By: Lindsay Simmons
March 7, 2022, marked the publication of yet another final rule implementing changes to “Buy American” requirements for federal contractors. Final BAA Rule. There are very few surprises in this rule, largely because it closely tracks the proposed rule published last July. That said, the final rule significantly changes FAR Part 25 – the regulations implementing the Buy American Act (BAA).
First, domestic content requirements have been increased. The percentage of domestic content necessary for a product to qualify as a “domestic end product” under the BAA, currently set at 55%, has been increased to 60% effective October 25, 2022, with a further increase to 65% in 2024 and then 75% in 2029.
Note: Products currently meeting the 55% domestic content threshold, but that will not be able to meet the increased thresholds, are addressed in a “fallback threshold” provision in the new rule. This provision permits the use of the current 55% domestic content threshold in circumstances where the agency expressly determines there are no products that meet the new threshold, or the available domestic products that meet the threshold are of unreasonable cost. The fallback threshold expires in 2030.
Second, there will be an enhanced price preference for certain critical products. The FAR Council will enact an enhanced price preference for “critical items,” but the final rule does not itself define or identify “critical items”. Details on this enhanced price preference await future rulemaking. However, keep in mind that the current BAA preference acts to apply a threshold above which the cost of a domestic product is deemed “unreasonable”. This permits an agency to purchase a lower-cost foreign product. The intent of the enhanced price preference for critical items will be to increase that threshold, thereby making it more difficult for an agency to purchase a foreign product.
Third, there is a grace period for the domestic content increases. Specifically, the final rule provides a 6-month grace period, meaning the 60% increase will be effective on October 25, 2022.
Fourth, there is relief for multi-year contracts. Recognizing that, in multi-year contracts, the requirement to comply with an increased threshold may occur mid-contract, the final rule sets forth a process by which an agency can permit a contractor to use the domestic content threshold in effect on the contract award date, for the entire life of the contract.
The BAA does not impact every federal contract because, when certain dollar thresholds for a procurement are met, under the Trade Agreements Act (TAA) the United States must procure products from its trading partners without favoring domestic products. What does this mean? It means that (in general) the BAA only applies to contracts below the current trade agreement thresholds of (i) $183,000 for supply contracts and (ii) $7,032,000 for construction contracts. Once that threshold is met, the TAA kicks in (although certain types of contracts are exempt from trade agreements, such as small business set asides).
Importantly, the new final rule is the latest in a continuous stream of actions (including numerous Executive Orders) aimed at strengthening our Buy American policies. This rule, along with additional steps likely to be taken in response to (for example) President Biden’s “Made in America” Executive Order and a new “Buy American” regime for federally funded infrastructure projects, certainly signal a will to strengthen our domestic sourcing regime. Contractors concerned about this direction are examining possible alternatives – including onshoring their manufacturing capabilities— to avoid being shut out of the federal marketplace.