Final Rule Strengthens Buy American Act Requirements for US Government Contractors and Their Supply Chains
On March 4, 2022, President Biden announced “the biggest change in the Buy American Act [“BAA”] in 70 years,”1 which includes gradually raising the domestic content threshold between now and 2029 from 55 percent to 75 percent in order for a product to be considered made in America and other changes outlined below. To this end, the Federal Acquisition Regulatory Council (“the FAR Council”) has published a final rule that amends the Federal Acquisition Regulation (“FAR”) and implements President Biden’s January 25, 2022, Executive Order 14005, Ensuring the Future Is Made in All of America by All of America’s Workers.2 The final rule’s effective date is October 25, 2022, which allows time for government contractors to plan for the BAA changes and make adjustments to their supply chains.3
Currently, the determination of whether a manufactured end product or construction material qualifies as domestic is made using a two-part test. First, the end product or construction material must be manufactured in the United States. Second, a certain percentage of all component parts (determined by cost of the components) must also be mined, produced or manufactured in the United States (previously known as the “component test” but redesignated as the “domestic content test”). For an end product that does not consist wholly or predominantly of iron or steel or a combination of both, the cost of domestic components must exceed 55 percent of the cost of all components (subject to exceptions).
Amendments to FAR Part 25. The primary purpose of the changes is “to increase the share of American-made content in a domestic end product or construction material.”4 Upon implementation of the final rule on October 25, 2022, the key changes will be to these areas:
1. Domestic Content Threshold: The final rule increases the domestic content threshold from 55 percent to 60 percent. It also provides a schedule for future percentage increases to 65 percent for items delivered in calendar year 2024 and then to 75 percent in calendar year 2029.5 FAR part 25 and FAR clauses 52.225-1, -3, -9 and -11 reflect these amendments.
Importantly, contractors delivering supplies to the federal government must be aware that there is no “grandfather”-like clause for a contract’s period of performance that spans two different calendar years where a domestic content percentage increase occurs. Accordingly, contractors must take this into account when planning and coordinating their supply chains as the final rule will require contractors to comply with the increased threshold.6
However, an exception may apply in certain circumstances. Where it is not feasible for a contractor to comply with the changing, increased threshold throughout the life of its supply contract, the final rule at FAR 25.101(d) and 25.201(c) authorizes an agency’s senior procurement executive to use “an alternate domestic content test in defining ‘domestic end product’ or ‘domestic construction material’ after consultation with Office of Management and Budget’s Made in America Office (MIAO).”7 The senior procurement executive’s authority is non-delegable. This alternate test would allow for the contractor to use the threshold in place at the time of contract award.
2. Fallback Threshold. The final rule creates a fallback threshold that allows for products meeting a 55 percent domestic content threshold to qualify as domestic products until one year after the increase to the 75 percent threshold in 2029 under certain circumstances, which include the unavailability of such products or the unreasonable cost of such products.8 This fallback mechanism will “help prevent scheduled increases in the content threshold from taking work away from domestic suppliers who are actively adjusting their supply chains” and “avoid unintentionally raising the foreign content . . . through increased use of waivers while domestic suppliers adjust.”9
This fallback threshold only applies to:
- “[C]onstruction material that does not consist wholly or predominantly of iron and steel or a combination of both and that are not commercially available off-the-shelf (COTS) items” and
- “[E]nd products that do not consist wholly or predominantly of iron or steel or a combination of both and that are not COTS items.”10
The final rule provides the example that “if a domestic end product that exceeds the 60 percent domestic content threshold is determined to be of unreasonable cost after application of the price preference, then for evaluation purposes the Government will treat an end product that is manufactured in the United States and exceeds 55 percent domestic content, but not 60 percent domestic content, as a domestic end product.”11
3. Enhanced Price Preferences. The final rule also creates a new framework for the application of an enhanced price preference for a domestic product that is considered a critical item or made up of critical components.12 The rule requires offerors to identify in their offer domestic end products that contain a critical component so that contracting officers can apply the higher price preferences when appropriate. The products that will receive a price preference will be determined in a separate rulemaking to allow time for the supply chain review and trade pact waiver review to be completed first. Not all critical products identified through the supply chain review will necessarily qualify for the preference. The process for determining critical products will also determine the enhanced price preference for each critical item or end product with critical components.
4. Applicability to Contracts at or below the Simplified Acquisition Threshold and to Commercial Products. The final rule modifies existing clauses—which will continue to apply, or not apply, as they did prior to the final rule—to acquisitions at or below the simplified acquisition threshold (SAT) and to acquisitions for commercial and commercially available off-the-shelf (COTS) items.13
Post-Award Reporting Requirement Deferred. The final rule does not include the post-award reporting requirements that the proposed rule contained requiring contractors to report the specific amount of domestic content in critical end products and construction material. Instead, the FAR Council deferred this requirement and will include it in a subsequent rulemaking that will also establish the list of critical items and critical components at FAR 25.105.14
COTS Waiver.
The final rule continues to exclude COTS items from the domestic content threshold test except for those items involving iron and steel.15
Impact to Contractors.
It is important for federal contractors to understand the final rule’s changes to the BAA requirements. Contractors must start analyzing their supply chain and make the necessary adjustments to achieve the increased domestic content threshold prior to October 25, 2022, in order to be ready for future contracting opportunities with the federal government. In addition, contractors should review their BAA-compliance programs. Although an exception exists to apply an alternate threshold test, contractors should not assume the benefit of this test as the non-delegable authority to implement the test is reserved to an agency’s senior procurement executive.
1 https://www.c-span.org/video/?518392-1/president-biden-made-america-plans (Mar. 4, 2022) at 00:30:01.
2 E.O. 14005, Ensuring the Future Is Made in All of America by All of America’s Workers (Jan. 25, 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.
3 Federal Acquisition Regulation: Amendments to the FAR Buy American Act Requirements, 87 FR 12780 (Mar. 7, 2022), https://www.govinfo.gov/content/pkg/FR-2022-03-07/pdf/2022-04173.pdf.
12 The list of critical items and critical components, along with the associated enhanced price preference, will be incorporated in the FAR through separate rulemaking.
14 Id. at 12781-2. See also Federal Acquisition Regulation: Amendments to the FAR Buy American Act Requirements (Proposed Rule), 86 FR 40980 (Jul. 30, 2021), https://www.govinfo.gov/content/pkg/FR-2021-07-30/pdf/2021-15881.pdf.
