Potential Changes by FAR Council

The new order directs the FAR Council to “consider proposing for notice and public comment” several changes to existing BAA standards:

• A higher domestic content threshold for federal agency procurements subject to the 1933 BAA. Currently under the BAA, an end product is considered domestic if: (1) it is mined, produced or manufactured in the United States; and (2) the cost of its components mined, produced or manufactured in the United States exceed 50 percent of the cost of all components. President Trump’s new order aims to increase the domestic component content threshold for American-made iron and steel from 50 to 95 percent and the threshold for all other products from 50 to 55 percent (and potentially to as high as 75 percent).
• A modification to the formula executive agencies must use when determining whether a bid or offered price of materials of domestic origin is unreasonable or inconsistent with the public interest. Currently under the BAA, a domestic bid will not be accepted if the lowest foreign bid is more than 6 percent less expensive than the domestic bid. The President’s order contemplates a differential formula based on 30 percent (for small businesses) or 20 percent (for other than small businesses).

The existing standards described above were applied to the terms of the BAA via a 1954 Executive Order issued by President Dwight D. Eisenhower and subsequently implemented through the federal acquisition regulations. While Monday's Executive Order does not immediately amend the domestic component content and unreasonable price differential of the Eisenhower-era executive order, E.O. 10582, it sets the stage for potentially doing so.

Timing for Reforms

The order directs the FAR Council to contemplate, within 180 days, whether to propose regulatory changes to implement the President's proposed modifications to the BAA standards through notice and comment rulemaking. But the order is deferential to the FAR Council, stopping short of mandating that it proceed with the rulemaking to modify existing Buy American Act regulations and contract clauses.

While the order prescribes the time period during which the FAR Council can contemplate whether to proceed with a rulemaking to implement the President's recommendations, it does not appear to set deadlines for the publication of a proposed rule or the promulgation of a final rule. If a new rule is adopted, executive agencies would then be responsible for issuing new regulations to ensure that their procurement practices conform to any new standards.

Finally, it should be observed that a number of other federal statutes impact the application of the BAA and the federal acquisition regulations that implement it. For example, certain of these laws currently waive the BAA's domestic component content requirement for procurements of certain commercially-available items and procurements subject to U.S. trade agreement obligations. Those statutes will remain unchanged in the absence of Congressional action to amend those laws.

Next Steps

Monday’s Executive Order reaffirms President Trump’s commitment to improving and expanding the Buy American rules applicable to taxpayer-financed government procurement. Should the FAR Council proceed with a rulemaking to modify the federal acquisition regulations in accordance with the President’s directives, it would portend the most far reaching changes to the 1933 BAA in its 86 year history.

Manufacturers, federal contractors, subcontractors, suppliers and other interested parties should pay careful consideration to the FAR Council’s deliberations over the next 180 days and be prepared to engage in a notice and comment rulemaking process in anticipation that regulatory changes will be proposed. In light of President Trump’s clear support for Buy American policies, market participants should be prepared for additional presidential actions that could have an impact on capital investment decisions, supply chain management and marketing operations.

Previous Buy America Executive Orders

Monday’s action follows two previous Buy America-specific Executive Orders from the Trump Administration. The President’s April 2017 “Buy American, Hire American” Executive Order (E.O. 13788) was aimed at reducing the use of Buy American waivers by federal agencies. A subsequent order issued in January of this year (E.O. 13858) aimed to encourage federal–assistance recipients (such as state transportation agencies) to apply Buy America requirements on the public works infrastructure projects funded and financed by their federal financial assistance awards.

[1] The FAR Council consists of the Administrator for Federal Procurement Policy as well as the Secretary of Defense, the Administrator of the National Aeronautics and Space Administration and the Administrator of the General Services Administration.

Specifically, the order directs the head of each executive department and agency administering a covered infrastructure program to “encourage recipients of new Federal financial assistance awards to use, to the greatest extent practicable, iron and aluminum as well as, steel, cement, and other manufactured products produced in the United States in every contract, subcontract, purchase order, or sub award that is chargeable against such Federal financial assistance award.” Covered programs include Federal financial assistance for a wide variety of U.S. infrastructure projects, from surface transportation and water infrastructure to broadband and cyber-security.

In addition to encouraging funding recipients to use domestic products in their projects, the new order also requires the head of each agency administering a covered program to identify in a report to the President opportunities to maximize the use of Buy American principles. The reports are due no later than May 31, 2019.

