Morrison Foerster’s Government Contracts Insights provides our in-depth analysis of developments and trends impacting government contracting. Through Insights, our attorneys offer a real-time assessment of the statutory, regulatory, legal, and business-related developments and trends that are shaping the industry. We also examine a full array of non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Morrison Foerster’s nationally recognized Government Contracts and Public Procurement practice represents the world’s leading companies in the aerospace and defense, intelligence, cybersecurity, information technology, financial and professional services, education, healthcare, infrastructure, and logistics support sectors. We are enlisted to address our clients’ most complex and important legal issues. Our work includes contract and subcontract negotiation and other transactional matters, business and regulatory compliance counseling, internal investigations, bid protests, and a wide array of enforcement and litigation matters. Our clients range from Fortune 50 companies to small and medium-sized companies just entering the public sector. We advise both U.S. and non-U.S. companies involved in municipal, state, federal, and non-U.S. procurement matters.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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GAO Protest Timeline

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Govcon GAO Post Award Protest Timeline Article

Contract Disputes Act Claim Timeline

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The Bayh-Dole Act

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Anatomy of a Protest

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Allowability of Legal Costs

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Procurement Integrity Act

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Tina is Co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmaceutical companies, with a focus on general contract counseling and compliance, particularly concerning intellectual property, and cybersecurity matters and federal grant funding.Tina counsels contractors on compliance with federal, state and local acquisition and ethics regulations and with the evolving myriad of requirements pertaining to data security and cybersecurity. She has been involved with numerous internal investigations and compliance reviews, and with mandatory and voluntary disclosures to agencies, and litigation of False Claims Act matters.Tina routinely advises clients concerning:<ul><li>Prime-subcontractor relationships</li><li>Sources of supply and country of origin requirements</li><li>Price reductions and price reporting issues</li><li>Organizational conflicts of interest</li><li>Safeguarding of intellectual property and other proprietary interests</li><li>Licensing and data rights issues</li><li>Handling of classified materials and controlled unclassified information</li><li>Agency suspension and debarment proceedings</li></ul>She also assists clients with due diligence and other activities related to the acquisition of government contracting concerns, and with the drafting and negotiation of teaming agreements, subcontracts, licensing agreements, and cooperative research and development agreements. She also assists clients applying for federal grants (including SBIR and STTR agreements), and those who seek to obtain other transactional authority agreements, as well as those competing for state and local government work.Tina’s litigation experience includes government contracts claims litigation in federal courts and before boards of contract appeals, bid protests before the Government Accountability Office and the Court of Federal Claims, and complex disputes in federal courts, including civil fraud and False Claims Act litigation and reverse Freedom of Information Act litigation.Prior to joining Morrison Foerster, Tina worked at another large national firm and as a trial attorney in the Office of the General Counsel of the Navy, Navy Litigation Office.<h4>Representative Experience</h4><ul><li>Negotiation of largest CHIPS Act federal funding agreement between multinational semiconductor corporation and U.S. Department of Commerce.</li><li>Negotiated prime contract and major subcontracts related to the Department of Energy’s next generation supercomputer program, including extensive IP rights negotiations and negotiation of associated patent rights waivers.</li><li>Negotiated series of other transaction authority agreements with DARPA and associated subcontracts with more than a dozen research universities on behalf of a firm biotech client, including complex IP rights allocations and material transfer agreements.</li><li>Assist clients with FedRAMP authorization process and with development of license agreements for software products sold to federal, state and local government agencies.</li><li>Cyber incident response counseling to some of the largest companies and organizations impacted by security incidents.</li><li>Advises clients on Bayh-Dole reporting of inventions and IP strategies for contracts and grants.</li><li>Conducts due diligence for major government contract mergers and acquisitions.</li></ul>

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Tina is co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She counsels a wide variety of government contractors on compliance with federal acquisition and ethics regulations. She drafts and negotiates contracts on their behalf and has been involved with numerous internal investigations and compliance reviews, and with bid protest, contract claims, and False Claims Act litigation. She also advises on M&A transactions involving government contractors.

