Proposed FAR Rule Implements New Buy American Requirements
Last week, on July 28, 2021, the Biden Administration announced (here) that it would increase American-made content in federal procurement purchases and that it would bolster support for domestic production of products and services that are critical to national and economic security. Quickly thereafter, on July 30, 2021, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA), issued a proposed rule under the Federal Acquisition Regulation (FAR) intended to strengthen certain aspects of the Buy American Act.
The Buy American Act encourages acquisitions of domestic products and materials not by prohibiting foreign purchases, but instead by requiring agencies to implement a price preference when evaluating bids from offerors that use domestic end products and construction materials. The Buy American Act is implemented in FAR, which gives large businesses that use domestic supplies a 20 percent price preference and small businesses that use domestic supplies a 30 percent price preference. As for when supplies are considered domestic, FAR currently applies a two-part test. First, an end product or construction material must be manufactured in the U.S. Second, a certain percentage of all of the component parts must be mined, produced, or manufactured in the U.S. For an end product that does not consist wholly or predominantly of iron or steel or a combination of both, the cost of domestic components must exceed 55 percent of the cost of all components; the test is waived for acquisitions of commercially available off-the-shelf items. For an end product that consists wholly or predominantly of iron or steel or a combination of both, the cost of foreign iron and steel must constitute less than 5 percent of the cost of all the components.
Under the recently proposed rule, the domestic component threshold described above increases initially from 55% to 60%, then to 65% in two years, and then, five years later, to 75%. Suppliers should note that if they perform under a contract that spans the threshold increases, under the proposed rule, they will be required to increase the domestic content of their deliverables to meet any increased thresholds that apply in the years of delivery.
The proposed rule also provides for a “fallback threshold” until one year after the increase of the domestic content to 75%. During that initial time period, a former domestic content threshold may be accepted if end products or construction materials meeting a new threshold are not available or are of unacceptable cost.
As for pricing preferences, the proposed rule offers a framework through which higher price preferences are applied for end products and construction materials that are critical or that are made up of critical components and/or critical items, as identified in FAR in a newly added list of critical items and components.
Lastly, the proposed rule includes a new post-award reporting requirement mandating that contractors provide the specific domestic content of critical items, domestic end products containing a critical component, and domestic construction material containing a critical component.
Comments to the proposed rule are due by September 28, 2021. To read or obtain a copy of the proposed rule go here.
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