Heads Up Federal Contractors, Buy American Laws Are Going to Impact Supply Chains
Previously (here and here), we discussed the Trump administration’s renegotiation of NAFTA and the steps the President has taken to promote Buy American and Hire American. Now the Department of Defense and the Department of Commerce, together with the White House, are taking steps to ensure enforcement of Buy American Laws.
On June 20, 2017, the Department of Defense issued a memorandum referencing the Buy American and Hire American Executive Order requiring agencies to “scrupulously monitor, enforce, and comply with Buy American Laws.” The memorandum, entitled Improving Compliance with the Berry Amendment and Buy American Act, observes the need to be vigilant in the oversight and enforcement of Buy American Laws and advises guidance on implementation is forthcoming. In the interim, Department of Defense agencies are directed to ensure applicable members of their contracting workforce complete the updated continuous learning modules on the Berry Amendment and Buy American Act.
On June 30, 2017, the Department of Commerce and Office of Management and Budget (“OMB”) jointly issued a memorandum providing guidance for federal agencies, entitled Assessment and Enforcement of Domestic Preferences In Accordance with Buy American Laws. The memorandum emphasizes compliance with Buy American Laws are vital to “provide important benefits to the Nation” and explicitly names iron, steel, and manufactured goods as examples of domestic products. Federal agencies are tasked with assessing their compliance with Buy American Laws and developing policy proposals to maximize domestic materials. At the end of their assessment period, and no later than September 15, 2017, the agencies must report to the OMB and the Secretary of Commerce their findings and recommendations.
What are the applicable laws?
Buy American Laws are defined in the April 18, 2017 Executive Order 13788: Buy American and Hire American as all statutes, regulations, rules, and executive orders that require the federal government make a preference for domestic goods and manufactured products.
As a refresher, the primary law is the Buy American Act, passed in 1933, which generally imposes restrictions on federal government contracts to favor domestic end products. All federal contractors will need to comply with the Buy American Act in federal acquisitions.
Companies contracting with the Department of Defense will also need to be aware of Berry Amendment. Originally passed in 1941 and subsequently amended, the Berry Amendment imposes the same restrictions as the Buy American Act on the Department of Defense to favor end items, components, or materials that are wholly of U.S. origin. Covered items include food, clothing, tents, other textiles, and hand or measuring tools.
What are the exceptions and waivers?
Agencies are authorized to provide exceptions from, and waivers of, the Buy American Act, however, the Department of Commerce and OMB memorandum cautions exceptions and waivers “must be carefully monitored.” Exceptions apply for purchases that are at or below the micro purchase threshold (currently set at $3,500), when the cost of domestic end products are “unreasonable,” procurements for use outside of the U.S., when domestic procurement would be inconsistent with the public interest, when materials are unavailable, procurement of information technology that is a commercial item, or when goods are acquired specifically for commissary resale. The Trade Agreements Act provides waivers under the Buy American Act for purchases from countries that are party to trade agreements.
Generally, exceptions exist under the Berry Amendment for contracts at or below the Simplified Acquisition Threshold (currently set at $150,000) or for items that are determined to meet only 50 percent or less of total U.S. government and nongovernment demand. A waiver may also be obtained under the Berry Amendment if it is determined that an item cannot be acquired in a satisfactory quality, quantity, and expediency, at U.S. market prices.
What can federal contractors expect in the near future?
In addition to concerns that the Buy American Laws will reduce competition, raise prices, and lead to reciprocity laws enacted by foreign countries in retaliation, federal contractors will need to be cognizant of the immediate effects the Department of Commerce/OMB and Department of Defense memorandums will have on their supply chains. The memorandums both explicitly acknowledge the need for additional monitoring and scrutiny of federal contracts. The Department of Commerce and OMB memorandum outlines steps agencies should take to strengthen implementation of Buy American Laws. Until the Department of Defense issues their guidance, it will be safe to assume it will require strengthening implementation of the laws as well. As we’ve cautioned before, this means increased agency enforcement actions including monetary penalties, contract termination, and debarment from future contracts. Federal contractors will need to scrutinize their supply chains to ensure sub-tier contractors comply with Buy American Laws, fall within an exception, or are subject to an appropriate waiver.