On February 25, 2021, Venable partner Diz Locaria was featured on SupplyChainBrain, where he discussed the substance and impact of President Biden’s executive order tightening enforcement of Buy American rules for government procurement.
The new mandate is essentially “a focused implementation effort,” Locaria explains. It emphasizes government-contracting policies that have long been on the books, but have been enforced over the years to varying degrees, depending on the administration in power. Biden’s goal is to close certain loopholes in implementation of the rules. One relates to commercial off-the-shelf (COTS) products, for which purchasers need not observe the rule that 55% of their components, including raw materials, be sourced in the U.S. The COTS exception, relating to a product that is widely sold in the commercial sector in the same manner as to the government, mandates only that the product in question be manufactured in the U.S.
An additional content rule limits the government’s ability to buy small and commonly available consumer items, Locaria notes, but removing the COTS exception would be tantamount to asking businesses to completely reformulate how they make and source products. “It changes their whole business model,” he says, “and runs the risk of driving them out of the government contracting business.”
The Buy American rule applies to the “vast majority” of government procurement contracts with a value above $10,000, although certain thresholds kick in where free-trade agreements (FTA) are in effect. Nevertheless, it remains uncertain how major U.S. trading partners will view the new rule, if it’s seen as conflicting with the provisions of existing FTAs. The order could prove especially sensitive with Canada, although “this administration is trying to repair relationships with its allies,” says Locaria. “I doubt they’re going to take a real hard line on controversial issues.”
Click here to access the interview.