Thursday’s action is an attempt to close potential coverage gaps by extending Buy American principles to more taxpayer-financed federal infrastructure assistance programs. The executive order similarly seeks to expand the application of the Buy America procurement preferences to items not typically subject to existing Buy America laws, which are often limited to iron and steel products and materials. The "manufactured products" specifically identified in the executive order include non-ferrous metals, plastic and polymer materials like pipe, aggregates, glass and lumber.

The White House indicated this strengthened focus could result in billions of U.S. taxpayer dollars being redirected to American manufacturers.

The new Executive Order follows President Trump’s April 2017 “Buy American, Hire American” Executive Order. In touting the benefits of that Executive Order, the White House pointed to a 16 percent reduction in the use of Buy American waivers in 2018 as well as a $24 billion increase in government spending on U.S.-made products in the President’s first two years in office.

What Should Manufacturers and Suppliers Expect from EO 13858?

Although the Executive Order directs federal agencies to encourage federal assistance recipients to use – to the greatest extent possible – iron, steel and manufactured products in projects receiving the federal assistance, it does not mandate they do so. Agencies have been given 120 days to develop plans, strategies and programs to satisfy the President's goal of encouraging assistance recipients to buy American construction materials. Whether and to what extent agencies devise plans and strategies that do more than merely "encourage" assistance recipients to apply Buy America preferences on federally-aided infrastructure spending remains to be seen.

The memo directs agency chiefs to submit to the Commerce Department and OMB a report that details their assessment of the implementation of Buy American Laws within their agencies by September 15th in compliance with the executive order’s section 3.

Direct Federal Procurement and Federal Assistance

The OMB and DOC memorandum direct agency assessments of both (1) compliance with Buy American laws applicable to an agency’s direct procurement and (2) compliance with any Buy American laws applicable to federal financial assistance awarded by an agency.

Direct Federal Procurement

The OMB and DOC memorandum directs the elements of the analyses executive departments and agencies must undertake and the content they must include in their report. The categories of information sought by DOC and OMB include:

1. Oversight of Buy American laws;
2. Enforcement of Buy American laws and waiver usage; and
3. Steps to strengthen implementation of Buy American laws.

The OMB and DOC memorandum also directs agencies to review the level of spending conducted under exceptions to the Buy American laws, the most prevalent products that were subject to BAA exceptions and waivers, and the largest contracts subject to BAA waivers and exceptions during the last three fiscal years.

The memo further directs agencies to develop and propose policies to ensure procurements maximize the use of materials produced in the United States.

The OMB and DOC memorandum devotes considerable attention to the TAA, suggesting the Administration’s intent to adhere to the TAA and to abide by U.S. obligations under international trade agreements applicable to government procurement.

Federal Assistance

Notably, the OMB and DOC memorandum also directs agencies to evaluate and report on their oversight of Buy American laws applicable to federal financial assistance awards, for which there is no primary law that imposes a “Buy American” procurement preference. The memorandum directs agencies to:

1. Provide an inventory of their existing Federal financial assistance authorities and information on the extent Buy American laws apply to awards made under these authorities
2. Describe guidance the agency has issued to assist assistance recipients in complying with applicable Buy American laws; and
3. Describe reviews the agency has conducted in the last two fiscal years. . . to evaluate recipients’ compliance with Buy American laws.

Trump’s executive order requires agencies to “assess the use of waivers …by type and impact on domestic jobs and manufacturing.” The OMB and DOC memorandum directs agencies to, at a minimum, “describe their current waiver and exception process and actions they are taking to review and improve upon that process.”

Agencies Must Make Policy Recommendations

Finally, the OMB and DOC memorandum requires agencies to “develop and propose policies for their agencies to ensure that” federal procurements and assistance awards maximize the use of materials produced in the United States….” The OMB and DOC memorandum therefore directs each federal agency to:

1. Identify actions the agency intends to take to review and update the relevant agency guidance to recipients;
2. Identify actions the agency intends to take to review and update relevant agency internal procedures to implement relevant Buy American laws; and
3. Offer ideas for strengthening and applying Buy American laws that may require statutory, executive, regulatory, or administrative action across the government.

The OMB and DOC memorandum poses no immediate changes for federal procurements and procurements made with federal assistance. The information submitted by federal agencies may, however, prove to be critical to the ultimate success of President Trump’s executive order.

After the agencies submit their reports, the order directs Commerce and the USTR to assess, within 150 days of the date of the order, the impacts of all U.S. free trade agreements, including the World Trade Organization’s Government Procurement Agreement on the operation of Buy American laws.

The order also requires the Director of the OMB, the Secretaries of Commerce and State and the USTR to submit within 220 days of the order a report to the President on the findings of the required agency reviews, which is to include specific recommendations to strengthen implementation of Buy American laws.