In recent weeks, federal agencies have taken measures to implement the president’s directives to maximize the use of American-made products in both federal procurement and non-federal projects undertaken with federal grants. On September 14, the Federal Acquisition Council (FAR Council) published, for public comment, a long-overdue proposed rule that would increase domestic content requirements and price preferences for domestic products. Earlier, in August, the Office of Management and Budget (OMB) issued new guidance for federal financial assistance awards that imposes a “soft” Buy American preference on state infrastructure projects. This post examines both measures.
Since the beginning of his term, President Trump has made Buy American directives a centerpiece of his America First policy. He began with a proposal to impose Buy American requirements on pipelines constructed in the United States. That prompted fierce criticism from industry representatives and trading parties: imposing mandates for American-made iron and steel on private commercial projects would be unprecedented and violate fundamental principles of the WTO and U.S. trade agreements. That proposed action “never materialized.” However, agencies are actively implementing measures to increase Buy American requirements in federal procurement and federally funded projects.
Proposed Rule to Maximize Domestic Content: In a July 2019 executive order, the president directed federal agencies to consider revisions of the Federal Acquisition Regulation (FAR) to reduce the amount of foreign content that can be included in a product in order for it to be considered American-made and to increases significantly the price preferences applied to foreign products under the Buy American Act of 1933, except for the 50 percent price preference applied to Department of Defense procurement. The agencies were directed to propose a revision of the FAR by mid-January 2020.
In a Federal Register notice, published in mid-September, the FAR Council proposed two sets of amendments to the FAR to implement the president’s directives. One will reduce the amount of foreign content in a product (expanded to include construction material) for it to be considered domestic. Under the proposed rule, products will be considered of foreign origin where: (i) for iron and steel end products, the cost of foreign iron and steel used in such products constitutes five percent or more of the cost of all the components; and (ii) for all other products, the cost of the foreign components used in such products constitutes 45 percent or more of the cost of all the components. The FAR currently provides that a product with foreign components that constitute 50 percent or more of the product is considered of foreign origin; it has no separate test for iron and steel products.
The second revision of the FAR would increase the price preferences applied to foreign products from six percent to 20 percent for large businesses and from 12 percent to 30 percent for small businesses.
The FAR Council set a deadline of November 13, 2020 for public comments on the proposed revisions, after which it will prepare the final rule. It is seeking feedback on whether the manufacturer or reseller currently meets the proposed domestic content requirement; if not, whether it would make the adjustments needed in its supply chain to meet the new requirement and the costs of such adjustments; and whether the increased preference would likely offset the costs.
The Council is also seeking comments on the president’s directive that agencies consider the ‘‘feasibility and desirability’’ of further decreases in the threshold percentage of foreign content allowed for an end product other than iron or steel to be considered domestic from the 45 percent proposed in the rule to 25 percent.
OMB State Guidance: In a January 2019 executive order, the president directed federal departments and agencies that provide financial assistance for infrastructure projects to “encourage” recipients of such assistance to use U.S.-produced iron and aluminum and manufactured products “to the greatest extent practicable” in the projects. Citing both that order and the president’s 2017 Buy American and Hire American order, OMB added a “soft” preference for states and local governments receiving federal financial assistance for infrastructure projects in its updated Guidancefor Grants and Agreements. The new Domestic Preferences for Procurements provision (2 CFR 200.322) provides: “As appropriate and to the extent consistent with law, the non-Federal entity should, to the greatest extent practicable under a Federal award, provide a preference for the purchase, acquisition, or use of goods, products, or materials produced in the United States.”
The products covered by this preference include iron, aluminum, steel, cement and other manufactured products. For iron and steel products, “all manufacturing processes, from the initial melting stage through the application of coatings” must take place in the U.S. Manufactured products, as used in the Guidance, is broadly defined as “items and construction materials composed in whole or in part of nonferrous metals such as aluminum; plastics and polymer-based products such as polyvinyl chloride pipe; aggregates such as concrete; glass, including optical fiber; and lumber.” The OMB guidance, which was issued as a proposal in January, becomes effective on November 12, 2020.
Jean Heilman Grier
Sept. 16, 2020