Blog Post 08.02.21
On March 7, 2022, the Federal Acquisition Regulatory Council (FAR Council) issued a final rule that would, among other things, impose significantly increased U.S. content requirements for federal procurements subject to the Buy American Act (BAA). The final rule implements the requirements outlined in President Biden’s January 28, 2021 Executive Order, “Ensuring the Future Is Made in All of America by All of America’s Workers” (the EO), and incorporates some of the feedback received in response to the FAR Council’s July 30, 2021 proposed rule, which we previously discussed here. Although the final rule deviates little from the proposed rule, the deviations are noteworthy.
The final rule increases the domestic content threshold for end products and construction materials to 60 percent by October 25, 2022; 65 percent by 2024; and 75 percent by 2029. Unlike the proposed rule, the final rule delays implementation of the 60 percent threshold until October 25, 2022 (the effective date of the final rule). The proposed rule envisioned an immediate increase to the domestic content threshold from 55 to 60 percent. The FAR Council explains that this “grace period” was implemented “in response to the comments received to the proposed rule” and “will allow industry to prepare for the new domestic content threshold.” Note that content increases do not apply to products made predominantly of iron or steel, which are already subject to a more restrictive standard—i.e., less than five percent foreign iron or steel.
Similarly, the final rule (as outlined in the proposed rule) requires a contract with a period of performance spanning the schedule of threshold increases (2022 through 2029) to comply with each increased threshold for the end products or construction material delivered each year. Unlike the proposed rule, however, the final rule adds a process by which agencies may utilize an alternate domestic content (ADC) test. The ADC test would allow contractors to comply with the domestic content threshold in effect at the time of contract award and for the entire period of performance of the contract. To utilize the ADC test, contracting officers must receive approval from the agency’s “senior procurement executive” (the authority is not delegable) and the senior procurement executive must, in turn, consult with the Office of Management and Budget’s Made in America Office before providing approval. To be clear, the ADC is not a replacement or an alternative to the component test—it simply allows contractors to comply with the domestic content threshold in place at the time of contract award. As previously reported, the EO directed the FAR Council to replace the existing component test with a new test based on the value added to a product through U.S.-based production or U.S. job-supporting economic activity. Although the final rule does not implement that directive—among several others—the FAR Council notes that it “intend[s] to consider the feedback received in those topic areas for other activities required by the EO, as well as related initiatives to strengthen domestic supply chains.”
The final rule also sets forth a “fallback threshold” that will allow agencies to revert to the current threshold of 55 percent if they determine that (1) no end products or construction materials are available that meet the new domestic content threshold or (2) such products or materials are of an unreasonable cost. The fallback threshold applies only to end products or construction material that (i) do not consist wholly or predominantly of iron or steel or a combination of both and (ii) are not commercially available off-the-shelf items. The fallback threshold will remain an exception to the existing domestic content requirements until 2030.
Finally, the final rule mandates enhanced price preferences for end products or construction materials deemed to be “critical items” or made up of “critical components.” However, the framework for this scheme was not included as part of the final rule. The FAR Council notes that “subsequent rulemaking … will establish the list of critical items and critical components in the FAR, along with their associated enhanced price preference.” Similarly, the post-award reporting requirement for domestic content of critical items or critical components outlined in the proposed rule will be part of the subsequent rulemaking. This will allow industry another chance to comment on these changes.
While the FAR Council provided a “grace period”—i.e., until October 25, 2022—for contractors to become compliant with the final rule—that date is only seven months away. Contractors at all tiers should begin to assess these changes and the impact on their contracts and supply chains as soon as possible.