On July 15, 2019, President Trump signed his third Executive Order on the topic of buying American, “Executive Order on Maximizing Use of American-Made Goods, Products, and Materials.” This latest Executive Order seeks to sharpen the teeth of the Buy American Act’s rules on buying preferences to be afforded goods, products and materials that qualify as produced or manufactured in the United States. An earlier Executive Order concerning the Act is discussed here.
Under the Buy American Act, Congress enacted a statutory buying preference for the Federal government to acquire domestic end products. Regulations implementing the Buy American Act provide a two-part test to determine whether a product is a domestic end product: (1) the product is manufactured in the United States and (2) the cost of domestic components exceeds fifty percent of the cost of all the components of the product.
Federal Acquisition Regulatory Council
In his new Executive Order, President Trump directs the Federal Acquisition Regulatory Council (FAR Council) to consider amending the regulation to increase the thresholds in the test to determine whether a product meets the domestic end product standard. Specifically, for iron and steel end products, the Executive Order would change the rule to provide that where 5 percent of more of the cost of all products in the end product is from foreign iron and steel, then the end product would not be considered a domestic end product. Additionally, for all other end products, the Executive Order would change the rule to provide that where 45 percent or more of the cost of all products of the end product is from foreign products, then the end product would not be considered a domestic end product.
The rule would still be permit application of exceptions to the Buy American Act where the bidder/offeror could establish the applicability of the Non-availability or Public Interest exception.
The ramifications of making changes to the test for domestic end product under the Buy American Act are significant. These changes can make the difference between having a product considered a foreign end product, and therefore subject to price adders that could impact the calculation of whether that bid or offer is lower than the domestic offer and eligible for acquisition. Given the direction of the President’s three Executive Orders on this subject, Contractors at all tiers should consider assessing their supply chains to identify potential areas of vulnerability. If the rule is changed in the manner contemplated, certain products may not meet Buy American Act requirements applicable to an acquisition unless an exception applies.
It is hoped that the FAR Council will hold hearings and seek public comment in crafting any rule change to implement the Executive Order. We will be watching developments in this area closely. Stay tuned.
If you have questions regarding Buy American Act matters, contact Susan Warshaw Ebner or your Stinson counsel.