President Trump issued his third Executive Order (EO) regarding his ‘Buy American’ initiative on July 15, 2019. The EO, Maximizing Use of American-Made Goods, Products, and Materials, directs the Federal Acquisition Regulation (FAR) Council to consider amending the FAR to strengthen the provisions governing the implementation of the Buy American Act (BAA).
The first EO, issued in April 2017, was essentially a policy directive instructing agencies to reduce the number of BAA waivers issued and to more rigorously monitor, enforce and comply with domestic preference laws. The second EO, issued in January 2019, encouraged federal assistance recipients (i.e., state and local governments, grantees, etc.) to apply ‘Buy American’ requirements whenever possible, but specifically on infrastructure projects funded and financed by federal financial assistance awards. This third EO directs the FAR Council to consider specific changes to the current BAA restrictions.
The BAA provides a preference for “domestic end products.” In most cases, an item is considered a “domestic end product” if: (1) the article is manufactured in the United States, and (2) the cost of the domestic components in the end product exceeds 50% of the cost of all of the components in the end product. This new EO directs the FAR Council to consider increasing the percentage of domestic content in an end product from 50% to 55% (and potentially up to 75%). For American-made iron and steel, the EO suggests increasing the domestic content from 50% to 95%.
Although domestic end products are preferred, the BAA does not prohibit agencies from purchasing "foreign" end products. If a domestic offer is not the low offer, the contracting officer must determine the reasonableness of the cost of the lowest domestic offer. It does so by adding 6% to the price of the low "foreign" offer if it is from a large business or 12% to the price if the offer is from a small business. If the price of the domestic offer does not exceed the price of the low "foreign" offer after the addition of the 6% or 12% upward price adjustment, the domestic offer is reasonable and that business can be awarded the contract. The new EO contemplates increasing the price adjustment percentages used in the BAA’s reasonableness of cost analysis from 6% to 20% for large businesses, and from 12% to 30% for small businesses.
The EO requires the secretary of commerce and the director of the office of management and budget to work with the FAR Council, Council of Economic Advisors and the assistant to the president for trade and manufacturing policy to submit a report to President Trump which includes any other changes to the FAR that should be considered to better enforce the BAA. The EO specifically solicits input about gradually increasing the domestic content requirements and the timing for such increases. According to the EO, the FAR Council is to consider proposing this rule change for notice and comment within 180 days and then to finalize such changes if they are “appropriate and consistent with applicable law and the national security interests of the United States.”
The EO does not set deadlines for the FAR Council to publish a proposed rule, only to contemplate proposing regulatory changes. As a result, there is still time before any increased domestic content is required, even if proposed by the FAR Council. That said, it would be wise for government prime contractors and their lower-tier supply chains to start thinking about ways to meet any increased domestic content requirements now.