Executive Order 13881
On July 15, 2019, President Trump issued a third Executive Order (EO) to strengthen the Buy American Act. EO Number 13881, Maximizing Use of American-Made Goods, Products, and Materials, directs the FAR Council to propose FAR revisions within 180 days to maximize the acquisition of domestic products. The EO also emphasizes the Administration will enforce the Buy American Act “to the greatest extent provided by law.”
Buy American Act
The Buy American Act does not prohibit purchasing foreign goods, but it imposes a price evaluation penalty before purchasing items that are not “domestic end products”—civilian agencies apply a 6% penalty for large offerors, and a 12% penalty for small offerors. DoD purchases apply a 50% penalty for all offerors. If the foreign product is still the least cost or best value after including the price penalty, then the foreign product may be purchased. The penalty is only for evaluation, the government does not pay the higher price. For supplies, the FAR currently uses a two-part test to determine whether an end product is domestic: (1) the end product must be manufactured in the US; and (2) the cost of its components produced or manufactured in US must exceed 50% of the cost of all components.
Impact of the Executive Order
The EO directs the FAR Council to propose FAR revisions that would revise the BAA regulations in two ways. First, the large business price evaluation penalty would increase for civilian agencies from 6% to 20%, and the penalty for small business would increase from 12% to 30%. The EO does not mention the DoD, so the 50% price evaluation penalty would likely stay the same. Second, the 50% of the cost of all components test would decrease to 45% of the cost of all components, and incrementally decrease down to 25% over time. The EO contains other changes as well, including more restrictions for steel and iron products.
There are a number of open questions about the practical impact of the EO. The Trade Agreements Act generally waives the BAA for procurements above a cost threshold that applies to many supply acquisitions. The TAA, unlike the BAA, does not apply a strict component cost test in determining domestic origin, but looks to where “substantial transformation” occurred. Similarly, it is unclear how the EO applies to commercial off the shelf products which are not subject to the cost of components test. Finally, The EO does not appear to have an impact on waivers of the BAA applied by the DoD pursuant to reciprocal defense agreements with allies. Contractors must carefully review the proposed rules when they are issued to ensure they comply with the new requirements and are prepared for enhanced enforcement actions.
If you have questions regarding the Buy American Act, or other federal government contract issues, contact the professionals at Williamson Law Group at (301) 788-8198 for confidential assistance and counsel, or e-mail our attorneys at firstname.lastname@example.org.
This Contract Compliance Update is to keep readers current on government contract matters and is not intended to be legal advice. If you have any questions, please contact Williamson Law Group for legal advice regarding your particular case.