Since the start of President Biden’s administration we’ve been hearing about Buy American. Right after his term began, he issued E.O. 14005 which, in part, asked the FAR Council to consider regulations to the Buy American regulations. And Buy American even figured into the recent State of the Union address.
In response to E.O. 14005, the FAR Council put out a proposed rule for Buy American changes in July 2021. On Monday, it released the final rule.
We’ll look at the major changes. For context, you might consider reviewing our previous post about the Buy American basics.
Increasing the Domestic Content Threshold
The Buy American regulations, with some exceptions, require contractors to furnish goods qualifying as domestic end products. To qualify as a domestic end product, a good must be manufactured in the United States and must meet a domestic content requirement (unless it’s a COTS item). Currently, the cost of domestic components must exceed 55% of the cost of all components; otherwise, the good is not a domestic end product.
Under the new rule, the domestic content threshold will increase over time. Effective October 25, 2022, the cost of an end product’s domestic components must exceed 60% of the total component costs. Then, starting in 2024 and running through 2028, the threshold will reach 65%. Finally, for goods delivered in 2029 and beyond, the threshold rises to 75%.
The FAR Council chose to delay the implementation of the 60% threshold until October 25 to allow contractors to adjust their supply chains to meet this new requirement.
So, what if a contractor has a contract spanning the schedule of threshold increases? In that case, the contractor will have to comply with each, as they come. For example, if “a supplier awarded a five-year contract in 2027 will have to comply with the 65 percent domestic content threshold initially, but in 2030 will have to supply products with 75 percent domestic content.” But if this proves infeasible, a senior procurement executive can establish an alternate threshold after consulting OMB and the Made in America Office.
The final rule did not change the domestic content requirement for end products made wholly or predominantly of iron and/or steel. For those products, the cost of foreign iron and/or steel must fall below 5% of the total component costs.
Fallback Threshold
Despite the increasing domestic content thresholds, the rule institutes a fallback to the 55% threshold, in certain instances, until 2030. That is, where an agency finds that no end products (or construction materials) meet the new threshold, it can rely on the 55% threshold. Here’s an example from the rule to clarify how it works:
[I]f a domestic end product that exceeds the 60 percent domestic content threshold is determined to be of unreasonable cost after application of the price preference, then for evaluation purposes the Government will treat an end product that is manufactured in the United States and exceeds 55 percent domestic content, but not 60 percent domestic content, as a domestic end product.
So, if an agency doesn’t get offers featuring domestic end products at the new thresholds, it will revert to the 55% threshold. But this exception will eventually sunset on January 1, 2030. Until then, the Buy American certificate (FAR 52.225-2) will ask offerors to specify if a foreign end product exceeds the 55% domestic content threshold.
Higher Price Preferences for Critical Products and Components
The rule introduces a new concept into the Buy American world: critical items and critical components. They include domestic components and domestic end products critical to the U.S. supply chain. Through a subsequent rulemaking, the FAR Council will compile a list of these items and components at FAR 25.105; and the list will be updated at least every four years.
That said, this rule lays a framework for these items. Specifically, it provides that–in addition to the existing price preferences for domestic end products–these items will receive an even higher price preference. Apparently, the future rule will attach a specially crafted price preference for each item and component.
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Overall, the new rule does not work a sea change in the Buy American regulations. The FAR Council declined E.O. 14005’s invitation to consider replacing the domestic component test with a value-added metric. Instead, the rule uses the existing paradigm to boost domestic content requirements and to foster domestic production of critical items and components.
If you have any questions about the Buy American regulations or other domestic preference statutes and rules, give us a call at 913-354-2630.