Tina D. Reynolds

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters. He has represented both protesters and awardees in scores of protests before the Government Accountability Office, the Court of Federal Claims, and procuring agencies, in acquisitions ranging from small business procurements to multibillion-dollar contracts of global significance. His representative protest matters span the aerospace sector, the Intelligence Community, base operations and logistics, healthcare, nuclear and environmental work, and information technology and software acquisitions. His protests have included both classified and unclassified programs. In addition to prevailing in published decisions, Jim has also secured favorable corrective action on behalf of clients in a wide variety of protests that were resolved without a published decision.Jim’s work also focuses on disputes over cost allowability and compliance with the Cost Accounting Standards, and he has appeared before the Armed Services and Civilian Boards of Contract Appeals, in size and status protests before Small Business Administration (SBA) area offices, and appeals before the SBA Office of Hearings and Appeals. Jim regularly counsels clients on contract interpretation, organizational conflicts of interest, and small business compliance.Jim graduated with high honors from the George Washington University Law School, where he focused his studies on federal procurement law, was a member of the Law Review, and interned with the General Services Administration’s suspension and debarment office. Jim also holds a degree in theology magna cum laude from the Pontifical Gregorian University in Rome and a bachelor’s degree in classical languages and literature summa cum laude from the University of Kentucky, where he graduated Phi Beta Kappa.

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Of Counsel

Jim maintains an active practice in bid protests before the Government Accountability Office and contracting agencies and counsels clients in contract disputes and compliance obligations.

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office. Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters.

James Tucker

<div style="margin-bottom: 15px;" class="videoWrapper"><iframe class="sticky-video" title="Meet Alex Ward, Government Contracts Practice Co-Chair" src="https://www.youtube-nocookie.com/embed/TkliwdSlTaQ?rel=0" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen="1" title="iframe"></iframe></div>J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. His practice covers a full range of government contracts matters, including investigations, bid protests, claims, general litigation, corporate transactions, and counseling. Alex strives in all matters is to provide his clients the highest level of efficient and effective representation.Alex represents contractors in internal and external investigations, disclosures to the government, and qui tam litigation, with great success in reducing or eliminating his clients’ exposure through active engagement with the government. His work in this area includes obtaining numerous declinations and dismissals of False Claims Act cases in their earliest stages, sparing his clients the cost, risk, and exposure of litigation.He has also served as lead counsel in dozens of bid protests involving military and civilian agency procurements of a wide range of products and services, including all manner of pre- and post-award protests in the GAO, the U.S. Court of Federal Claims, and state tribunals, as well as appeals to the U.S. Court of Appeals for the Federal Circuit and size protest appeals before the SBA’s Office of Hearings and Appeals.Alex handles all aspects of the claims process, from the initial assessment and drafting of requests for equitable adjustment through litigation in the Boards of Contract Appeals and the Court of Federal Claims. Alex’s practice also covers the full gamut of other controversies confronting government contractors, including prime-sub, teaming partner, employer-employee, competitor, and indemnification disputes. His litigation work also includes a wide variety of pro bono engagements, in which he has represented both individual and institutional clients in matters ranging from immigration and criminal defense to sustainable procurement and protection of the environment.Prior to joining the firm, Alex served in the U.S. Army as a commissioned officer and an Assistant to the General Counsel of the Army responsible for civil works and international matters, and as a clerk for judges on the U.S. Courts of Appeals for the Armed Forces and the D.C. Circuit. He is a member of the Boards of the Morrison & Foerster Foundation and the Chesapeake Bay Foundation and of Law360’s Government Contracts Editorial Board.

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Alex is co-chair of Morrison Foerster’s Government Contracts and Public Procurement practice. His practice covers a full range of government contracts matters, including bid protests, claims, investigations, corporate transactions, and counseling.

J. Alex Ward

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Morrison Foerster’s Government Contracts Insights blog provides an in-depth analysis of news, developments, and trends impacting government contracting and procurement. Through Insights, attorneys from our nationally recognized Government Contracts and Public Procurement practice will offer a real-time assessment of the statutory, regulatory, legal, and business-related developments that are shaping the industry. This blog will also examine a full array of U.S. and non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Read about our <a href="http://govcon.mofo.com/editors/">Authors</a>.Never miss a post. Subscribe to get real-time updates.

Brad is a partner in Morrison Foerster’s Litigation Department, Managing Partner of the Austin office, and Chair of the firm’s Israel practice. He is the former Co-Chair of the firm’s Global Litigation Practice and the Government Contracts + Public Procurement Practice.

