On January 25, 2021, President Biden issued Executive Order 14005, “Ensuring the Future is Made in All of America by All of America’s Workers.” The order contemplated a series of actions to maximize consumption of domestic goods, products, and materials through the application of federal assistance awards and procurements, in order to strengthen and diversify domestic supply and create domestic opportunities. To implement Executive Order 14005, multiple federal agencies, including the United States Department of Defense, issued a final rule on March 7, 2022 that made significant changes to the domestic preference requirements in Federal Acquisition Regulation (FAR) Part 25. These changes increased domestic content thresholds, requiring 65% for items delivered between 2024 and 2028, and 75% for items delivered in 2029 or later.

On February 15, 2024, the DoD issued a final rule to further implement Executive Order 14005 by making changes to the Defense FAR Supplement Part 225 to implement DoD’s unique requirements. This final rule does not make significant changes to the proposed rule originally published on June 9, 2023. The recent changes are summarized below:

Domestic and Qualifying Country Content

The final rule increases the thresholds for domestic and qualifying country content. It requires 65% for items delivered between 2024 and 2028, and 75% for items delivered in 2029 or later. A qualifying country is one that has a reciprocal procurement memorandum of understanding or international agreement with the United States, in which both countries agree to remove barriers to purchase of supplies produced in the other country, or services performed by sources of the other country (e.g., Canada, France, Germany, etc.).

When it published the proposal that resulted in this final rule, the DoD explained that, in general, the year of delivery (not order) will determine which content threshold (65% or 75% will apply):

A DoD contractor that is awarded a contract with a period of performance that spans the schedule of domestic content threshold increases will be required to comply with each increased threshold for the items in the year of delivery. However, in instances where this requirement to comply with changing domestic content thresholds would not be feasible for a particular contract, FAR 25.101(d) provides for a senior procurement executive to allow the application of an alternate domestic content test in defining “domestic end product” after consultation with Office of Management and Budget’s Made in America Office (MIAO). The alternate domestic content test will allow the contractor to comply with the domestic content threshold that applies at the time of contract award, for the entire period of performance for that contract.

Content Certification

The final rule allows DoD contractors to list qualifying countries and other foreign end products separately in their offers, even if such supplies do not satisfy the definition of “domestic end product” or the increased domestic content thresholds. Contractor certifications, however, must provide the country of origin for foreign end products that do exceed 55% domestic content, except for those products that are commercially available off-the-shelf items.

Fallback Threshold

The final rule establishes a “fallback threshold” that mandates a 55% domestic content threshold for use, if domestic products at a higher threshold are not available, or the cost to acquire them would be unreasonable. The fallback threshold allows products that meet the lower 55% domestic content threshold to qualify as a domestic product under certain circumstances. The fallback threshold is only available until January 1, 2030.

Alternate Domestic Content Test

The final rule authorizes senior procurement executives, following consultation with the Office of Management and Budget’s Made in America Office, to allow for application of an alternate domestic content test to enable some DoD contractors to lock in an applicable threshold at the time of contract award for the contract’s entire period of performance. This alternative test is intended for circumstances when it is not feasible for a DoD contractor to meet changing content threshold(s) during the contract’s entire period of performance.

Enhanced Price Preference

The final rule provides for the use of enhanced price preference for products deemed to be “critical items” or made up of “critical components.” The framework for enhanced price preferences will be set forth in another rulemaking under FAR Case 2022-004, “Enhanced Price Preference for Critical Items.”

DoD contractors should be aware that the final rule increases domestic content thresholds for defense contracts. These changes also include DoD-specific rules that, among other things, allow exemptions for items and components from qualifying countries and enhanced price preferences for items and components critical to the domestic supply chain. DoD contractors who have questions about changes to Buy American Act requirements should consult an attorney.