By Alexander Gorelik of Smith Currie & Hancock LLP

Perhaps none of the requirements the federal government imposes on its contractors is more complex than the hodge-podge of laws frequently grouped together as “Buy American” preferences. In addition to the Buy American Act (41 U.S.C. §§ 8301-8305), other Buy American preferences governing federal and federally funded contracts stem from other laws.[1] Each of those laws imposes unique requirements.

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 (Order), which promises to reform at least some of those Buy American requirements. The Order explains that the “United States should, consistent with applicable law, use terms and conditions of federal financial assistance awards and federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States.” The Order suggests that the new Administration will continue the focus on strengthening Buy American preferences. A few aspects of the Order stand out:

1. Hints at a Broad Applicability

Although the Order applies to both federal financial assistance awards (for example, grants and cooperative agreements) and federal procurements (for example, traditional government contracts), it does not enumerate the Buy American laws that it could affect. Instead, the Order notes only that its terms apply to the various “Made in America Laws,” which the Order defines as any “statutes, regulations, rules, and Executive Orders…that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States.”

While the Order clarifies that those Made in America Laws include any requirements referencing “Buy American,” “Buy America,” and the Jones Act, the lack of further specificity is notable. Indeed, the Order may be hinting that the Administration intends this EO to extend to the full range of Buy American laws (such as the Berry Amendment) and not only those listed.

2. Suggests a Tougher Stance on Waivers

Several of the Made in America laws allow for waivers in certain circumstances. The Order establishes a few new barriers to obtaining those waivers:

• It establishes a Made in America Office (with its own Director) within the Office of Management and Budget.
• It requires agencies to provide the Made in America Director with a written description of a proposed waiver and a detailed justification for the use of goods, products, or materials that have not been mined, produced, or manufactured in the United States. Within 45 days of his or her appointment, the Director must publish a list of the information required in those submissions.
• It increases transparency by calling for a website that will allow the public to review any descriptions and justifications submitted by the agencies in support of any waivers and details as to whether those waivers have been granted.
• It directs agencies considering waivers in the public interest to assess whether a “significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods.” Although the Order offers no details as to the factors that the agency must look to during those assessments, it notes that the agency “may consult with the International Trade Administration in making this assessment. . . .”

3. Directs Changes to the FAR’s Implementation of the Buy American Act

The Order directs changes specific to the Buy American Act. The Order requires the Federal Acquisition Regulatory (FAR) Council to consider proposing a rule within 180 days from the date of the Order (for example, on or before July 24, 2021) that would:

• replace the “component test” in Part 25 of the FAR used to identify domestic end products and domestic construction materials with a test under which domestic content is measured by the value added to the product through U.S.-based production or U.S. job-supporting economic activity;
• increase the numerical threshold for domestic content requirements for end products and construction materials; and
• increase the price preferences for domestic end products and domestic construction materials.

It requires the Administrator of the Office of Federal Procurement Policy to review any amendment that the FAR Council proposes to the list of domestically non-available articles in FAR 25.104. The Order also requires the FAR Council to “promptly review existing constraints on the extension of the requirements in Made in America Laws to information technology that is a commercial item and [develop] recommendations for lifting these constraints.”

While these changes are significant, the Order does not offer details on the specifics of implementation. The idea that the Buy American Act regulations might no longer impose a “component test” could make quite an impact, but it is still too early tell. We must wait for the implementing rules to evaluate that and the other changes the Order suggests.

4. Preserves Much of President Trump’s Executive Order 13881

The Order indicates the previously anticipated changes prompted by former President Trump’s Executive Order 13881 may well be here to stay. President Biden’s Order states that Executive Order 13881 is superseded only to the extent that it is inconsistent with the latest direction. The final rule implementing Executive Order 13881 was released on January 19, 2021, and promised to be included in solicitations issued on or after February 22, 2021, and any resultant contracts.

The final rule stated that iron and steel end products would have to contain 95% or greater “parts or materials” of U.S. origin, while other end products and construction materials would have to contain 55% or more of the same. The regulations previously set both of those thresholds at 50%. The final rule also increased the price evaluation preferences from 6% to 20% for large businesses and from 12% to 30% for small businesses.

Takeaways

The focus on stronger “Buy American” preferences in federal acquisitions and federally funded contracts is not going away. Additional updates in this space will be forthcoming when new implementing rules are published, and compliance will be mandatory. Waivers of these preferences are likely to become less frequent, so contractors should not hesitate to establish relationships and negotiate terms with suppliers to ensure they will be able to meet these requirements.

[1] The group of laws commonly referred to as Buy American includes the Buy American Act of 1933 (41 U.S.C. §§ 8301-8305), the Buy America Act (49 U.S.C. § 5323(j) and 23 U.S.C. § 313) (which has a similar name, but a different focus), the Trade Agreements Act (19 U.S.C. §§ 2501-2581), the Berry Amendment (10 U.S.C. § 2533a), the Kissell Amendment (6 U.S.C. § 453b), and others.

Alexander Gorelik is an Associate in Smith Currie’s Washington DC, office. He is a Certified Professional Contract Manager. His practice focuses on government contracts and construction litigation, including the representation of owners, architects, engineers, general contractors, subcontractors, and suppliers. He can be reached at agorelik@smithcurrie.com or 202.735.2446.