We previously commented on one aspect of the Trump Administration’s America-First policies that the Biden Administration has embraced wholeheartedly: doubling down on domestic preferences in Federal procurements. Consistent with the previous and current administrations’ policies, the FAR Councils recently released a proposed rule to tighten the screws even further on Buy American Act (BAA) regulations.
Under the current rules, in a procurement subject to the BAA, offerors must certify whether the end products they will supply and construction materials they will use are “domestic.” To qualify as domestic, (1) the end product or construction material must be mined, produced, or manufactured in the United States and (2) a certain percentage of its components must also be domestic. (The second part of the test is waived for most Commercial Off-the-Shelf (COTS) items.) President Trump increased the generally applicable component percentage from 50% to 55%, and created a special 95% domestic content rule for iron and steel content in end products and construction materials composed primarily of iron or steel. Offerors proposing domestic supplies and construction materials in BAA-covered procurements receive a price preference, which is designed to encourage would-be contractors to propose American-made goods without absolutely requiring it.
The new proposed rule would make the following changes to the existing regime:
- Increase to the Domestic Content Threshold: The rule proposes to increase the generally applicable 55% domestic content/component threshold to 60% initially. After two years, it would rise to 65%. And five years after that, it would rise to 75%. Companies awarded a contract during the phase-in period would be subject to increasing thresholds over the course of contract performance—i.e., “a supplier awarded a contract in 2027 will have to comply with the 65 percent domestic content threshold initially, but in 2029 will have to supply products with 75 percent domestic content.” Companies forced to alter their supply chains will appreciate the gradual implementation approach. But, even so, the rule does not address foreseeable supply-chain problems, where an offeror is able to meet the initial 60% domestic content/component test, but is unable to find sufficient domestic component sources for the end product to meet a 65% or 75% component test in the out years of performance. It is not clear how the Government would calculate the BAA price preference in such a scenario. Nor is it clear how much diligence an offeror is supposed to perform before certifying that its end product will meet a certain domestic content threshold in two years, when that threshold currently may be impossible to meet in the existing market.
- Fallback Threshold: The rule proposes a temporary allowance for use of the current 55% domestic content threshold “in instances where end products or construction materials that meet the new domestic content threshold are not available or are of unacceptable cost.” The practical effect of this fallback provision will be to reduce recourse to BAA waivers, which is the traditional way agencies handle situations where end products that satisfy the BAA’s definition of “domestic” are not available in sufficient quantities or quality, or cost too much.
- Enhanced Price Preference for Critical Products and Critical Components: The FAR Councils propose to create a new list of “end products and construction material deemed to be critical or made up of critical components.” A higher price preference may apply to end products that an offeror represents are designated critical items or contain designated critical components. The FAR Councils anticipate publishing the new critical item/component list in a separate rulemaking.
- Post-award Reporting Requirement: For other than Commercial Off the Shelf (COTS) items, all supply and construction contractors will be required to report “the specific domestic content of critical items, domestic end products containing a critical component, and domestic construction material containing a critical component, that were awarded under a contract.” These reporting requirements will not go into effect until the FAR Councils finalize and publish the new critical item/component list.
Any comments on the proposed rule are due by September 28, 2021. The FAR Councils have identified particular areas where they especially seek public input. They also plan to co-host a virtual public meeting with the new Made in America Office to obtain views on how to improve the rule. Details for how to register for the public meeting or submit comments are provided in the proposed rule.
We anticipate the issuance of additional proposed rules to implement other aspects of the Administration’s plan for altering the domestic preference regime.