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Biden Administration Proposes Significant Increases to Buy American Domestic Content Requirements – Takeaways for Contractors and Subcontractors

On July 30, 2021, the Biden Administration published a Proposed Amendment to the Federal Acquisition Regulation (FAR) (Proposed Rule) that, among other things, would impose significantly increased U.S. content requirements for U.S. Government procurements when the Buy American Act of 1933 (BAA) applies. These increases follow a trend of tightening domestic content rules that started during the Trump Administration.

Contractors and subcontractors should analyze these proposed changes and assess the impact on contracts and supply chains. In this regard, companies need to continue to be mindful about which Made in America regime applies. For example, the new content requirements do not affect procurement when the Trade Agreements Act (TAA) applies. [1]

Below are key takeaways:

  1. Phased Domestic Content Increases up to 75 Percent for BAA Contracts. The domestic content threshold for end products and construction materials to qualify as U.S.-made would increase from 55 to 75 percent over a seven-year period. Further, contractors would have to comply with the content levels that apply during each year of their contracts.
  2. Enhanced Price Preferences and Reporting Requirements for “Critical Items” and “Critical Components” – Articles Deemed Critical to the U.S. Supply Chains. The Proposed Rule would create enhanced price preferences for “critical items and components,” which are items deemed critical to U.S. supply chains. It will be important to monitor the critical supply chain assessments by the Administration that may inform this list.
  3. Opportunity for Industry to Comment and Engage. Contractors and subcontractors should make use of the request for comments to engage and inform the government’s approach to enhanced Made in America requirements.

Context: Trend of More Restrictive Buy American Requirements
The Proposed Rule furthers a trend of strengthening domestic procurement requirements, following from the previous administration. The Trump Administration already made several significant changes to the Federal Acquisition Regulation implementing the BAA pursuant to Executive Order 13881, “Maximizing Use of American-Made Goods, Products, and Material” (discussed here). Specifically, that rule (1) increased the domestic content requirement for supplies and construction materials from 50 to 55 percent, (2) required that all end products “predominantly of iron or steel” (including commercial off-the-shelf (COTS) products) generally contain less than five percent foreign iron or steel, and (3) increased domestic price preference amounts (i.e., the percentage within which the price of a foreign product must be of the price of a competing domestic product to be eligible for purchase).

Just a week into his presidency, on January 28, 2021, President Biden issued Executive Order 14005, “Ensuring the Future Is Made in All of America by All of America’s Workers” signaling his Administration would build on the prior trend. In particular, the order established a new office within the Office of Management and Budget (“Made in America Director”) to provide additional oversight over all waivers being considered in federal Made in America laws. It also directed the government to consider additional FAR amendments that would (i) replace the existing “cost of component test” with a new test based on value added to the product through U.S.-based production or U.S. job-supporting economic activity, (ii) increase the numerical threshold for domestic content requirements, (iii) further increase price preferences, and (iv) review, revise or remove the current COTS exception for COTS information technology products from the restrictions of the BAA (as we discussed here). The current rule partially implements this order.

I. Phased Domestic Content Increases up to 75 Percent for BAA Contracts
The Proposed Rule would provide for a phased increase to the domestic content threshold from 55 percent to 75 percent over a period of seven years. Upon implementation of the rule, offerors would be required to meet a 60 percent threshold that will be increased to 65 percent for items delivered between 2024 to 2028, and 75 percent for items delivered starting in 2029:

Year Domestic Content Requirement
Current 55%
Date of Publication to 2023 60%
2024 to 2028 65%
2029 Onward 75%

Further, where a supplier’s contract spans the schedule of the threshold increase, the supplier would be required to comply with each increased threshold for items in the year of delivery. In other words, a supplier with a contract from 2027 to 2029 would generally have to comply with both the 65 percent requirement for products supplied in 2027 and 2028 and also the 75 percent requirement for products supplied in 2029.

In addition, the Proposed Rule provides for a temporary “fallback threshold” until 2030. This means that when end products or construction materials at the increased threshold (e.g., 60% in 2023) are either (a) not available or (b) of unacceptable cost, the government can accept products so long as they meet the previous domestic content threshold (55%). The intent is to limit foreign content while contractors transition to U.S.-based supply chains.

Note that neither the content increases nor fallback thresholds apply to products predominantly of iron or steel, which are already subject to a more restrictive standard—i.e., less than five percent foreign iron or steel, as discussed above.

II. Enhanced Price Preferences and Reporting Requirements for “Critical Items” and “Critical Components” – Articles Deemed Critical to the U.S. Supply Chains
The Proposed Rule would create enhanced price preference levels for “critical items” and “critical components.” The Proposed Rule defines “critical item” as “domestic construction material or domestic end product that is deemed critical to U.S. supply chain resiliency” and “critical components” as “a component that is mined, produced, or manufactured in the United States and deemed critical to the U.S. supply chain.”

A list of such articles would be identified in separate rulemakings, following a four-year Critical Supply Chain review initiated under President Biden’s Executive Order on America’s Supply Chains, the pandemic supply chain strategy called for under his Executive Order on a Substantiable Public Health Supply Chain, and a subsequent assessment by OMB. The Biden administration has undertaken multiple supply chain assessments as part of the Critical Supply Chain review, including 100-day reviews completed in June, and one-year reviews that are ongoing, all of which may inform this list. It is advisable to review and monitor these assessments to see which articles may be designated as “critical items” or containing “critical components.”

“Critical items” and “critical components” can trigger both (a) additional enhanced price preferences and also (b) additional disclosure requirements.

  • Price Preferences for Items and Components Deemed Critical to the U.S. Supply Chains. The Proposed Rule includes only a framework for price preferences. Identification of the specific products to be subject to an enhanced price preference and the level of the price preferences would be determined in a separate rulemaking. Accordingly, industry would be given an opportunity to comment.
  • New Post-Award Domestic Content Reporting Requirement for Contractors for “Critical Items” and “Critical Components.” The Proposed Rule also would create a new requirement for contractors supplying “critical items” or non-COTS items containing “critical components” to report directly to the OMB’s Made in America Office. Within 15 days after a contract is awarded, contractors would need to disclose the specific domestic content of critical items, domestic end products containing a critical component, and domestic construction material containing a critical component. The Proposed Rule suggests this reporting is intended to increase transparency into the actual domestic content of products sold and result in greater compliance with the BAA. The requirement would not be operational until the list of critical items and components is established after a separate rulemaking.

III. Opportunity for Industry to Comment and Engage
Companies can submit comments on the Proposed Rule until September 28, 2021. They can also provide their views in a virtual public meeting co-hosted by the Made in America Office and the FAR Council on August 26, 2021. In particular, the rule requests feedback on several questions related to the following subjects:

  • Increased Domestic Content Thresholds;
  • Fallback Threshold;
  • Price Preferences;
  • Enhanced Price Preferences;
  • Content Calculation;
  • Content Reporting;
  • Contracting with Small and Disadvantaged Businesses

For example, companies could comment on the potential costs of adjusting their supply chains in order to meet the increased domestic content requirements, and associated burdens. Contractors could also provide specific input as to what articles should be considered “critical,” as well as the potential burdens of the proposed content reporting requirements.

[1] The application of the TAA is prescribed in FAR Subpart 25.4 and includes, among other things, most supply or service contracts valued at $182,000 or more (or construction contracts valued at $7,008,000 or more) for companies from countries that are a party to the World Trade Organization’s Government Procurement Agreement (WTO GPA). The TAA also applies to nearly all purchases made under the GSA Schedule. The TAA, however, does not apply to small business set-aside contracts or many military and national security contracts.