Proposed Rule Increases Buy American Act Content Thresholds for DoD Contracts

On June 9, 2023, the DoD issued a proposed rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to supplement the Federal Acquisition Regulation (FAR) implementation of Executive Order 14005, addressing domestic preferences in DoD procurement.

The proposed rule revises DFARS part 225 and other associated clauses that incorporate the DoD-unique requirements (e.g., inclusion of qualifying countries). Specifically, the proposed rule modifies definitions for domestic end product, qualifying country end product, and domestic construction material by increasing the domestic content threshold from 55 percent to 60 percent in calendar year 2023, then to 65 percent in calendar year 2024, and to 75 percent in calendar year 2029. This increase now aligns the increases to the domestic content thresholds percentages for the cost of components with those in the FAR. A DoD contractor awarded a contract with a period of performance spanning the schedule of domestic content threshold increases will be required to comply with each increased threshold for the items in each year of delivery.

Besides the threshold increases, like the 2022 FAR revision, the proposed rule also implements an enhanced price preference framework requiring a list of each domestic end product with critical components or critical items and for foreign end products that exceed the required 55 percent (except commercially available off-the-shelf (COTS) items) but do not consist wholly or predominantly of iron or steel or a combination of both. The DFARS rule cross references to the FAR list at FAR 25.105 (which has not yet been published). Additionally, “critical component” is defined in the proposed rule as a component that is mined, produced or manufactured in the United States and deemed critical to the U.S. supply chain. “Critical item” means domestic construction material or a domestic end product that is deemed critical to the U.S. supply chain.

The DoD proposed rule recognizes that not all contractors may be able to comply with these new and increasingly exacting thresholds. As such, the proposed rule includes several exceptions, including the fallback threshold for awards made before January 1, 2030, which exception was also included in the FAR’s final rule. Importantly, this fallback threshold allows for the use of the 55 percent domestic content threshold until one year after the increase of the domestic content threshold to 75 percent. However, the fallback threshold only applies to construction material that does not consist wholly or predominantly of iron or steel or a combination of both and that are not COTS items, as well as to end products that do not consist wholly or predominantly of iron or steel or a combination of both and that are not COTS item. Additionally, this exception only applies in instances where an agency has determined that there are no end products or construction materials that meet the new domestic content threshold, or such products are at an unreasonable cost. What remains unclear, however, are the steps a contractor should take when there are no domestic products available at a reasonable cost, or the contractor cannot otherwise meet the 55 percent threshold. Hopefully, the final rule will address and resolve these ambiguities. Finally, the proposed rule updates several definitions and makes changes to align further the FAR and DFARS rules.

Given the significance of these changes, contractors doing business with the DoD at all tiers should immediately begin assessing these proposed changes and the impact they will have on their contracts and supply chains. Indeed, given that the DoD believes that the increased domestic content thresholds will increase price competition at the supply chain levels, it is important for DoD contractors to analyze the potential impact and, if relevant, provide input to shape the final rule.

Comments on this proposed rule are due by August 8, 2023.