Blog Post 01.29.21
Alert
02.04.21
Two recent developments make clear that government contractors will have their hands full complying with U.S. domestic preference rules in the coming years. On January 19, 2021, the Federal Acquisition Regulatory Council (FAR Council) issued a final rule implementing former President Trump’s Executive Order 13881 (Maximizing Use of American-Made Goods, Products, and Materials). The final rule makes significant changes to the domestic content requirements set forth in the Buy American regulations. Less than one week after the final rule became effective, President Biden signed Executive Order 14005 (Ensuring the Future Is Made in All of America by All of America's Workers) (the Order). The Order directs the FAR Council to further amend the domestic content requirements in the Buy American regulations. As we discuss below, the interplay and overlap between the Order and the final rule are almost certain to cause confusion until the Biden Administration or the FAR Council provide clarifying guidance. Suffice it to say, domestic preference compliance will become more complex in 2021.
The January 19th final rule amended several long-standing domestic preference rules. First, the final rule increased the domestic content requirement from 50 to 55 percent for most products and to 95 percent for products made predominantly of steel or iron. Second, the final rule increased the price preference for domestic products from six to 20 percent for large businesses and from 12 to 30 percent for small businesses. Finally, it eliminated the domestic content exception for products consisting predominantly of iron or steel that are commercially available off-the-shelf. While the final rule made other, less significant amendments, the above-noted changes will have an immediate impact on government contractors.
The January 25th Order sets forth the Biden Administration’s policy for maximizing the use of U.S. goods, products, and materials in federal procurements. We previously discussed this Order here. Among other things, the Order directs the FAR Council to propose, within 180 days, amendments to the Federal Acquisition Regulation (FAR) that: (1) replace the “component test” in FAR part 25 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; (2) increase the numerical threshold for domestic content requirements for end products and construction materials; and (3) increase the price preferences for domestic end products and domestic construction materials. The Order also establishes a Made in America Office within the Office of Management and Budget. The new office will be led by the Made in America Director, who is charged with reviewing any agency waiver of domestic preference requirements. This additional level of review will likely increase the difficulty of obtaining a waiver and contractor costs.
It is no surprise that the Order has caused confusion among government contractors—it is unclear precisely how the Order overlaps with the final rule. The Order supersedes many Trump Administration executive orders related to the Buy American Act. The Order, however, left Executive Order 13881 largely intact and superseded it only to the extent that it is inconsistent with the Order. Apart from the Order’s direction to replace the component test, the final rule appears to be consistent with the purpose of the Order, which is “to procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America's workers thrive.” The Biden Administration’s regulatory freeze also adds to the confusion. The regulatory freeze requested that agencies postpone the effective dates of rules published in the Federal Register for 60 days. While there is no clear answer to address this confusion, we are proactively monitoring any forthcoming guidance or announcement aimed to clarify these issues.