On July 30, 2021, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published the much-anticipated proposed rule to amend the Federal Acquisition Regulation (FAR), with the stated goal of strengthening the Buy American Requirements by closing loopholes in the current regulation, applying enhanced price preferences to select critical products, and increasing transparency and accountability in Buy American rules. This proposed rule is the most recent step toward the Administration's initiative to support American manufacturing through federal procurement. Earlier this summer, the Administration set out to create the Made in America Office (MIAO), which will oversee nonavailability waivers and gather information to inform the MIAO on ways it can reduce the number of waivers issued and encourage the use of domestic supply chains.
Increase in Domestic Content to Qualify
Under the proposed rule, the FAR would increase the current percentage of domestic content in components to qualify as Buy American compliant. This would entail an increase in domestic content of components from 55 percent (which was only put in place earlier this year) to 60 percent upon implementation, which would then increase to 65 percent in calendar years 2024 to 2028, and finally increase to 75 percent by calendar year 2029. The purported goal of this phased increase is to allow businesses time to adjust their supply chains and to create more opportunities for smaller U.S. manufacturers. Moreover, a supplier holding a contract with a period of performance that spans the schedule of threshold increases will be required to comply with the phased increases. However, for up to one year after each phased increase, if end products that meet the increased threshold are not available or are deemed to be of unreasonable cost, the proposed rule allows for the government to accept products that meet the former content threshold.
Enhanced Pricing Preferences
Citing disruptions caused by COVID-19, the NPRM also proposes enhanced price preferences for select critical products and components, to provide a stable source of demand to encourage the growth of domestically produced critical products. Such critical products and components will be determined in a separate rulemaking and would be required to be revisited no less often than once every four years. Contractors will be required to identify in their proposals domestic end products that contain a critical component, to assist contracting officers in appropriately applying the higher price preferences.
For end products that do not contain critical components, for Buy American covered acquisitions where the low offer is not a domestic offer, the contracting officer:
[M]ust determine the reasonableness of cost of the domestic offer by adding to the price of the low offer, inclusive of duty—
(A) 20 percent, if the lowest domestic offer is from a large business concern; or
(B) 30 percent, if the lowest domestic offer is from a small business concern.
48 C.F.R. § 25.106(b). If the domestic offer does not exceed the evaluated price (factoring in the above) of the non-domestic low offer, the domestic offer shall be considered reasonable. Id.
For end products that do contain critical components, for Buy American covered acquisitions where the low offer is not a domestic offer, the contracting officer:
[S]hall determine the reasonableness of cost of the domestic offer by adding to the price of the low offer, inclusive of duty—
(A) 20 percent, plus the additional preference factor identified for the critical item or end product containing critical components[, which is yet to be determined], if the lowest domestic offer is from a large business concern; or
(B) 30 percent, plus the additional preference factor identified for the critical item or end product containing critical components[, which is yet to be determined], if the lowest domestic offer is from a small business concern.
48 C.F.R. § 25.106(c). If the domestic offer does not exceed the evaluated price (factoring in the above) of the non-domestic low offer, the domestic offer shall be considered reasonable. Id.
Increased Data Reporting and Transparency
Notably, the NPRM also aims to increase transparency and accountability through the Buy American rules by establishing a reporting requirement for critical products. Currently, contractors report only if they meet the 55 percent content threshold. The NPRM would require contractors to also report the total domestic content in critical products that were awarded under a contract. These new reporting requirements will be incorporated into new FAR clauses. The Administration expects increased compliance with the Buy American Act and improved data on the actual U.S. content of goods purchased.
These reporting obligations, however, create additional areas of potential mistakes and misrepresentation. Accordingly, contractors should be mindful to have specific information available when developing these reports and requirements in their contracts with suppliers and vendors, to be able to promptly update changes to manufacturing location and country of origin.
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The NPRM demonstrates a marked increase in the rigor of the Buy American Act and creates a number of new compliance issues and challenges. More details are yet to be developed and made available, but as always, Venable will continue to monitor and report on these developments as they arise.
*A special thank-you to Anna Kaye for her contributions to this article.