[co-author: Stacy Hadeka]

On April 18, 2016, President Donald Trump signed the executive order “Buy American and Hire American” aimed at maximizing the federal government’s use of goods, products, and materials produced in the United States.  The E.O. does not attempt to change existing law, but requires agencies to increase monitoring, enforcement, and compliance with Buy American Laws while minimizing the use of waivers.  The order also focuses on President Trump’s policy to protect the interests of United States workers and “Hire American.”  With an emphasis on the Trump Administration’s “Buy American” agenda, it will be more critical than ever for federal contractors and grantees to focus on their own compliance with domestic preference requirements.

Enforcement and Assessment of Domestic Preferences According to Buy American Laws

The E.O. reinforces the Administration’s focus to “Buy American.”  It does not change preference standards, which are set by statutes and regulations, but is intended to lead to greater compliance and enforcement of existing federal domestic procurement and financial assistance requirements.  The E.O. directs agencies to assess historical Buy American practices and the use of waivers in the various agencies.  “Buy American Laws,”¹ as defined by the E.O., notably includes the Buy American Act, Buy America Act, the Berry Amendment, and potentially the Trade Agreements Act.  Agencies are also directed to develop policies within 150 days to maximize the use of materials produced in the United States.  Beginning in 2018, agencies must also annually report on their implementation of Buy American Laws.

The E.O. also directs the Secretary of Commerce and United States Trade Representative to conduct a review of the effects of United States Free Trade Agreements (U.S. FTAs) and the World Trade Organization’s Government Procurement Agreement (GPA) on the implementation of domestic procurement preferences.  Within 220 days, the President must also receive specific recommendations to strengthen Buy American Laws based on the reviews of agencies and trade agreements.  Eventual withdrawal from or changes in the GPA or FTAs could result in dramatic changes in the range of products that are eligible for federal procurement.  Since those agreements are reciprocal, changes could also lead to reduced procurement of US goods by foreign governments.

Greater Scrutiny of Waivers

The E.O. also orders greater scrutiny of waivers and exceptions in order to maximize domestic content in federal procurements.  Specifically, agencies are directed to narrowly construe public-interest waivers, submit their decisions to grant waivers to agency heads to ensure greater accountability, and consider the effect of Antidumping and Countervailing Duty orders covering dumped and subsidized content in goods and materials in the determination of the low bid.

Implications

• In the short term, the greatest effect on federal contractors and grantees will be increased enforcement of the domestic preference and sourcing laws and regulations already on the books. Contractors should focus on continued understanding and compliance with domestic preferences, which may lead to increased compliance costs.
• While the Trade Agreements Act is not specifically mentioned in the E.O., the Order provides an additional basis for agencies to continue their already heightened scrutiny of compliance with designated country end product requirements.
• Contractors that plan to seek waivers and exemptions to domestic preference laws and regulations should be prepared to demonstrate the compelling need and benefits of such waivers to the procuring agencies.
• Longer term, the E.O. signals the potential for tightened domestic preferences and the potential for renegotiation of U.S. FTAs or even possibly a U.S. withdrawal from the GPA. Federal suppliers who currently rely on waivers may have to make particularly difficult and expensive supply-chain adjustments, as the administration signals it will subject waiver requests to greater scrutiny and will overall be less inclined to grant waivers.
• As enforcement by agencies will also increase, contractors may be subject to increased potential liability under the False Claims Act. Competitors may also use the tightened domestic preferences to gain competitive advantage or for bid protest purposes.

Conclusion

The E.O. reflects the Administration’s increased focus on the implementation and compliance with federal domestic procurement preferences.  The review of existing agency practices for monitoring, enforcing, implementing, and complying with Buy American Laws will very likely lead to heightened scrutiny of contractors and grantees providing goods to the federal government.  The prescription for agencies to establish new policies to maximize the use of domestic content and enforce compliance will also likely lead to increased compliance costs for contractors and grantees, potential liability under the False Claims Act, and the need to retool supply chains.  As the Administration has also signaled a tough approach to waivers, contractors and grantees may find the need to defend any waivers they currently have or seek support for future waivers.  Contractors and grantees will want to continue monitoring developments in this area as the order reaches its various milestones.

¹ The E.O. defines “Buy American Laws” to mean “all statutes, regulations, rules, and Executive Orders relating to Federal procurement or Federal grants including those that refer to “Buy America” or “Buy American” that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods.”