Biden Administration Signals Enforcement of “Made in America” Laws is a Top Priority
On January 25, 2021, President Biden issued an Executive Order titled “Ensuring the Future Is Made in All of America by All of America’s Workers” (the “Order”).1 The text of the Order is available here.
The Order aims to promote and enhance the enforcement of “Made in America Laws,” including the Buy American Act of 1933, 41 U.S.C. §§ 8301–8305 (the “BAA”). As defined in the Order, Made in America Laws include all statutes, regulations, rules, and Executive Orders that provide a preference for the acquisition of goods or materials produced in the United States. The BAA, which is implemented in Part 25 of the Federal Acquisition Regulation (“FAR”), is the best-known of these laws.
The Order states that the administration’s policy is to use federal financial assistance and procurement to “maximize the use of goods, products, and materials produced in, and services offered in, the United States,” and emphasizes that the federal government should “procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.” Thus, at a high level, the Biden administration’s policy in this area is a continuation of that of the Trump administration, which also issued several executive orders focused on strengthening “Buy American” laws. However, the changes proposed in the new Order, if fully implemented, would be more significant than those imposed in the last four years. The overall focus of the Order is on closing compliance “loopholes” and providing greater oversight and transparency in the waiver process.
Potential Changes to BAA Regulations
Under the Order, the Federal Acquisition Regulatory Council (the “FAR Council”) has 180 days to consider proposing new rules to change how the BAA is implemented in the FAR. First, the FAR Council must consider proposing a replacement for the existing BAA “component test,” which has long been the fundamental basis used in the regulations to identify domestic end products and construction materials. Currently, in order to qualify for the domestic purchasing preference under the BAA, the product/material itself must be manufactured in the United States, and the cost of the product/material’s components manufactured in the United States must exceed 55% of the cost of all of its components.2 Thus, at the time of this writing, it is possible for a BAA-compliant product to include a significant amount of non-U.S. content. The Order contemplates that the “cost of components” test would be replaced 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.” While it is unclear exactly how the “value that is added to the product through U.S.-based production” or job support will be implemented in the regulations, it stands to undoubtably be a highly significant change, as domestic content under the BAA has been measured by the cost of the product/material’s components since the mid-1950s.
The Order also directs the FAR Council to consider increasing the numerical threshold for domestic content under the BAA, and to consider increasing the price preferences for domestic end products and construction materials. Currently, domestic end products and construction materials enjoy a 20% price preference on most federal procurements, with the Department of Defense (“DoD”) employing a higher 50% preference in procurements for supply contracts.3
Finally, the Order directs the FAR Council to “review existing constraints on the extension of the requirements in the Made in America Laws to information technology that is a commercial item” and to “develop recommendations for lifting these constraints.” Information technology (“IT”) products that satisfy the FAR’s definition of “commercial item” have been exempted from the restrictions of the BAA for many years,4 and the elimination of this exemption would be yet another major change for federal agencies and contractors.
Waiver Process Changes and Increased Transparency
The Order also requires that the Director of the Office of Management and Budget (“OMB”) establish a “Made in America Office” within the OMB to provide an additional layer of oversight with regard to federal agencies’ issuance of waivers under the Made in America Laws. The Made in America Office will be led by a Director appointed by the Director of the OMB.
As a result of the creation of this new office, proposed waivers across the federal government will be subject to increased scrutiny going forward. Before an agency may grant a waiver, the agency must provide the Made in America Director with a description of the proposed waiver and a detailed justification for the use of foreign goods or products. Thereafter, the Made in America Director must notify the head of the agency of the result of the waiver review within 15 business days.
If the Made in America Director determines that a proposed waiver would not be consistent with applicable laws or the administration’s policies, the Director must notify the agency proposing the waiver and provide a written explanation. If the head of the agency disagrees with some or all of the bases for the determination, the head of the agency must inform the Made in America Director in writing. The Order contemplates that such disagreements will be resolved by OMB’s Office of Information and Regulatory Affairs.
