The U.S. Department of Defense, General Services Administration and NASA, on March 7, 2022, published a final rule revising the Buy American Act (BAA) requirements applicable to federal procurements. The final rule is the latest action in a year's worth of efforts by the Biden Administration in its Build Back Better agenda to prioritize domestic sourcing in government procurements. Efforts that began with President Joe Biden's Jan. 25, 2021, Executive Order (E.O. 14005), "Ensuring the Future Is Made in All of America by All of America's Workers" (Made in America), were followed by the publication of a July 2021 proposed rule implementing Made in America. To help U.S. companies meet the demands of the new BAA rule, the White House is working to establish a new manufacturing office in the U.S. Small Business Administration's federal contracting division.
Summary of Key Changes
The final rule implements three noteworthy changes to the BAA requirements:
Increased Domestic Content Threshold: Notably, the final rule will gradually raise the domestic content threshold from 55 percent to 75 percent for manufactured products purchased by the federal government. Effective Oct. 25, 2022, the final rule increases the domestic content threshold for non-iron and steel products from 55 percent to 60 percent. Note that "predominantly of iron and steel" products (i.e., products comprised of 50 percent or more iron and steel) are still subject to the more stringent rule requiring less than 5 percent foreign iron and steel. The final rule also does not affect the commercially available off-the-shelf (COTS) exception, which waives the domestic content threshold for COTS items and only requires such items be manufactured in the United States. (This exception is not available for products made "predominantly of steel and iron" – except for fasteners). Incremental increases in the threshold will culminate in January 2029, at which time federal agencies will be required to meet a 75 percent domestic content requirement. Generally, it will be mandated that contractors comply with the threshold in effect in the year of delivery, even if the contract spans across different threshold years. However, the rule does permit agencies to allow contractors to apply the domestic content threshold in effect at the time the contract was awarded for the entire period of performance. This exception is subject to approval by the respective agency's "senior procurement executive" in consultation with the Office of Management and Budget's Made in America Office. The increases in the domestic content threshold requirement, by date, are provided below:
Exception for a Lower Domestic Content Threshold Due to Unavailability or Unreasonable Cost: The final rule also creates a "fallback threshold," which allows an agency to use the current 55 percent threshold for end products or construction materials when 1) no end products or construction materials are available that meet the new domestic content threshold or 2) such products or materials that comply with the new domestic content threshold are of an unreasonable cost. The fallback threshold enables companies to more easily manage potential unpredictability in their supply chains while still complying with the BAA requirements. It is important to note that the fallback threshold does not apply to items predominantly made of iron or steel or COTS items, as noted above. The fallback threshold is available only until calendar year 2030.
Increasing Price Preference for "Critical Items" and "Critical Components": Lastly, the final rule mandates the application of a higher price preference for critical items and components, in accordance with E.O. 14017, "America's Supply Chains." However, the rule does not include the entire framework for this preference system. A subsequent rulemaking will establish the list of critical components, along with the enhanced price evaluation preference to be applied to each critical component. The final rule is largely consistent with the proposed rule, but it does not institute a post-award reporting requirement for domestic content in critical end products.
Other Upcoming Amendments
The final rule also precedes impending amendments to the BAA regulations stemming from The Infrastructure Investments and Job Acts, passed into law on Nov. 15, 2021 (the Infrastructure Act). The Infrastructure Act requires that, by Nov. 15, 2022, regulations be implemented that amend the definitions of "domestic end product" and "domestic construction material" to ensure that iron and steel products are – to the greatest extent possible – made with domestic components and provide a definition for "end product manufactured in the United States." This indicates the "predominantly of iron and steel" domestic content threshold and analysis may be increased or altered.
Conclusion
Moving forward, companies will want to continually review their supply chains to ensure compliance with the changing BAA requirements – particularly given the incremental domestic content threshold increases as a result of the final rule and the upcoming amended regulations dictated by the Infrastructure Act.