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James A. Tucker

The Tortured Regulations Department: SBA’s New Rule and Its Effect on Investments

Bid Protest Spotlight: Standing, Relationships, Responsibility

House’s Passage of the SAMOSA Act Signals Policy Shift Towards Government-Wide Enterprise Software Licensing

New DFARS Regulation on Small Business Affiliate Past Performance

Bid Protest Spotlight: Unclear Criteria, Data Rights, Conflicts

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For the second time in as many years, the Department of Defense (DOD) has issued a <a href="https://www.federalregister.gov/documents/2024/02/15/2024-01220/defense-federal-acquisition-regulation-supplement-dfars-buy-american-act-requirements-dfars-case" target="_blank">final rule</a> that brings its Buy American Act (BAA) requirements into alignment with the Federal Acquisition Regulation (FAR). The final rule amends the Defense FAR Supplement (DFARS) Part 225 to introduce a stepwise increase in the percentage of domestic components needed for manufactured end products to qualify as domestically manufactured. The rule leaves untouched the higher threshold for products composed wholly or predominantly of iron or steel. As under the FAR rule, offerors unable or unwilling to meet the increased domestic content threshold remain eligible for award but must compete against the price preference given to domestic end products.New DOD contracts that are subject to the Buy American Act will require components from domestic or qualifying countries to make up at least 65% of a manufactured end product’s cost for the end product to qualify as “domestically manufactured” if delivered between 2024 and 2028. The threshold rises to 75% domestic or qualifying country components for manufactured end products delivered in 2029 and beyond. Previously, a domestic end product needed to contain only 55% domestic components to meet the definition of “domestically manufactured.”The final rule brings the DFARS into alignment with the regulations that apply to non-DOD procurements for the first time since October 2022, when a <a href="https://govcon.mofo.com/topics/220331-far-council-tightens-requirements" target="_blank">FAR rule took effect</a> that introduced the same stepwise increase in domestic content thresholds.  For contractors that sell to both the DOD and civilian agencies, the new alignment between the FAR and DFARS will make BAA requirements more consistent but may make compliance more expensive, given that stricter requirements now apply across the board.The new DFARS rule makes the following changes to BAA requirements for covered DOD contracts:<ul><li>Domestic end products must contain at least 75% domestic components, calculated by the value of components, beginning in calendar year 2029.  For calendar years 2024 through 2028, only 65% domestic components are required.  These thresholds replace the 55% threshold for domestic components that was set in a June 2022 final rule.  An earlier Obama-era rule had set the domestic component threshold at 50%.</li><li>The DFARS rule contains a fallback provision that will allow some contractors to wait until 2030 to comply with the new requirements, just as the FAR rule does.  Contractors may qualify for the 55% fallback rule if no domestic products are available at a higher threshold or if the cost to acquire compliant goods would be unreasonable.</li><li>The new DFARS rule provides for enhanced price preferences for critical items and critical components; however, the enhanced price preferences cannot take effect until the FAR defines which items and components are critical.  Once that list has been defined at FAR 25.105, the enhanced price preference rule will increase reporting requirements for interested contractors.</li><li>One difference between the DFARS and FAR Buy American requirements remains in place: components produced in more than two dozen qualifying countries outside the United States count towards qualifying as a domestic end product. In addition, end products from qualifying countries count as domestic end products. Thresholds for qualifying country end products will increase according to the same schedule as for domestic end products. Qualifying countries include those with a reciprocal defense procurement memorandum of understanding or another international agreement with the United States.</li></ul>Domestic sourcing requirements have become more difficult to navigate following repeated amendments over the last several years.  A single DOD contractor selling the same product might have to up to three versions of the Buy American rule across otherwise equivalent contracts.  The rule change applies only to new contracts; older versions of the Buy American clauses in existing contracts will remain in effect.  As a result, contractors should carefully monitor the requirements that apply to each contract—and each performance year in each contract—and prepare to comply with the 75% threshold.Contracts with a period of performance that spans a change in content threshold will require a change in domestic content during the contract’s performance.  That is, if a three-year contract begins in 2028, those manufactured end products delivered in 2028 must have at least 65% domestic content, but then must increase to at least 75% domestic content if delivered in 2029 and after. The DOD recognized that some contractors, especially those with indefinite-delivery, indefinite-quantity (IDIQ) contracts, might be unable to meet changing domestic content thresholds throughout the performance of a contract.  Alternate domestic content tests will be available for those contracts.  Contractors who receive the alternate test, with permission of the senior procurement executive, will only have to meet the domestic component threshold that applied at award of the IDIQ contract.The following DFARS clauses are amended by the new rule:<ul><li>DFARS 252.225-7000 Buy American—Balance of Payments Program Certificate</li><li>DFARS 252.225-7021 Trade Agreements</li><li>DFARS 252.225-7035 Buy American—Free Trade Agreements—Balance of Payments Program Certificate</li><li>DFARS 252.225-7036 Buy American—Free Trade Agreements—Balance of Payments Program</li><li>DFARS 252.225-7044 Balance of Payments Program—Construction Material</li><li>DFARS 252.225-7045 Balance of Payments Program—Construction Material Under Trade Agreements</li></ul>Updated versions of each clause are dated February 2024.The rule does not alter the exception to the component test for commercially available off-the-shelf (COTS) end products from the United States or qualifying countries. Similarly, the rule does not alter the higher threshold for end products that consist wholly or predominantly of iron or steel: 95% of the components in those end products, as measured by the cost of components, must be manufactured in the United States or qualifying countries.The new domestic content requirements and enhanced price preferences are likely to increase reporting requirements for defense contractors.  We will continue to watch for updates, including the definitions of critical items and components for which the enhanced price preference will apply.Ethan Sterenfeld, a Law Clerk, contributed to the writing of this post.

