President Biden’s “Buy American Order” Is Likely to Make It More Difficult for Foreign Companies to Supply Their Products to Federally-funded Projects

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The United States Government is the world’s biggest single buyer, spending approximately $600 billion a year on purchases. Since 1933, with the passage of the Buy American Act, the federal government has, with varied degrees of success, attempted to eliminate or at least significantly reduce, purchase of foreign products and construction materials.

On January 25, 2021, by signing an executive order (“Order”) that strengthens the Buy American Act provisions, President Biden became the latest American president to target the use of foreign products and materials in federally-funded projects.

The final impact of the Order is still unknown, but it is expected that it will significantly reduce the purchase of foreign-made end products and construction materials by federal and state governments.

Brief Overview of The American Act

The Buy American Act applies to all U.S. federal government agency purchases of goods (articles, materials, or supplies) over $10,000 and under the Trade Agreement Act threshold (generally $182,000 for supply contracts and $7,008,000 for construction contracts). When purchased by federal entities for public use, the Act requires that these goods be produced in the U.S.

To be considered as being produced in the U.S., goods must be manufactured in the U.S. and at least 50 percent of the cost of their components must come from the U.S.

Products that do not meet the definition of domestic end product are subject to a price penalty, although there are certain waivers and exceptions.

While the obligations under the Buy American Act may be well-intended – i.e., to encourage the use of domestic products – the Act has had varied degrees of success. The primary issue is that Buy American regulations, up to now, were widely ignored and/or easily circumvented.

There are many examples of federal and state agencies ignoring the Buy American Act obligations. One of them, which serves as an illustrative purpose, is the California Department of Education’s failure to ensure that the state’s school districts comply with the Buy American provisions for federal monies received for school lunch programs. A 2016 audit revealed that none of the school districts audited “had adequate policies and procedures for ensuring compliance with the Buy American requirement.”

However, some argue that one of the biggest challenges to the Buy American Act is that its obligations are too easily circumvented by waivers. Under the Act, waivers can be granted when American goods in the needed category are considered not available or simply when a purchasing agency determines that a preference for American-made goods “would be inconsistent with the public interest.” The last exception arguably swallowed the rule since agencies often reached the conclusion that purchasing domestic good was inconsistent with the public interest.

Biden Buy American Order

Biden’s Buy American Order implements several new directives and policies. Some of the most relevant new policies are summarized below. Overall, the January 25, 2021 Order pushes federal agencies to buy more products made in the United States, and it closes loopholes in the existing Buy American provisions.

The Order creates a “Made in America Office” to manage the waiver process, increase scrutiny of waiver requests and ultimately reduce the number of waivers granted. The Order also directs the development of a public website that will identify all proposed waivers and whether those waivers have been granted – aimed to increase public scrutiny of waivers. These measures alone may substantially reduce the number of Buy American Waivers, and thus reduce the purchase of foreign products and construction materials by federal agencies.

Current regulation allows an agency to waive Buy American requirements if the cost of domestic products is unreasonable. Pursuant to the Order, before finding an unreasonable cost exception, agencies must now first determine whether a “significant portion” of that cost advantage of the foreign product is due to the use of dumped steel, iron, or manufactured goods. If so, the exception will not apply.

Agencies are also required to conduct supplier scouting in order to identify American companies that are able to produce goods, products, and materials in the United States that meet federal procurement needs.

Within 180 days, the Federal Acquisition Regulation Council must consider proposing new rules that would (i) increase the numerical threshold for domestic content requirements for end products and construction materials; (ii) increase the price preferences for domestic content requirements for end products and construction materials; and (iii) replace the existing “component test” with a “test under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity.”

  1. Crackdown on Buy American Waivers - The Order creates a “Made in America Office” to manage the waiver process, increase scrutiny of waiver requests and ultimately reduce the number of waivers granted. The Order also directs the development of a public website that will identify all proposed waivers and whether those waivers have been granted – aimed to increase public scrutiny of waivers. These measures alone may substantially reduce the number of Buy American Waivers, and thus reduce the purchase of foreign products and construction materials by federal agencies.
  2. New Assessment of the Unreasonable Cost Exception - Current regulation allows an agency to waive Buy American requirements if the cost of domestic products is unreasonable. Pursuant to the Order, before finding an unreasonable cost exception, agencies must now first determine whether a “significant portion” of that cost advantage of the foreign product is due to the use of dumped steel, iron, or manufactured goods. If so, the exception will not apply.
  3. Supplier Scouting - Agencies are also required to conduct supplier scouting in order to identify American companies that are able to produce goods, products, and materials in the United States that meet federal procurement needs.
  4. Revisions to Current Buy American Regulations - Within 180 days, the Federal Acquisition Regulation Council must consider proposing new rules that would (i) increase the numerical threshold for domestic content requirements for end products and construction materials; (ii) increase the price preferences for domestic content requirements for end products and construction materials; and (iii) replace the existing “component test” with a “test under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity.”

Key Takeaway

Biden Buy American Order articulates broad policy goals and sets in motion several processes that may ultimately significantly reduce the purchase of foreign products and construction materials by the federal government.

The main takeaway of the Order is that waivers to the Buy American requirements are expected to be scrutinized. As a result, contractors who rely on waivers should consider taking this opportunity to examine their supply chains to determine the extent to which they can make changes to increase the domestic content of the end products or construction materials supplied to the government.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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