FAR Council Issues Proposed Rule to Increase Domestic Content Requirements Under the Buy American Act
By: Lori Lange
Published Date: September 15, 2020
On September 14, 2020, the FAR Council finally issued a proposed rule to implement Executive Order 13881, Maximizing Use of American-Made Goods, Products, and Materials. 85 FR 56558 (Sep. 14, 2020). The Executive Order, which the President signed back on July 15, 2019, directed the FAR Council to change the FAR regulations implementing the Buy American Act by increasing the domestic content requirements for domestic end products and construction material and increasing the price preference for domestic items.
Under the Buy American Act, manufactured end products/construction material qualify as domestic if they:
- Are manufactured in the United States; and
- More than 50% of all the components by cost are mined, produced, or manufactured in the United States.
The 50% component test is waived for commercially available off-the-shelf (COTS) items. COTS items are domestic if they are manufactured in the United States regardless of the dollar amount of the foreign components.
Currently, the FAR regulations make no distinction between iron and steel items and other types of items. The proposed rule will change this by drawing a distinction between end products/construction material made predominantly of iron and steel and all other end products/construction material.
End products/construction material are predominantly made of iron or steel if the iron content or steel content exceeds 50% of the total cost of all content. For predominantly iron and steel end products/construction material, the domestic content requirement for iron and steel will be 95%. To qualify as domestic, the cost of the iron and steel 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 content. The test for iron and steel will no longer be a component test but rather a test of the cost of iron and steel content.
In addition, there will be no exception to the domestic content requirement for COTS items except for iron and steel fasteners. COTS items made predominantly of iron or steel must satisfy the 95% domestic content requirement to be considered domestic end products/construction material. The FAR Council stated that the bulk of iron and steel products acquired by the Government are primarily COTS construction material. Therefore, roll-back of the COTS waiver for these items is necessary to give full effect to the Executive Order’s requirement that domestic iron and steel products not contain more than 5% foreign iron and steel.
For all other end products/construction material, the domestic content requirement will increase from 50% to 55%. Under the proposed rule, to qualify as domestic, more than 55% of all the content 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.
In addition to raising the domestic content requirements, the proposed rule also 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. The current 50% evaluation preference for Defense procurements was unchanged under the Executive Order.
Interested parties can submit written comments on the proposed rule through www.regulations.gov and selecting FAR Case 2019-016. The FAR Council specifically is seeking comments on various issues, including:
- Whether manufacturers and resellers of end products/construction material other than iron and steel currently meet the 55% domestic content standard specified in the proposed rule.
- Whether manufacturers and resellers who would have to make adjustments to their supply chains to meet the 55% domestic content standard will do so and, if so, how much will it cost.
- Whether manufacturers and resellers of end products/construction material other than iron and steel could meet a 75% domestic content requirement.
- If the domestic content requirement was increased to 75%, would manufacturers and resellers make adjustments to their supply chains and, if so, how much will this cost.
- Is it preferable to work towards a 75% domestic content requirement incrementally and, if so, why and over what period of time.
- For sellers of iron and steel, what, if any, adjustments do they anticipate having to make to their supply chain to meet the 95% domestic content requirement.
- How much do acquisition costs vary between iron and steel with up to 95% domestic content and more than 95% domestic content.
Any comments must be submitted by November 13, 2020.