President Issues New Domestic Preference Executive Order

Federal ProcurementThe President has issued the third in a series of executive orders (EOs) directed at tightening domestic-preference restrictions in Government procurements covered by the Buy American Act (BAA).  EO 13881 orders the Federal Acquisition Regulatory Council (FAR Council) within 180 days to “consider proposing” a rule with the following features:

(i) an amendment to the applicable provisions in the FAR that would provide that materials shall be considered to be of foreign origin if:

(A) for iron and steel end products, the cost of foreign iron and steel used in such iron and steel end products constitutes 5 percent or more of the cost of all the products used in such iron and steel end products; or

(B) for all other end products, the cost of the foreign products used in such end products constitutes 45 percent or more of the cost of all the products used in such end products; and

(ii) an amendment to the applicable provisions in the FAR that would provide that the executive agency concerned shall in each instance conduct the reasonableness and public interest determination referred to in sections 8302 and 8303 of title 41, United States Code, on the basis of the following described differential formula, subject to the terms thereof:  the sum determined by computing 20 percent (for other than small businesses), or 30 percent (for small businesses), of the offer or offered price of materials of foreign origin.

The EO directs the FAR Council to consider public comments on the proposed rule and “promptly” promulgate a final rule “if appropriate.”

The EO also calls upon the Secretary of Commerce and the Office of Management and Budget to recommend “any other changes to the FAR that the FAR Council should consider in order to better enforce the Buy American Act and to otherwise act consistent with the policy described in section 1 of this order, including whether and when to further decrease, including incrementally, the threshold percentage in subsection 2(a)(i)(B) of this order from the proposed 45 percent to 25 percent.”

We will provide further analysis when the FAR Council promulgates a proposed rule.  In the meantime, check out our infographic on the Buy American and Trade Agreements Acts.

Takeways:  (1) the EO has no immediate effect on contractors; (2) even if the FAR Council eventually adopts all of the provisions the President has ordered the Council to “consider,” the changes are mainly incremental adjustments to the currently-applicable rules for those procurements covered by the BAA; (3) there potentially will be a significant new 95 percent domestic content requirement specifically for iron and steel end products; and (4) the EO does not appear to contemplate any changes to procurements not covered by the BAA, such as acquisitions subject to the Trade Agreements Act and similar regimes that function as a BAA waiver.