DFARS Realigns with FAR Buy American Requirements

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Associate

Markus Speidel is an associate in Morrison & Foerster’s Government Contracts & Public Procurement group, in Washington, D.C. Markus assists clients across a wide range of contract matters, including contract claims and disputes, bid protests, compliance counseling, and investigations.

Markus Gerhard Speidel

Markus Speidel

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DFARS Realigns with FAR Buy American Requirements

SBA Issues Final Rule on Appeals Process for PPP Loan Review Decisions

For the second time in as many years, the Department of Defense (DOD) has issued a final rule that brings its Buy American Act (BAA) requirements into alignment with the Federal Acquisition Regulation (FAR).

Recently, the Department of Defense (DOD) issued a <a href="https://www.govinfo.gov/content/pkg/FR-2022-06-23/pdf/2022-13373.pdf">final rule</a> that immediately implements President Trump’s Executive Order (E.O.) 13881 to maximize the government’s procurement of American-made goods, products, and materials under the Buy American Act (BAA) statute. The final rule conforms the DOD’s pre-existing BAA supplemental regulations, found in the Defense Federal Acquisition Regulation Supplement (DFARS), to match the Federal Acquisition Regulation (FAR) current requirements, which we <a href="https://govcon.mofo.com/topics/new-year-new-domestic-preference-restrictions-trump-final-rule-and-biden-executive-order.html">commented</a> on previously. The FAR Council, however, promulgated a more stringent rule in March to implement President Biden’s subsequent E.O., as we <a href="https://govcon.mofo.com/topics/220331-far-council-tightens-requirements.html">noted</a> previously. Thus, while now in sync, the FAR and DFARS requirements will be once more out-of-sync in October, when the March FAR rule goes into effect, unless the DOD promulgates a matching DFARS rule by then.

Chasing the FAR: DOD’s Buy American Act Final Rule

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Chasing the FAR: DOD’s Buy American Act Final Rule

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Recently, the Department of Defense (DOD) issued a final rule that immediately implements President Trump’s Executive Order (E.O.) 13881 to maximize the government’s procurement of American-made goods, products, and materials under the Buy American Act (BAA) statute.

