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E.O. 13858 Reiterates the Need for Strict Application of Buy American Rules on Infrastructure Projects

On January 31, 2019 President Trump issued his “Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects” (E.O. 13858). The Order is a re-assertion of and expansion upon his April 18, 2017 “Executive Order on Buy American and Hire American” (E.O. 13788), which aimed to maximize the use of U.S.-made goods in federal contracts and grants. The new Buy American Executive Order focuses exclusively on infrastructure projects, but it expands the coverage of E.O. 13788 in that context to include not only contracts and grants, but also other forms of federal financial assistance, including cooperative agreements and projects funded through direct appropriations.

In addition to singling out construction contractors, subcontractors, and suppliers for particular scrutiny, E.O. 13858 emphasizes the importance of maximizing the use of goods, products, and materials produced in the United States. As defined in E.O. 13858, “produced” is expanded to include manufactured products; components of manufactured products; and materials such as steel, iron, aluminum, and cement. The new Executive Order also makes clear that it covers other products, including plastics and polymer-based products such as polyvinyl chloride pipe; aggregates such as concrete; glass, including optical fiber; and lumber.

Both of these Executive Orders, taken in conjunction with the President’s National Security Strategy announced in December 2017, reflect the Trump Administration’s belief that the United States must be cognizant of and take steps to preserve the national manufacturing base and infrastructure in the face of threats coming from unconventional, in addition to conventional, areas.  For example, there are clear concerns about foreign country activities to offer to sell or actually sell products, such as steel or aluminum, at below market prices to deprive U.S. domestic producers of sales of such goods (foreign dumping), as these types of activities ultimately may drive such producers out of business and restrict the future availability of domestic sources in the market, threatening the economic well-being and national security of the United States.

E.O. 13858 seeks to reduce waivers under the Buy American Act (BAA), Federal Acquisition Regulation (FAR), and the Trade Agreements Act (TAA), by construing waivers for the “maximum utilization of goods, products, and materials produced in the United States” and requiring “appropriate account of 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” and “integrat[ing] any findings into its waiver determination as appropriate.”

Takeaways

Federal contractors should always make sure that they comply with the terms of solicitations under which they compete, and ultimately the contracts under which they perform, including maintaining detailed records of the various aspects of their federal contract compliance. However, President Trump’s latest Executive Order makes maintaining meticulous procurement records and analyzing compliance with Buy American rules even more essential. Some examples of how the Executive Order will impact contractor practices including:

  • Reduced availability of exceptions to Buy American laws and regulations: The Executive Order directs purchasing agency officials to grant fewer exceptions to the requirements of Buy American laws and regulations. For example, it can be expected that agency procuring officials will need to provide clear proof of the domestic nonavailability of products or components in the quantities and qualities they require before they can obtain a class or individual waiver of the domestic component or end product requirement rule at their agency under the nonavailability exception. And, in future, we may see agency procurements that increase the price differential that must exist to trigger the application of the price unreasonableness exception that allows an agency to procure an offer to provide a lower priced nondomestic product when there is a higher priced offer to provide a domestic product.
  • Increased likelihood of Bid Protests to challenge Buy American compliance: Where procurements contain provisions to give effect to the new Executive Orders, we may see increased numbers of bid protest challenges where, e.g., a challenger has evidence that the awardee would furnish a non-domestic product or the procuring agency erred in its Buy American price reasonableness assessment.
  • Increased likelihood of Government audit of Buy American compliance under the contract: Given the Government’s focus on ensuring strict compliance with Buy American requirements, it can be expected that the Government will be checking to confirm that the contractor is delivering what it promised in its proposal and contract. Contractors should keep detailed records of the cost and country of origin of all materials used and delivered under its contracts.
  • Increased risk of Federal Claims: Greater scrutiny of material sources and record keeping makes it more likely that the Government may seek an appropriate remedy if there is delivery of a noncompliant product. Such remedies may include replacement of the noncompliant product at contractor cost, repayment of amounts paid the contractor for the delivery, or even debarment or suspension where the noncompliant product is delivered or used in a Federal construction project.
  • False Claims: Where a contractor delivers product that is not what it was required to provide under the contract, this also raises the risk that the Government or a whistleblower may assert a violation of the False Claims Act if there is evidence that the contractor’s noncompliance in its performance of the contract or subcontract was intentional or made with reckless disregard for the contractor’s requirement to comply.

All this means that more attention will be paid to more construction companies. To avoid any potential issues, construction contractors should keep detailed paperwork on the country of origin of all construction materials, including manufactured products and their components, as well as aluminum, steel, concrete, and iron. Additionally, where contractors would seek waivers of Buy American provisions, they will need to ensure that they have comprehensive documentation to support any request for waiver to the BAA or TAA.

If you have questions about these Executive Orders, Buy American provisions, or other aspects of Federal government contract, grant or agreement matters, contact a member of our Government Contracts Practice Group.