On January 25, 2021, President Biden signed an Executive Order on Ensuring the Future Is Made in All of America by All of America's Workers. One of a flurry of executive orders (EOs) issued by the new Biden Administration, it says that the "United States Government should, whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America's workers thrive." The policies announced in the EO substantively supplement or tweak existing "Made in America Laws." The EO increases domestic participation in federal contracting by adding layers of oversight. At the same time, the EO decreases the ease with which one may obtain waivers to those same laws. In addition, the EO asks the Federal Acquisitions Regulations (FAR) Council to retool FAR Part 25. When combined with the other changes in this order, such a retooling could have far-reaching impacts on all government contractors.
Like any major policy directive, the EO raises many questions. What is clear, however, is that the Biden Administration intends to increase domestic participation in federal procurements. In particular, the EO is a direct nod to those businesses providing commercial items, services, materials, or supplies. What follows is a brief summary of the most important sections of the EO and an initial take on their potential long-term impact.
Section 2 defines "Made in America Laws" as:
[A]ll statutes, regulations, rules, and Executive Orders relating to Federal financial assistance awards or Federal procurement, including those that refer to "Buy America" or "Buy American," that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods offered in the United States.
Significantly, the definition expressly incorporates the Jones Act (46 U.S.C. §§ 50101, et seq.), which mandates that only coastwise-qualified vessels are permitted to transport merchandise between U.S. coastwise points—this means that only U.S.-flag vessels may transport cargo between U.S. ports. Aside from the Jones Act, the precise scope of the EO is uncertain, but it encompasses the Buy American Act (41 U.S.C. §§ 8301, et seq.), which is incorporated into the FAR at Part 25, and the Buy America Act, which applies to U.S. Department of Transportation funds.
Section 3 of the EO instructs all agency heads to "consider suspending, revising, or rescinding those agency actions that are inconsistent with the policy set forth in section 1 of this order," and to "consider proposing any additional agency" actions to effect the same. Thus, the EO arguably permits agencies to cancel or modify existing waivers to conform with domestic preference requirements. It is unclear whether agencies will do so, and, if they do, what notice will be provided to those companies currently relying on such waivers and whether such waivers may be grandfathered or extended.
Section 4 contains, from a policy perspective, what may be the most significant aspect of this EO. It instructs the Director of the Office of Management and Budget (OMB) to create a Made in America Office to be headed by a Made in America Director. Any procuring agency that seeks to grant a waiver to a Made in America Law must provide "a detailed justification" to the Made in America Director. The Director will then make a written determination as to whether the waiver will be granted. In addition, Section 5 requires that the "granting agency" (i.e., the agency seeking the waiver) "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."
This is a significant, substantive change to existing rules and structures. Currently, under FAR Part 25's Buy American provisions, such waivers are made at the agency level by the contracting officer, who, depending on the particulars of the procurement, is authorized to issue a determination that certain items or products are not readily available from domestic sources. By centralizing the waiver process at OMB, requiring that the granting agency investigate the why and how of the cost advantage, and separating the request from the self-interest of the contracting activity, likely the result will be a reduction in the number of waivers issued. Furthermore, going forward, the ease or difficulty of obtaining waivers will be subject to the policy directives of the incumbent administration and far more visible than individualized decisions made at the contracting level.
Section 6 expands on the policy of reducing waivers by requiring the General Services Administration (GSA) to create a website where all proposed waivers will be publicly posted and where it will be announced whether such proposals are granted. In addition, the OMB will report "all proposed waivers, along with the associated descriptions and justifications" to the GSA, which will post that information (subject to confidentiality and national security restrictions) on the new website. The EO notes that "[t]he website shall be designed to enable manufacturers and other interested parties to easily identify proposed waivers and whether those waivers have been granted." Section 7 requires agencies to work with the Hollings Manufacturing Extension Partnership, "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."
Sections 6 and 7 raise several intriguing questions for domestic companies. In his remarks before signing the EO, President Biden stated that "[w]e're going to require that waivers be publicly posted" and that "we'll work with small American manufacturers and businesses to give them a shot to raise their hand and say, 'Yeah, I can do that here in my shop, in my town.'" Some of the questions for domestic companies include the following: Will a domestic manufacturer be able to contest the grant of a waiver? What happens if a waiver is granted and an American company is able to provide those items, services, or materials? Does this mean that OMB and/or GSA will develop a repository of American companies that can provide certain items, services, materials, or supplies? Interested companies and practitioners are advised to track how this added transparency and information may be utilized, particularly with regard to bid protests.
Section 8 asks the FAR Council to consider proposing amendments to FAR Part 25. Specifically, the EO asks the FAR Council to "replace the '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." This section also seeks to "increase the numerical threshold for domestic content requirements for end products and construction materials," and to increase the price preferences for the same. While they go further, these provisions appear to overlap with some of President Trump's EOs, especially EO 13881, which addressed domestic content requirements and price preferences. Moreover, and perhaps most importantly, it will be interesting to see whether the commercial off-the-shelf exception to the component test remains or is eliminated.
While the changes to the waiver process are significant from an overall perspective, these prospective changes to FAR Part 25 may have significant impacts in the relatively near future. For example, because compliance with the Buy American Act is not mandatory, but serves to provide a price preference, the possible increases in those preferences for domestic products may force some companies to recalibrate their approach because the competitive stakes will change. In addition, contractors who are currently compliant with the Buy American Act will have to navigate the new rules as they are issued, to ensure their status as Buy American Act-compliant is not negatively impacted.
Sections 9 and 10 additionally ask the FAR Council to consult with the Secretary of Commerce and the Made in America Director before making any changes to the list of nonavailable items at FAR 25.104 and to review the possibility of lifting constraints on information technology that is a commercial item.
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As is the case with most executive orders, there is little immediate impact, and while much remains unclear about the specific impacts this EO may have, there is no doubt that the actions of the Biden Administration could have far-reaching implications for federal contractors. Venable will continue to monitor the development of this issue as it moves from EO to more concrete action—including what could be important and relevant changes in oversight and applicable regulations.