Waiving the Buy American Act is not a Free Pass to Procure Just Any Foreign-Sourced Product

In a recent decision, the Court of Federal Claims shed light on a crucial aspect of small business contracting opportunities: when the Buy American Act (“BAA”) is waived, the Trade Agreements Act (“TAA”) will govern any decision that results in the government procuring a foreign product. The Court’s clarifying decision now means federal agencies must adhere to the TAA’s foreign procurement preferences when foreign end-products will be sourced in small business procurements. So, what does this mean for small business contractors? Let’s dive in.

Quick Overview: The BAA and TAA

Prior to the Court’s decision, it was commonly understood that the BAA governed all domestic procurements and small business opportunities. In other words, if the BAA was involved the TAA would not come into play with any small business contracting opporutnity.

Breaking this relationship down a bit further, the BAA is typically designed to restrict procurements to domestic suppliers or manufactures, while the TAA provides a preference for goods and products from certain countries. Specifically, the TAA requires contractors to sell products that either originate from the U.S. or, alternatively, originate from designated “eligible” countries who have signed a trade agreement with the U.S. Together, the BAA and TAA work to protect American manufacturers from unfair competition from abroad. However, in the event that an agency is unable to identify any domestic manufacturers who can meet the government’s need, the agency can request a nonmanufacturer waiver from the Small Business Administration (“SBA”). If granted, this waiver allows the agency to consider nondomestic offers from a domestic reseller.

To be clear, the BAA does not completely ban the use of foreign goods for the Government; instead, it gives a price preference to domestic products during evaluation. On the other hand, the TAA stricly forbids contractors from providing products that are not made in the U.S. or by a designated foreign country.

Facts of the Case

In The DaVinci Company, LLC v. The United States, the Department of Veteran Affairs (“VA”) sought out a small business who could provide a specific therapeutic prostate drug called Tamsulosin. Given that the opportunity was set aside for small business, the BAA applied. The problem arose, however, when the VA failed to apply the TAA after waiving BAA provisions. Specifically, the VA requested a waiver of BAA requirements based on its market research revealing that no domestic small business manufactured the drug; there were only domestic resellers who sold the drug.

There were two waivers at play in this case.

The first was a nonmanufacturer waiver which, as discussed above, allowed the VA to consider nondomestic offers from the domestic resellers. Following the results of its market research, VA sought, and was granted, a nonmanufacturing waiver from the SBA. After the SBA granted the waiver, the VA issued the Solicitation as a small business set-aside subject to the BAA, but not the TAA. The VA received eight bids and awarded the contract to a contractor who planned to source the drug from India, a country not designated under the TAA.

Three days after issuing the award, the VA requested the second waiver at issue—a BAA nonavailability waiver—which in essence asked the SBA to bypass the domestic preference under the BAA. The VA’s rationale for requesting this waiver was that all eight bids would source Tamsulosin from India. This, however, was incorrect. While seven out of the eight offerors intended to source Tamsulosin from India, the DaVinci Company planned to source the drug from Spain, a TAA-designated country.  

Three weeks after the VA issued its award, DaVinci filed a protest with the Court alleging, among other things, that the VA incorrectly applied the BAA to the solicitation and ignored the TAA’s requirements. Two weeks later the VA announced its intent to take corrective action by reissuing the solicitation, accepting new proposals, and issuing a new award. Once, again the VA received eight proposals in response to the resolicitation. This time, however, the VA issued the award to a different contractor, who—like the first awardee—intended to source the drug from India.

The Court’s Analysis

Characterized as an “order of operations” dispute, the Court was required to answer the following question: “Under what conditions does the TAA apply after the VA previously invoked the BAA?” 

The Court first decided that the VA’s choice to ask for and receive a nonmanufacturing waiver to assess the eight offers was reasonable. In fact, everything the VA did up to the point of seeking the BAA unavailability waiver was kosher. It was the VA’s request for a BAA unavailability waiver request, coupled with its decision to ignore the TAA, that was the issue.Just because the BAA had been waived did did not mean that the TAA did not apply.

Indeed, the Court concluded that “[t]he TAA—as a statute controlling international procurement preferences—must then apply when domestic preferences have been waived to achieve ‘the obvious statutorily articulated purpose of the statute’ that seeks to encourage fair international trade.” In other words, the Court concluded that the BAA nonavailability waiver did not overrule the TAA.

As a result, the Court granted DaVinci’s request for injunctive relief by critically holding that it had suffered irreparable harm by being “’deprived of the opportunity to compete fairly for a contract,’ when the VA—in direct violation of the TAA—chose to award its contract to an offeror supplying Tamsulosin from India, a non-TAA-compliant country.” The Court then directed the VA to redo its solicitation again; this time, with the TAA’s obligations applied to the contract award. 

Takeaways

The TAA Can Apply to Small Business Contracting Opportunities.

Traditionally, it was understood that contractors and agencies alike did not have to worry about the TAA when the government solicited a small business set-aside contract. This is no longer the case. As the DaVinci case teaches us, when the government originally decides to issue a small business opportunity and thereafter waives the BAA, the TAA will control the acquisition of any foreign-based product.  

Agencies must now carefully lend credence to these TAA requirements, when applicable. Federal contractors should also be aware of how a BAA unavailability waiver may not only impact their own eligibility for award, but the eligibility of their competitors, as well.

Agencies make critical and protestable mistakes.

If the VA had thoroughly reviewed DaVinci’s proposal and understood that their Tamsulosin would be sourced from a TAA-compliant country, this case might not have been brought to the Court’s attention.

Here’s a key takeaway: the government isn’t perfect. Heck, we’d be out of a job if it was. This case highlights the importance of carefully reviewing government decisions and the rationale used to support those decisions. 

Small businesses should evaluate their supply chain.

As this DaVinci case shows, the TAA can trickle into small business procurements. If you are a small business contractor who supplies foreign products from non-TAA compliant countries, it may be time to reconsider where you source your products. 

Challenging agency mistakes can be a fruitful endeavor.

DaVinci’s decision to file a protest led to two important results.  First it disrupted the usual interaction between the BAA and TAA in a way we’ve never seen before. Second, because the Court instructed the VA to resolicit and award to a contractor who would source Tamsulosin from a TAA-compliant country, DaVinci is likely to win the award since they were the only offeror to propose a TAA-compliant end product.

If you found this article helpful, we ask that you share it with your network. Additionally, if you have questions about this case or the protesting process, please contact us. We’d be happy to help!