US Government Contractors Beware: Evolving Buy American Requirements Signal Complex Future Legal Landscape
Tuesday Insight Editor Note: The Buy America Act does not apply to the GSA Schedule (MAS) program, the applicable act is the Trade Agreement Act (TAA). The TAA country of origin determination in based on where a product is substantially transformed and must be done in approved TAA countries. This BAA change does not directly impact the GSA Schedule program.
Recent modifications to regulations and federal government acquisition policies portend big change for contractors across the US, and their suppliers around the world. Breaking away from traditional political positions, former President Donald Trump and newly-inaugurated President Joe Biden each took steps in January 2021 to revise Buy American Act (BAA) requirements, which could have significant impacts on companies doing business with the US government.
Federal Acquisition Council Issues Final Rule
On January 19, 2021 – the day before inauguration – the Federal Acquisition Regulatory Council (the FAR Council) issued its long-anticipated Final Rule, largely implementing a July 2019 Trump Administration Executive Order seeking to maximize the use of US-made goods. The Final Rule makes three key changes to BAA requirements.
First, it creates a new category of products that are “wholly or predominantly of iron or steel.” These are products where the cost of the iron and steel content exceeds 50% of total component costs. Such products now qualify as “Domestic End Products” only if the cost of foreign iron and steel constitutes less than 5% of total component costs (excluding the value of commercial-off-the-shelf (COTS) fasteners). Moreover, for these purposes, iron and steel is considered “foreign” unless it has been produced in a US mill (i.e., been “melted and poured” in the US).
Second, with the exception of products that are “wholly or predominantly of iron or steel”, it increases the percentage of total component costs that must be attributable to domestic components in order to qualify as a “domestic end product.” Previously, an item qualified as a domestic end product if more than 50% of the cost of components were of US origin. The Final Rule increases this domestic content requirement to 55%.
Third, while still allowing foreign purchases under the BAA, the Final Rule increases the price evaluation preference for suppliers of domestic end products for civilian agency purchases but keeps the US Department of Defense price preference at 50%. Previously, suppliers enjoyed an evaluation preference of 6%, or 12% for small business suppliers. The Final Rule increases this preference from 6% to 20% for large businesses and from 12% to 30% for small businesses.