The Buy American rules are in a state of flux and it is difficult to predict what the final requirements will be in the future. Shortly after the FAR Council issued the final Buy American rule, the Biden Administration proposed significant changes to the Buy American requirements that will increase the use of goods made in America on government contracts in the future. Further, while the final rule was published before the Biden Administration’s regulatory freeze, the FAR Council does have the option to freeze implementation of the final rule, although as of the drafting of this blog post, that has not happened.
In addition, President Biden’s January 25, 2021 Executive Order may result in wholesale changes to the FAR Buy American regulations. Among other things, the Executive Order directs the FAR Council to consider revising the Buy American regulations to: (1) replace the component test with a test under which domestic content is measured by the value, instead of cost of components, that is added to the product through U.S. based production or U.S. job-supporting economic activity; (2) increase the numerical threshold for domestic content requirements for end products and construction materials; and (3) increase the price preferences for domestic end products and domestic construction materials. It also seeks to limit Buy American waivers to ensure that they are used only in very limited circumstances such as national security, humanitarian, and emergency need.
FAR FINAL BUY AMERICAN RULE
As noted above, on January 19, 2021, the FAR Council issued its final rule on the new Buy American Act regulations, 68 FR 6180. The final rule states that it is effective January 21, 2021 and that it applies to solicitations issued on or after February 22, 2021 and their resulting contracts. However, implementation of the final rule could be delayed by the Biden Administration’s January 20, 2021 regulatory freeze, which requires agencies to consider postponing the effective dates of new rules for sixty days for the purpose of reviewing any questions of fact, law, and policy the rules may raise.
The final rule makes some changes to the proposed rule issued last September. However, many of the significant changes contained in the proposed rule remain. Below are the key aspects of the final rule.
End Products/Construction Materials Predominantly Made of Iron or Steel
Under the final rule, end products/construction materials are considered to be predominantly made of iron or steel if the cost of foreign iron and steel constitutes less than 5% of the cost of all the components used in the end product/construction material. For purposes of making this determination, the cost of foreign iron and steel includes, but is not limited to, the cost of foreign iron or steel mill products (such as bar, billet, slab, wire, plate, or sheet), castings, or forgings utilized in the manufacture of the construction material, and a good faith estimate of the cost of all foreign iron or steel components excluding commercial off the self (COTS) fasteners. Iron or steel components of unknown origin are treated as foreign.
In other words, predominantly iron or steel end products/construction materials are subject to the requirement that at least 95% of the iron or steel content be domestic. The cost of the iron and steel products not produced in the United States (except fasteners), as estimated in good faith by the contractor, must constitute less than 5% of the cost of all the end product/construction material’s components. The iron and steel products include bar, billet, slab, wire, plate, or sheet, castings, or forgings utilized in the manufacture of the product, and a good faith estimate of the cost of all foreign iron or steel components (excluding COTS fasteners).
The FAR Council used several examples to demonstrate this analysis, including an example of a steel safe whose components include steel plates and other components such as a combination lock, dehumidifier, and drawers. In the example, the cost of all of the safe’s components is $500. If the cost of the steel plates or other steel mill products (excluding COTS fasteners) used in the manufacture of the safe exceeds $250 (i.e., 50% of the total cost of all the components as defined in FAR 25.003), then the safe consists predominantly of steel. If the cost of foreign iron or steel mill products (such as bar, billet, slab, wire, plate, or sheet), castings, or forgings utilized in the manufacture of the safe and a good faith estimate of the cost of all foreign iron or steel components (excluding COTS fasteners) is less than $25 (i.e., 5% of the cost of all the components used in the product), then the safe is a domestic end product.
There continues to be no COTS waiver for iron or steel COTS items except for iron and steel fasteners. The final rule defines a fastener as a hardware device that mechanically joins or affixes two or more objects together. Examples of fasteners are nuts, bolts, pins, rivets, nails, clips, and screws.