Additionally, the Order states that descriptions of proposed waivers and justifications submitted to the Made in America Director by agencies must be made publicly available on a soon-to-be-established website, subject to national security and executive branch confidentiality interests. In short, the issuance of a waiver of a “Made in America” requirement will now require significantly more effort by the contracting agency, and the public disclosure requirement will create an additional disincentive to the granting of frequent waivers.
What this Means for Government Contractors
As is evident from the proposed changes, the Order aims to strengthen both the application and enforcement of the BAA and will likely make it more difficult for government contractors to receive waivers and exemptions from all Made in America Laws, including the BAA. While the Order may benefit contractors with domestic manufacturing operations and supply chains, other contractors that rely more heavily on foreign manufacturing and foreign suppliers may face compliance challenges if the proposed changes are fully implemented.
However, the Order notably does not touch the most significant carve-out to the BAA — the exemptions created by the Trade Agreements Act of 1979 (the “TAA”), 19 U.S.C. § 2511. Under the TAA, the president may waive the application of laws or regulations that provide for discriminatory treatment of foreign products in federal procurement (such as the BAA) to products from countries that are party to certain international agreements.5 Currently, products from over 120 countries are exempt from the BAA,6 although the application of the exemptions depends on the specific purchasing agency and the dollar amount of the acquisition.
Finally, it is worth noting that the Order comes on the heels of a final rule7 published by the FAR Council on January 19, 2021, to implement President Trump’s Executive Order 13881, Maximizing Use of American-Made Goods, Products, and Materials.8 This final rule made several changes to the BAA rules in the FAR, including: (1) increasing the domestic content requirement from 50% to 55% for most end products and construction materials; (2) increasing the domestic content requirement to 95% for end products and construction materials consisting “wholly or predominantly” of iron or steel; (3) eliminating a pre-existing exception to the domestic content requirement for commercially available-off-the-shelf (“COTS”) items consisting “wholly or predominantly” of iron or steel; and (4) increasing the price preference for domestic end products and construction materials from 6% to 20%.9
These recent modifications to the BAA regulations are notable, but the changes contemplated by the new Order would represent an even more significant departure from the existing rules. Although it remains to be seen whether the FAR Council will implement all of the potential changes described in the Order, contractors that regularly encounter BAA requirements in their contracts should pay close attention to developments in this area going forward.
1 Exec. Order No. 14005, 86 Fed. Reg. 7475 (Jan. 28, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/25/executive-order-on-ensuring-the-future-is-made-in-all-of-america-by-all-of-americas-workers/.
2 48 C.F.R. §§ 25.101(a), 25.201(b). However, different requirements apply to products/materials consisting wholly or predominantly of iron or steel. Id.
3 48 C.F.R. §§ 25.105(b)(1), 25.204(b), 225.105(b). Small business offerors proposing a domestic end product on non-DoD procurements enjoy a 30% price preference. Id. § 25.105(b)(2).
4 48 C.F.R. §§ 25.103(e), 25.202(a)(4).
5 48 C.F.R. § 25.402.
6 48 C.F.R. § 25.003 (definition of “designated country”).
7 Final Rule, Federal Acquisition Regulation: Maximizing Use of American-Made Goods, Products, and Materials, 86 Fed. Reg. 6180 (Jan. 19, 2021) (to be codified at 48 C.F.R. pts. 12, 25 & 52), https://www.federalregister.gov/documents/2021/01/19/2021-00710/federal-acquisition-regulation-maximizing-use-of-american-made-goods-products-and-materials.
8 Exec. Order 13881, 84 Fed. Reg. 34257 (July 18, 2019), https://www.federalregister.gov/documents/2019/07/18/2019-15449/maximizing-use-of-american-made-goods-products-and-materials.
9 The preference for small businesses offering domestic end products increased from 12% to 30%.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.