By: Lindsay Simmons
On July 30, 2021, the Biden Administration issued a Proposed Rule touted as “the most robust changes to the implementation of the Buy American Act in almost 70 years.” The stated purpose of the rule is to strengthen domestic content requirements and procurement preferences. This rule is the latest in a series of actions by the Biden Administration to reduce reliance on critical components of foreign origin. Among other things, it implements provisions of President Biden’s January 2021 Executive Order 14005 (Ensuring the Future Is Made in All of America by All of America’s Workers), which directs the FAR Council to strengthen regulations implementing the Buy American Act (BAA). The Proposed Rule recommends major changes to existing BAA regulations, as set forth below.
- Domestic Content: The BAA implements a procurement preference for “end products” that are “domestic.” The implementing regulations (FAR Part 25) set out a two-part test for determining whether an end-product qualifies as “domestic”. First, the end-product must be manufactured in the United States; and second, the end-product must contain a specified percent of domestic components (determined by the cost of the components). The “domestic content test” originally required that more than 50% of the component parts be mined, produced or manufactured in the U.S. This was increased to 55% for most products on January 19, 2021. Now, as proposed, the domestic content threshold for determining whether an item qualifies as a “domestic end product” would be raised from 55% to 60%. A further increase, to 65% in two years, and to 75% five years thereafter, is also proposed. Contracts calling for performance over periods covered by the threshold increases would be required to comply with the new rules for the items delivered in such years. One exception would allow end products (other than certain iron and steel products which are subject to a 95% content rule) that only meet the current 55% threshold to nonetheless qualify as “domestic” if products that meet the higher thresholds are unavailable or unreasonably expensive.
- Price Preferences and Reporting for Critical Items & Components: Certain unspecified but “critical items” and “critical components” manufactured in the U.S., and the proposed preferences for such items, are to be the subject of a separate rulemaking. Nonetheless, here the FAR Council proposes new domestic content disclosure requirements for such “critical items” and end products containing such “critical components” such that, after award, contractors supplying these items would be required to disclose to the Made in America Office both: (i) the percentage of domestic content in each critical product; and (ii) the percentage of domestic content in each domestic end-product they supply that includes a critical component. What these changes mean will depend upon which items and components ultimately receive the “critical” designation.
- “Cost of Component” Test: The FAR Council has proposed to retain the “cost of component” test currently used to determine the percentage of domestic content, instead of adopting, at least for now, the new “value added” test suggested in President Biden’s EO 14005. Changing the “cost of components” test to a new test that weighs “the value that is added to the product through U.S.-based production or U.S. job supporting economic activity” may introduce significant supply chain uncertainty and, thus, the FAR Council is asking for input on the feasibility of such a test versus the “cost of components” test.
- Commercial IT & COTS Exceptions: The application of the BAA to commercial information technology has long been waived, as has the BAA component test for COTS items. But the current Proposed Rule solicits input regarding whether these waivers should be amended to favor domestic manufacturers.
- Trade Agreements: The Trade Agreement Act (TAA) applies to most acquisitions over the TAA threshold, including DoD acquisitions of supplies that call for specified products found at DFARS 225.401-70. The TAA includes two independent tests: (i) a product must be either manufactured in the U.S. or “wholly manufactured” in a designated country; or (2) a product must be “substantially transformed” within the U.S. or in a designated country. As highlighted in the Proposed Rule, “a substantially transformed U.S.-made product may have far less domestic content when compared to a domestic end product acquired under the Buy American statute.” As a result, the FAR Council asks for comments regarding “the impact of the substantial transformation test and potential lost opportunities for American workers.” However, as noted in the Proposed Rule, the FAR Council cannot alter U.S. trade policy.
Lindsay Simmons is responsible for the content of this article @jacksonkelly.com