well as the National COVID Strategy. Importantly, the proposed rule requires offerors to identify in the their proposals domestic end products that contain a critical component.

The FAR Council has requested industry comment on several issues that may foreshadow additional changes to the application of the BAA to Federal procurements.  Specifically, the FAR Council seeks industry’s views on:

  • Whether the existing exemption for commercial information technology should be modified, and, if so, to what extent.
  • Whether the existing exemption for commercial-off-the-shelf (“CTOS”) products has benefitted domestic manufacturers and their employees.
  • Whether the Trade Agreements “substantial transformation” standard is a useful tool to promote good domestic jobs and domestic manufacturing.
  • How the Government may promote “Made in America” services, possibly signally that the Council will require services to be performed domestically.

This proposed rulemaking is another signal that the Executive Branch will continue its efforts to use its purchasing power to strengthen American industry and protect U.S. employees.  Companies who do business with the Federal Government, either directly or indirectly, likely will be affected by the changes in procurement policy. If you have questions regarding these changes in procurement policy, please contact the author of this Alert.