On Monday, July 15, President Donald J. Trump signed his latest Executive Order aimed at maximizing the use of American-made goods, products, and materials
in federal procurement. The new order directs the Federal Acquisition Regulatory (FAR) Council to consider strengthening standards applied to the 1933 Buy American Act (BAA),
which covers direct federal procurement of construction materials and supplies. Monday’s action came on the Presidentially-proclaimed “Made in America Day” and in conjunction with the third annual White House “Made in America Showcase.”
Potential Changes by FAR Council
The new order directs the FAR Council to “consider proposing for notice and public comment” several changes to existing BAA standards:
- A higher domestic content threshold for federal agency procurements subject to the 1933 BAA. Currently under the BAA, an end product is considered domestic if: (1) it is mined, produced or manufactured in the United States; and (2) the cost of its components mined, produced or manufactured in the United States exceed 50 percent of the cost of all components.
President Trump’s new order aims to increase the domestic component content threshold for American-made iron and steel from 50 to 95 percent and the threshold for all other products from 50 to 55 percent (and potentially to as high as 75 percent).
- A modification to the formula executive agencies must use when determining whether a bid or offered price of materials of domestic origin is unreasonable or inconsistent with the public interest. Currently under the BAA, a domestic bid will not be accepted if the lowest foreign bid is more than 6 percent less expensive than the domestic bid.
The President’s order contemplates a differential formula based on 30 percent (for small businesses) or 20 percent (for other than small businesses).
The new order directs the Secretary of Commerce and the Director of the Office of Management and Budget to work with the FAR Council, the Council of Economic Advisers and the Assistant to the President for Trade and Manufacturing Policy to submit a report to the President on other changes to the federal acquisition regulations that could better effectuate the Buy American Act. Among the input solicited by the President is whether to proceed with a graduated domestic content requirement for domestic products and construction materials (other than iron and steel) and the timing for such adjustments.
The existing standards described above were applied to the terms of the BAA via a 1954 Executive Order issued by President Dwight D. Eisenhower and subsequently implemented through the federal acquisition regulations. While Monday's Executive Order does not immediately amend the domestic component content and unreasonable price differential of the Eisenhower-era executive order, E.O. 10582, it sets the stage for potentially doing so.
Timing for Reforms
The order directs the FAR Council to contemplate, within 180 days, whether to propose regulatory changes to implement the President's proposed modifications to the BAA standards through notice and comment rulemaking. But the order is deferential to the FAR Council, stopping short of mandating that it proceed with the rulemaking to modify existing Buy American Act regulations and contract clauses.
While the order prescribes the time period during which the FAR Council can contemplate whether to proceed with a rulemaking to implement the President's recommendations, it does not appear to set deadlines for the publication of a proposed rule or the promulgation of a final rule. If a new rule is adopted, executive agencies would then be responsible for issuing new regulations to ensure that their procurement practices conform to any new standards.
Finally, it should be observed that a number of other federal statutes impact the application of the BAA and the federal acquisition regulations that implement it. For example, certain of these laws currently waive the BAA's domestic component content requirement for procurements of certain commercially-available items and procurements subject to U.S. trade agreement obligations. Those statutes will remain unchanged in the absence of Congressional action to amend those laws.
Monday’s Executive Order reaffirms President Trump’s commitment to improving and expanding the Buy American rules applicable to taxpayer-financed government procurement. Should the FAR Council proceed with a rulemaking to modify the federal acquisition regulations in accordance with the President’s directives, it would portend the most far reaching changes to the 1933 BAA in its 86 year history.
Manufacturers, federal contractors, subcontractors, suppliers and other interested parties should pay careful consideration to the FAR Council’s deliberations over the next 180 days and be prepared to engage in a notice and comment rulemaking process in anticipation that regulatory changes will be proposed. In light of President Trump’s clear support for Buy American policies, market participants should be prepared for additional presidential actions that could have an impact on capital investment decisions, supply chain management and marketing operations.
Previous Buy America Executive Orders
Monday’s action follows two previous Buy America-specific Executive Orders from the Trump Administration. The President’s April 2017 “Buy American, Hire American” Executive Order (E.O. 13788) was aimed at reducing the use of Buy American waivers by federal agencies. A subsequent order issued in January of this year (E.O. 13858) aimed to encourage federal–assistance recipients (such as state transportation agencies) to apply Buy America requirements on the public works infrastructure projects funded and financed by their federal financial assistance awards.
The FAR Council consists of the Administrator for Federal Procurement Policy as well as the Secretary of Defense, the Administrator of the National Aeronautics and Space Administration and the Administrator of the General Services Administration.