Earlier this week, the FAR Council issued a <a href="https://www.federalregister.gov/documents/2020/09/14/2020-20116/federal-acquisition-regulation-maximizing-use-of-american-made-goods-products-and-materials">proposed rule</a> to implement President Trump’s <a href="https://www.federalregister.gov/documents/2019/07/18/2019-15449/maximizing-use-of-american-made-goods-products-and-materials">Executive Order 13881</a>. The Executive Order called for the expansion of the preference for domestic goods, products, and materials – particularly domestic iron and steel – in Federal procurements. If the rule is finalized, it will amend the FAR’s implementation of the Buy American Act (BAA).Current State of the BAAThe BAA has been around since the Great Depression. In its current regulatory implementation, found in FAR Part 25 and its associated provisions and clauses, the BAA requires offerors on Federal procurements covered by the BAA to certify whether all of the “end products” they offer are domestic. For many procurements, the BAA is not applicable, and the Trade Agreements Act (TAA) applies instead.The heart of the BAA analysis of whether an end product is domestic is currently a two-prong test: (1) was the end product mined, produced, or manufactured in the United States; and (2) are more than 50% of the component parts of the end product (calculated as a percentage of cost) also mined, produced, or manufactured in the United States? If the answer to both questions is “yes,” the end product is domestic. For Commercial Off-the-Shelf (COTS) end products, the BAA currently requires only the first part of the analysis: if a COTS end product was mined, produced, or manufactured in the United States, it is considered a domestic product without the need to calculate component costs.FAR 25.502(c) establishes a special price evaluation factor (rather than a prohibition) for BAA-covered procurements when both domestic and foreign end products are offered and eligible for award, and the domestic offer does not have the lowest price. In those cases, the agency must take the price of the non‑domestic end product and add 6% if the lowest-price domestic offer is from a large business or 12% if the lowest-price domestic offer is from a small business; the Defense Department applies a 50% preference in all covered procurements. The agency then uses this adjusted price for evaluation purposes. FAR 25.502(a)(3). The agency also uses this approach for determining the price reasonableness of domestic end products when an eligible offer for foreign end products is the lowest price. FAR 25.105. Thus, the BAA does not require offerors to propose only domestic end products, but simply requires them to certify whether the end products are domestic and applies a price handicap to those end products that are not. The BAA’s focus on lowest price offers comes from the days when sealed bidding – with award to the lowest-price, responsive bid from a responsible bidder – was the rule.New Restrictions in the Proposed RuleIf finalized, the proposed rule would make four main changes to the way the Government applies the BAA to covered procurements (without altering the fact that the BAA does not apply to a procurement if the TAA does instead):1. Iron and Steel: The biggest change is the special treatment given to end products or construction materials that consist wholly or predominantly of iron or steel or a combination of both. “Predominantly” is defined to mean that iron or steel constitutes at least 50% of the total cost of all of the components of the item. Under the proposed rule, the offeror may certify these particular end products or construction materials to be domestic only if, in the offeror’s good-faith estimate, the cost of the iron and steel content not produced in the United States is less than 5% of the cost of all components or content of the material or end item. That is, the component prong of the BAA test for these particular end products and construction materials is now a “content test” and requires at least 95% domestic iron/steel content for the item to qualify as domestic (in addition to meeting the domestic manufacture prong of the test). The allowance for a good-faith estimate at least recognizes the practical difficulty of calculating an exact percentage, but it may be difficult even to reach a good-faith estimate of the total cost of foreign iron/steel content with any reasonable accuracy.2. Partial Revocation of the COTS Waiver for Iron and Steel Products and Construction Materials: The FAR Council proposes to require both prongs of the BAA test to be applied to COTS construction materials and end products that are made wholly or predominantly of iron or steel. This partially reverses the current rule that, if an item is a COTS item, one need only determine that it was mined, produced, or manufactured in the United States, without having to calculate the value of its foreign components or content. The FAR Council reasoned that, because many or most of the iron and steel goods the Government buys are COTS items, the existing COTS waiver would render much of the Executive Order’s fixation on domestic iron/steel content meaningless. The waiver of the component test remains in place for COTS iron/steel fasteners (e.g., nails, screws, rivets, clips, etc.) and for all other COTS end products that are not predominantly composed of iron or steel.3. End Products Not Predominantly Composed of Iron or Steel: The proposed rule slightly increases the domestic content requirement for components of non-COTS end items that are not predominantly composed of iron or steel. The cost of the end product’s domestic components now must exceed 55% for the end product to qualify as domestic (in addition to meeting the domestic manufacture prong of the test). Components of unknown origin are deemed to be foreign.4. Increased Price Preferences/Handicaps: The proposed rule increases the price evaluation factor percentages applied to foreign end products to 20% if the potential awardee with domestic end items is a large business and 30% if it is a small business. The way the price factor would apply to construction materials is less clear, as there generally are not specific line items for these materials. For construction materials, the FAR Council states: “The foreign material is evaluated on the basis of market research, not a specific competing offer. Thus, only the 20 percent factor would be applied to construction material.”The FAR Council seeks public comments on the proposed rule by November 13, 2020. The proposed rule, like the Executive Order, has no effect on existing procurements or contracts, and it is not clear what would happen to this particular policy change if the elections on November 3 result in a change in administrations. Thus, it is not at all clear what the final rule will look like – or whether there even will be one. Stay tuned.

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Damien is a partner in the firm’s Government Contracts & Public Procurement practice. He represents clients in all facets of government contracts transactions, as well as regulatory counseling, subcon

Damien Specht

Damien C. Specht

Jim Tucker is of counsel in Morrison & Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.
Jim’s practice runs the gamut of litiga

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Proposed Rule to Amend the Far’s Implementation of the Buy American Act

Five Peculiarities of Protests of Federal Supply Schedule Orders

Earlier this week, the FAR Council issued a proposed rule to implement President Trump’s Executive Order 13881. The Executive Order called for the expansion of 

