Stricter Buy American Requirements May Be On The Horizon
As an attorney, I’ve watched eight US presidential administration come and go; and worked for the election and reelection of two presidents. Over the years, I’ve tried to help clients by predicting how US Government contract law and export law might change from administration to administration after consulting with regional business leaders, politicians, and economists so that my clients might benefit from the policy changes. Usually, this analytical exercise results in a logical conclusion related to the campaign pieces and background of the winning presidential candidate, making it easy to guess right. This time, if anyone had told me that “Buy American” criteria and requirements under President Biden would be stricter than under President Trump, I would have vehemently presented a losing argument. CONTEXT In US federal government contracting and procurement, Buy American requirements are intended to advance the US Government’s preference for domestic end products and construction materials. A recently proposed rule issued by the Federal Acquisition Regulations (FAR) Council endeavors to increase this domestic preference and tighten the Buy American requirements. RULEMAKING On January 25, 2021, President Biden issued Executive Order 14005, which ordered significant changes to Buy American requirements and procedures to maximize the use of domestic products and materials in federal government contracts and procurements. Subsequently, on July 30, 2021, the FAR Council published a proposed rule implementing the policies set forth in Executive Order 14005. The proposed rule includes major changes to Buy American requirements, rules, and policies that any business with a US federal government contract must be aware of. CHANGES TO DOMESTIC CONTENTS THRESHOLDS The first major change in the proposed rule is a phased increase of the Buy American domestic content thresholds. In brief, the proposed rule provides a phased increase of the domestic content threshold immediately from 55% (current threshold) to 60%, then to 65% beginning January 1, 2024, and finally to 75% beginning January 1, 2029. Thresholds for domestic construction materials wholly or predominantly or iron or steel or a combination of both remain the same at 95%. Importantly, contracts with terms or delivery dates that span periods of a threshold increase must comply with the threshold increases. For example, a contract awarded January 1, 2023, that extends to January 1, 2026, would need to meet the 60% threshold initially and subsequently meet the 65% threshold after January 1, 2024. The proposed rule does, however, permit the use of prior thresholds in certain circumstances. Notably, no end product qualifies as domestic under a new threshold or such a domestic end product is only available at an unreasonable cost, a lower domestic content threshold may be used by the contracting officer. ADDITION OF “CRITICAL” ITEMS AND COMPONENTS The second major change in the proposed rule is the introduction of higher price preferences to end products and construction materials deemed to be “critical” (including end products or construction materials that contain critical components. Contractors will be required to identify whether the offered end product or construction material is “critical” or contains a critical component and will be required (with an exception for commercially available off-the-shelf items) to disclose the specific domestic content of such items to the Government. The proposed rule, however, passes the buck to future rulemaking to determine exactly what constitutes a critical item or component. CONCLUSION Ultimately, while these changes are still part of a proposed rule and therefore are not finalized and have not taken effect, they demonstrate that the US federal government is taking steps to tighten the Buy American requirements, and businesses with government contracts should be prepared to meet heightened thresholds of domestic content and provide insight to the US federal government on such domestic content for certain items and components. A surprise to many other law firms and me that have been in existence for decades.