Other End Products/Construction Materials
For all other end products/construction materials, the Buy American test remains the same except the domestic component requirement increases from 50% to 55%. To qualify as domestic, more than 55% of all the components of the end product/construction material by cost must be mined, produced, or manufactured in the United States, unless the end product/construction material is COTS. COTS end products/construction will continue to only have to be manufactured in the United States to qualify as domestic as long as the item is not predominantly iron or steel.
Price Evaluation Factors
The increase in the price evaluation factors (i.e., the price factor to be applied to foreign products for purposes of evaluation) to be applied is unchanged from the proposed rule. The final rule increases the evaluation factors to be applied to offers of foreign end products/construction material when determining whether the cost of offered domestic end products/construction material is unreasonable. For the acquisition of end products, the evaluation factor will increase from 6% to 20% if the offeror is a large business and the evaluation factor will increase from 12% to 30% if the offeror is a small business. A 20% evaluation factor will be applied to construction material regardless of the size status of the offeror.
NEW EXECUTIVE ORDER
Whether the final rule will be implemented as published is unclear. On January 25, 2021, President Biden issued an Executive Order on Ensuring the Future is Made in All of America by All of America’s Workers. The Executive Order states that it is the policy of the Biden Administration that the Federal Government should, consistent with applicable law, use terms and conditions of federal financial assistance awards and federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States. The Federal Government, whenever possible, should procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.
Among other things, the Executive Order:
- Directs the FAR Council by July 24, 2021 to consider proposing amendments to the FAR, for notice and public comment, that would: (1) replace the current Buy American component test with a test under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity; (2) increase the numerical threshold for domestic content requirements for end products and construction materials; and (3) increase the price preferences for domestic end products and domestic construction materials.
- Directs the FAR Council to promptly review existing constraints on the extension of the requirements in Made in America Laws to commercial item information technology and develop recommendations for lifting these constraints.
- Directs the head of each agency, as soon as practicable and as appropriate, to consider suspending, revising, or rescinding agency actions that are inconsistent with the new policy and to propose agency actions to enforce the policy.
- Directs the Director of the Office of Management and Budget (OMB) to establish within OMB a Made in America Office, which will review agency waivers and updates to the FAR 25.104(a) list of domestically nonavailable articles.
- Requires the agency, before granting an unreasonable cost waiver, to assess whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods.
- Requires GSA to develop a public website that includes information on all proposed waivers and whether those waivers have been granted.
- To the extent appropriate and consistent with applicable law, agencies are required to partner with the Hollings Manufacturing Extension Partnership (MEP) to conduct supplier scouting to identify American companies that are able to produce goods, products, and materials in the United States that meet Federal procurement needs.
- Directs the head of each agency by July 24, 2021 to submit a report to the Made in America Director on: (1) the agency’s implementation of, and compliance with, Made in America Laws; (2) the agency’s ongoing use of any longstanding or nationwide waivers; and (3) recommendations for how to further effectuate the new policy. Thereafter, agencies will have to submit bi-annual reports on: (1) the agency’s ongoing implementation of, and compliance with, Made in America Laws; (2) the agency’s analysis of goods, products, materials, and services not subject to Made in America Laws or where requirements of the Made in America Laws have been waived; (3) the agency’s analysis of spending as a result of waivers issued pursuant to the Trade Agreements by country of origin; and (4) recommendations for how to further effectuate the new policy.
- Revokes Executive Order 13788, Buy American and Hire American, Section 5 of Executive Order 13858, Strengthening Buy-American Preferences for Infrastructure Projects and Executive Order 13975, Encouraging Buy American Policies for the United States Postal Service. Executive Order 10582, Prescribing Uniform Procedures for Certain Determinations Under the Buy-America Act and Executive Order 13881, Maximizing Use of American-Made Goods, Products, and Materials are superseded to the extent that they are inconsistent with the Executive Order. The final Buy American rule was promulgated pursuant to Executive Order 13881.
We will continue to monitor and report on changes to the Buy American regulations, including when (and if) the Buy American final rule will be implemented.