Proposed Rule to Amend the Far’s Implementation of the Buy American Act

A variety of arcane domestic-preference regimes apply to many Federal procurements – the Buy American Act (BAA), the Trade Agreements Act (TAA), the Berry Amendment, and the Cargo Preference Act, to name a few.  In <a href="https://www.cafc.uscourts.gov/sites/default/files/opinions-orders/18-2399.Opinion.2-10-2020_1529718.pdf">Acetris Health, LLC v. United States</a>, the Court of Appeals for the Federal Circuit recently denied a Government appeal and clarified the test used to determine if a pharmaceutical product – or any other product – is compliant with the TAA.  This significant decision rejects the longstanding analytical approach used by U.S. Customs and Border Protection (CBP) for pharmaceuticals as well as the reliance of the Department of Veterans Affairs (VA) on the CBP’s judgment for purposes of Federal procurement.The Governing LawTwo statutes are the source of most restrictions on the Government’s ability to procure supplies of foreign origin:  the BAA and the TAA.The rules governing whether the BAA or TAA applies to a particular procurement are fairly confusing, and the analysis required to determine BAA compliance is quite different from the analysis for TAA compliance, and neither is particularly intuitive.  The BAA was designed to keep foreign products from competing on an equal footing with American-made products.  The Federal Circuit has succinctly summarized the main features of the BAA:The first of these statutes to be enacted, the Buy American Act of 1933 (“BAA”), provides in relevant part that:[O]nly manufactured articles, materials, and supplies that have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured in the United States, shall be acquired for public use unless the head of the department … determines … their cost to be unreasonable.41 U.S.C. § 8302(a)(1) (emphasis added). A 1954 Executive Order, now implemented in the FAR, specifies that the unreasonable cost exception to the BAA applies where the lowest domestic offer by a large business is over 6% higher than the lowest foreign offer, and the lowest domestic offer by a small business is over 12% higher than the lowest foreign offer. 48 C.F.R. (“FAR”) § 25.105.  Congress has also exempted commercial-off-the-shelf (“COTS”) products from the “substantially all” requirement, 41 U.S.C. § 1907, so a COTS product “manufactured” in the United States is BAA-compliant even if it is manufactured from predominantly foreign components, FAR § 25.101(a)(2).Thus, the BAA considers both an end product’s component articles, materials, and supplies (unless it is a COTS item) and the end product’s place of manufacture, and has a built-in exception applied via a price premium analysis.The TAA is far more recent and, when it applies, provides an exception to the BAA.  The Federal Circuit explained the TAA in this way:The second of these statutes is the TAA.  The TAA was designed to encourage foreign countries to enter reciprocal government-procurement trade agreements.  Those agreements prohibit foreign countries from discriminating against American-made products and prohibit the United States from discriminating against foreign-origin products.  Under the statute, countries that have entered into such agreements, and that do not discriminate against American-made products, are allowed to compete for U.S. government procurements on non-discriminatory terms.  At the same time, products from countries that have not entered into such trade agreements are barred from government procurements.  Countries that have entered into such agreements are described as parties to the World Trade Organization (“WTO”) Agreement. …The TAA generally prohibits the procurement of “products of a foreign country or instrumentality” that is not party to the WTO agreement or otherwise “designated” by the President for purposes of the TAA.  19 U.S.C. § 2512(a)(1).  The TAA’s country-of-origin test defines “a product of a country” as:An article is a product of a country or instrumentality only if (i) it is wholly the growth, product, or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.19 U.S.C. § 2518(4)(B) (emphasis added).  Note that, although a finding that an article is the “product” of a non-designated foreign country generally precludes the Government from procuring it, the statute does not require that the Government affirmatively determine that an article is a “product” of the United States or a designated country as a prerequisite to a procurement of that article.The FAR implements the TAA in regulation and harmonizes it with the BAA.  As relevant here, the FAR’s Trade Agreements clause provides that a contractor shall “deliver under this contract only U.S.-made or designated country end products.”  FAR 52.225‑5(b).  The FAR defines “U.S.-made end product” as:U.S.-made end product means an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.FAR 52.225-5(a) (emphasis added).  Note that, unlike the BAA, the TAA and its implementing clause do not require an analysis of the country of origin of a manufactured item’s components.  Note also that, unlike the country of origin definition in the TAA’s statutory text, the FAR does not use the adverb “wholly” when discussing where an article is mined, produced, or manufactured.Factual BackgroundThe protester, a contractor to the VA and other agencies, was a distributor of generic pharmaceuticals.  As relevant here, the protester supplied Entecavir tablets (used to treat hepatitis B) that were manufactured in New Jersey, using an active pharmaceutical ingredient that was made in India.  