On January 25, 2021, President Biden signed an Executive Order, titled “Executive Order on Ensuring the Future Is Made in All of America by All of America’s Workers,” aimed at strengthening domestic manufacturing and increasing transparency in procurement for federal contracts. While the exemption for information technology as a commercial item remains untouched – though to be studied – and while the Order does not modify the rules for acquisitions subject to the Trade Agreements Act, the Order may yet have a significant impact on contractors. President Biden’s Order revokes several prior presidential actions on the subject and supersedes others, including the Trump Administration’s July 2019 Executive Order 13881, which had been implemented by the FAR Council as a final rule only days before. The impact of the Order on the new FAR provisions is uncertain, but it is clear that change is on the horizon for government contractors. Jeff Belkin was interviewed by Law360 on this topic in “4 Key Questions On Biden’s Buy American Order,” and by National Defense Magazine in “Biden to Restrict ‘Buy American’ Waivers.”
A key feature of the Buy American Act is the “component test,” under which a certain percentage of the components of a product must be mined, produced, or manufactured in the United States for that product to qualify as “domestic.” Prior to January 2021, that threshold was 50%, measured by the cost of a product’s components. But effective January 21, 2021, the new FAR rule increased the component test threshold to 55% for most products, and established a separate threshold of 95% for “wholly or predominantly” iron and/or steel products, excluding commercially available off-the-shelf (COTS) fasteners. The rule also notably increased the price preference for businesses offering domestic products and materials from 6% to 20% for large businesses, and from 12% to 30% for small businesses.
The new FAR rule, alone, marked a significant change to the Buy American landscape. But only days later, President Biden’s Made in America Executive Order directed further changes to those same FAR provisions. The Order directs the FAR Council to, within 180 days, consider proposing FAR amendments to further increase the domestic content requirements and price preference for federal procurements. Notably, one directive is to eliminate the component test and replace it with a test under which domestic content is measured by the value added to the U.S. economy. It is not yet clear precisely how such a value-based test will be practically applied. The Order also directs amendment of the FAR to again increase the percentage threshold for domestic content requirements and price preferences, but does not define the amount of those increases or how the content requirements will square with the new value-based standard. Thus, while contractors will be studying their obligations under the new rule, and potentially making costly supply-chain modifications, those modifications may be mooted in six months by changes compelled by the Biden Order.
In addition to the anticipated FAR amendments, the Order also makes substantial changes to the process for agency waivers to Buy American requirements and seeks to promote transparency in the procurement process. The Order directs agencies to review their prior actions and consider suspending, revising, or rescinding any actions that are inconsistent with Buy American policies. It also directs the Office of Management and Budget (“OMB”) to establish a Made in America Office, charged with overseeing and reviewing agency waivers of Buy American requirements. Before an agency can grant such a waiver, it must first justify the proposed waiver to the Made in America Office. Among other considerations, the Made in America Office will consider unfair trade practices in determining whether a waiver should be granted in the public interest. If the Made in America Office disagrees with an agency’s waiver determination, the conflict will be resolved via administrative procedures. Those agency justifications will be made publicly available on the Made in America website, alongside biannual agency reports of their compliance with Buy American requirements.
It remains to be seen how the FAR Council will enact President Biden’s Made in America Order, but in the meantime, the new rule stands and will take effect in solicitations issued on or after February 22, 2021. Contractors are advised to evaluate these newly enacted changes, and anticipate further changes to come later this year. We will continue to monitor developments and provide updates as this matter progresses.