The Buy American Act was enacted over 90 years ago, during the Great Depression. The intent of the act was to protect American workers by preferring domestic goods, products, and materials over their foreign counterparts in federal assistance awards and federal procurements. Implementation of the Buy American Act has, until relatively recently, largely been guided by an Eisenhower-era executive order that focused on establishing uniformity in application.
Beginning in 2017, the Trump administration issued a series of executive orders intended to expand the use of goods, products, and materials produced in the United States in federal assistance awards and federal procurements. During the Trump administration, the domestic content threshold for goods, products, and materials used in federal assistance awards and federal procurements was increased from the Eisenhower-era threshold of more than 50 percent to 55 percent.
In 2021, the Biden administration continued this trend by issuing Executive Order 14005: “Ensuring the Future is Made in All of America by All of America’s Workers.” The order contemplates, among other things, rulemaking to maximize the use of goods, products, and materials produced in the United States, to strengthen and diversify supply and create domestic opportunities.
To implement Executive Order 14005, the Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) 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 for goods, products, and materials used in federal assistance awards and federal procurements from 55 percent to 60 percent for items delivered in October 2022 or later, to 65 percent for items delivered between 2024 and 2028, and to 75 percent for items delivered starting in 2029. These thresholds do not apply to end products that are commercially available off-the-shelf (COTS) items, provided that such items do not consist wholly or predominantly of iron or steel, or a combination of both.
On Feb. 15, 2024, the DoD issued a final rule to expand Executive Order 14005 by making significant changes to the Defense FAR Supplement (DFARS) Part 225. These changes similarly increased domestic content thresholds for defense contracts, and included goods, products, and materials produced in so-called “qualifying countries” in calculating domestic content. Under DFARS Part 225, a “qualifying country” is one with a reciprocal procurement memorandum of understanding or international agreement with the United States in which both nations agree to remove barriers to purchase of supplies produced in the other, or services performed by sources of the other country (e.g., Canada, France, Germany, etc.).
Both noted final rules contain limited exceptions to the phased increased domestic content thresholds. The first such provision is the so-called fallback threshold. This allows goods, materials, and products that meet the lower 55 percent domestic content threshold to qualify as domestic products if domestic goods, materials, and products at a higher threshold are not available, or the cost to acquire them would be unreasonable under the relevant evaluation (e.g., FAR 25.106, 25.204). The fallback threshold, however, is only available until Jan. 1, 2030, and does not apply to goods, materials, and products that consist wholly or predominantly of iron or steel, or a combination of both. Extension of this fallback threshold is unlikely since the DoD, GSA, and NASA have indicated that the present sunset provision is the “best balance” and sends a “clear signal to the federal marketplace that the federal government is fully committed to suppliers who increase their reliance on domestic supply chains.”
The second such provision is the alternative domestic content test. Senior procurement executives are authorized, following consultation with the Office of Management and Budget’s Made in America Office, to allow for application of an alternative content test to allow contractors to lock in an applicable threshold at the time of the award for a contract’s entire period of performance (as opposed to the time of delivery). This alternative test is intended for circumstances in which it is not feasible to meet changing content threshold(s) during a contract’s entire period of performance. Like the fallback threshold, the usefulness of the alternative domestic content test is finite.
Both final rules also contain provisions that contemplate future rulemaking for the use of enhanced price preference regarding products deemed “critical items” or made up of “critical components.” The framework for enhanced price preferences will be set forth in other rulemaking under FAR case 2022-004: “Enhanced Price Preference for Critical Items.” The Defense Acquisition Regulations Council anticipates it will receive a report from staff tasked with drafting this proposed rule no later than June 5, 2024 (extended from April 27, 2022).
Contractors that supply goods, products, or materials to the federal government under contracts (or subcontracts) subject to the Buy American Act ought to be cognizant that domestic content thresholds have increased and will continue to increase within the next five years (from 65 percent to 75 percent). They should evaluate their sourcing and manufacturing processes to ensure they can meet increasingly rigorous requirements under the Buy American Act. Contractors that have questions about changes to the Buy American Act should consult an attorney.
Matt Berry is a Schwabe, Williamson & Wyatt shareholder. He focuses his practice on real estate and construction. Contact him at 503-796-2085 or mberry@schwabe.com. This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations. The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. None of the authors nor the DJC guarantees the accuracy or completeness of any information published herein. Copyright © 2024 BridgeTower Media. All Rights Reserved.
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