India is not a “designated country” subject to preferential treatment under the TAA and its implementing regulations.During performance of a prior contract, the VA “requested” that the protester seek country-of-origin determinations from CBP for certain of its products, including Entecavir, as the VA had been informed that the protester may be supplying drugs that were not TAA-compliant, as required by its contract.  CBP, following its own longstanding practice, determined that Entecavir was a product of India because the pharmaceutical’s active ingredient was made in India and allegedly no substantial transformation had occurred in the United States.  The protester accepted a no-cost cancellation of its incumbent contract to avoid a termination for default.The VA then issued a new solicitation for Entecavir, again subject to the TAA.  In response to a question by the protester, the VA stated that CBP’s prior determination was final and therefore any Entecavir made with an Indian-origin active ingredient would be deemed non-compliant with the TAA and unacceptable.  The protester filed a timely pre-award protest, challenging the VA’s interpretation of the TAA and arguing “its products, though manufactured using foreign-made [active ingredients], are not ‘products of’ India (under the TAA) and are ‘U.S.-made end products’ (under the FAR) because they are manufactured into tablets in the United States.”The Court of Federal Claims agreed with the protester, and the Government appealed.  The Federal Circuit concurred with the result of the lower court’s decision, while adjusting the analysis and remedy.StandingBefore reaching the merits of the protest, the Court addressed an interesting question of standing.  Notwithstanding its pending protest, the protester submitted a proposal in response to the challenged solicitation.  The Government showed that the protester’s proposed price was the highest received, in a procurement conducted on a lowest price technically acceptable basis.  Because the protester had no chance at award, even if its tablets were found to be TAA‑compliant, the Government moved to dismiss the case on the basis that the protester suffered no injury-in-fact, the case was moot, and the protester lacked standing to protest.The Court agreed with the Government that the protester no longer had standing to challenge the current solicitation in light of a price that precluded it from award.  The Court found, however, that the VA was “virtually certain” to conduct similar procurements in the future and, absent the VA’s erroneous application of the TAA, the protester was “very likely” to bid on those procurements.  The Court noted that the Court of Federal Claims had jurisdiction over suits objecting to “any alleged violation of statute or regulation in connection with a procurement or a proposed procurement,” and that its own precedents held that “‘in connection with’ is very sweeping in scope.” the Court held that the protester had standing with respect to future procurements expected in the relatively near future.  The Court found that the protester had a substantial chance of securing future contracts for similar products and that the VA’s stated interpretation of the TAA caused the protester a “non-trivial competitive injury.”  Therefore, the protester was an interested party with standing to bring the protest.MeritsAddressing the merits of the protest and the Court of Federal Claims’ analysis, the Federal Circuit first rejected the Government’s argument that CBP’s country-of-origin determination was binding on the VA.  The Court held that it is the procuring agency, not the CBP, that is “responsible for determining whether an offered product qualifies as a U.S.-made end product.”  Contrary findings of the CBP are entitled to no deference.The Court also rejected the Government’s argument (which repeated the CBP’s finding) that the protester’s Entecavir tablets were products of India because that was the country of origin of the tablets’ active pharmaceutical ingredient.  The Court held that the “product” at issue here – and the only thing regulated by the TAA – was “the pill itself,” not the pill’s various ingredients.  The tablet itself was not a “product of India” because the tablet was not “wholly the . . . manufacture” of India, nor was it “substantially transformed” in India, as provided in the TAA’s country-of-origin test.  19 U.S.C. § 2518(4)(B).  Because the statutory country-of-origin test applies only in the negative – i.e., prohibiting procurement of products of a non-designated country, but not also requiring that the product be found to be a product of the United States or another designated country – the Court held that the statute did not bar the protester’s product:  “Accordingly, since the TAA only excludes products from government procurement if they are ‘products of’ a foreign country like India, the TAA does not bar the VA from procuring Acetris’ products.”Turning next to the FAR’s Trade Agreements clause, the Government argued that the tablets were not compliant because they were neither “wholly” manufactured in the United States, and manufacturing the final tablets in New Jersey did not “substantially transform” the Indian active ingredient into a new product.  This argument required the Government to read the adverb “wholly” from the statutory country-of-origin test, where it is present, into the FAR’s Trade Agreements clause, where it is not present.  Nor, for that matter, is the adverb “wholly” present in the BAA or its regulatory implementation, either.The Court noted that the Trade Agreements clause defines “U.S.-made end product” as “an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States.”  FAR 52.225-5(a) (emphasis added).  The Court reasoned that, regardless of whether manufacturing the tablets substantially transformed the Indian ingredients into a new product, the definition of a compliant end product included any product that is “manufactured in the United States,” which the Entecavir tablets indisputably were, regardless of the source of their ingredients and other components:A product need not be wholly manufactured or substantially transformed in the United States to be a “U.S.