Maximizing the use of goods, products, and materials produced in the United States under the Buy American Act (BAA) is a bipartisan issue. In our previous post, “Ensuring the Future is Made in All of America by All of America’s Workers” (located here) we wrote about Executive Order 14005, signed by President Biden on January 25, 2021. Among other things, EO 14005 directs the Federal Acquisition Regulatory Council (FAR Council) to consider proposing a rule that increases the thresholds for the domestic content requirement under the BAA.

This post highlights changes to BAA rules that are already effective under a Final Rule published by the FAR Council on January 19, 2021.

Although not acknowledged in EO 14005, the prior administration had in fact already taken steps to increase the domestic content requirement and other measures (Executive Order 13881, “Maximizing Use of American-Made Goods, Products, and Materials” and Executive Order 13858, “Strengthening Buy American Preferences for Infrastructure Projects”). The January 19 Final Rule implements the changes required under prior EO 13881 and it will apply to solicitations issued on or after February 22, 2021.

Broadly speaking, the BAA establishes a preference for domestically manufactured end-products, which pursuant to FAR 25.101(a), are both: (1) “manufactured” in the United States; and (2) comprised primarily of components that are sourced domestically (the so-called “domestic content requirement”). The BAA applies this preference by adding, solely for evaluation purposes, a specified premium to the price of foreign end products if there is an offer of a domestic end product that is not otherwise lowest-priced (the so-called “price preference”). See FAR 25.101(b). The BAA includes a number of exceptions and partial exceptions. Of particular relevance here, since 2009, the FAR has exempted commercial-off-the-shelf (COTS) products from the domestic content requirement.

Most notably, the January 19, 2021, Final Rule introduces the following changes:

• Increases the domestic content requirement from 50% for all end products to 95% for end products made wholly or predominantly of iron or steel (or both) and to 55% for all other end products. (Generally speaking, a product is “predominantly” made of iron or steel if 50% or more of the total cost of components for the end product is iron or steel.)
• Increases the evaluation price preference for domestic end products from 6% to 20% in the case of large businesses, and from 12% to 30% in the case of small businesses.
• Increases the evaluation price preference for domestic construction materials from 6% to 20%.
• Removes the partial-exemption for COTS products that are predominantly made of iron or steel. However, the COTS waiver remains in place for iron and steel fasteners, as well as COTS products not predominantly made of iron or steel.

According to White House press releases and comments by President Biden, “The current content threshold of 50 percent isn't high enough.” Although it might appear that this administration was unaware of EO 13881 which preceded it, the current Executive Order provides that “Executive Order 13881 . . . [is] superseded to the extent [it] is inconsistent with this order.” Because the changes set forth in January 19, 2021, rules Final Rule are final, the current Executive Order cannot simply revoke them; an amendment or further rules change would need to be proposed for that to occur. Regardless, the Final Rule significantly tightens the thresholds that contractors must meet in order to benefit from the domestic preferences provided under the BAA. It remains to be seen whether the FAR Council will further tighten those thresholds or make changes to the Final Rule.

In the meantime, companies that benefit from domestic preferences now must re-examine whether they will continue to benefit under the Final Rule and wait to see if the preferences will change yet again under the Biden administration. For more information about BAA domestic preference requirements or any of the changes directed by recent executive orders, please contact any of our Government Contracts lawyers.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.