-made end product.” Instead, such products may be—as Acetris’ products are—“manufactured” in the United States from foreign-made components.(Emphasis added.)  Given the fact of domestic manufacture, the Court found it unnecessary to decide the separate question of whether the tablets also were substantially transformed in the United States.  The FAR says either prong is enough to render an end product “U.S.-made” and thus compliant with the Trade Agreements clause.  Therefore, under the TAA and its implementing regulations in the FAR, the VA incorrectly determined that the protester’s Entecavir was non-compliant with the TAA and its regulatory implementation in the FAR.The Court concluded its merits discussion by observing:  “If the government is dissatisfied with how the FAR defines ‘U.S.-made end product,’ it must change the definition, not argue for an untenable construction of the existing definition.”The Court remanded the matter to the Court of Federal Claims, with instructions to adjust the relief granted, including a permanent injunction applicable to future procurements:On remand, the Claims Court should declare that: (1) under the TAA, a pharmaceutical product using [active pharmaceutical ingredients] made in India does not, because of that fact, thereby become the “product of” India; and (2) under the FAR, the term “U.S.-made end product” may include products manufactured in the United States using [active pharmaceutical ingredients] made in another country.  The Claims Court should also enjoin the VA from excluding Acetris’ products manufactured in Aurolife’s Dayton, New Jersey facility from future procurements.Takeaways<ol><li>The rules for analyzing and applying the various domestic-preference regimes can be complicated and counter-intuitive, with requirements that change from one regime to the next, and a variety of exceptions and exceptions to the exceptions. If an offeror or contractor is unsure of its compliance obligations, it is prudent to seek legal counsel to navigate the labyrinth.</li><li>The Federal Circuit sidestepped an argument that was central to the litigation at the Court of Federal Claims: whether a product that is BAA-compliant (as the protester’s was here) is necessarily also TAA-compliant.  The protester argued (and the Court of Federal Claims concluded) that it was; the Government argued that it was not.  In a footnote, the Federal Circuit found that analysis was irrelevant.  As a practical matter, though, it is difficult to imagine a situation where an item would be BAA-compliant but not TAA-compliant under the holdings of this decision.</li><li>The Federal Circuit has provided helpful guidance by clarifying that, so long as an end product is not “wholly the . . . manufacture” of or “substantially transformed” in a non-designated country, and is either “mined, produced, or manufactured in the United States [or other designated country] or . . . substantially transformed in the United States [or other designated country],” it is TAA-compliant. This is a far simpler test to apply than the one the VA attempted to impose.</li><li>This decision’s only direct effect is on Federal procurements. The decision will not bind any agency for non-procurement purposes, such as country-of-origin determinations in connection with tariffs and other import duties.  It remains to be seen whether CBP will accept the Federal Circuit’s analysis as persuasive authority in those non-procurement arenas and alter its country-of-origin analysis in general and as applied to pharmaceuticals.  Suppliers that previously have unquestioningly relied upon CBP determinations for procurement purposes may wish to rethink that approach in light of Acetris.</li><li>The Federal Circuit accepted the Court of Federal Claims’ finding that the process of converting Entecavir’s active pharmaceutical ingredient and other constituents into the final tablet form was “manufacturing” for purposes of the FAR’s Trade Agreements clause. Under both the BAA and the TAA, however, it is not always easy to determine where an end product was “manufactured,” and that potential complication will remain even under the Federal Circuit’s simplification of the TAA analysis.</li><li>Potential offerors should scrutinize the domestic-preference provisions appearing in solicitations and, like the protester here, ask questions early and be prepared to protest before the date set for the receipt of proposals. If an offeror fails to object to improper solicitation terms before that time, any later protest of those terms generally will be dismissed as untimely.</li></ol>

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Trade Agreements Act Compliance: Federal Circuit Clarifies Country of Origin and Place of Manufacture Analyses

New DCMA Defective Pricing Pilot Team Will Possess Audit Resolution Authority

A variety of arcane domestic-preference regimes apply to many Federal procurements – the Buy American Act (BAA), the Trade Agreements Act (TAA), the Berry Amend

Trade Agreements Act Compliance:  Federal Circuit Clarifies Country of Origin and Place of Manufacture Analyses

The 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).  <a href="https://www.govinfo.gov/content/pkg/FR-2019-07-18/pdf/2019-15449.pdf">EO 13881</a> 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.

President Issues New Domestic Preference Executive Order

The President has issued the third in a series of executive orders (EOs) directed at tightening domestic-preference restrictions in Government procurements cove

President Issues New Domestic Preference Executive Order