Publications & Events
Client Alert
Alert

President Biden Issues “Buy American” Executive Order, Following Last-Minute Changes by Trump Administration

On January 25, President Biden signed an Executive Order that contemplates increasing the domestic content thresholds and price preferences for domestic goods under the Buy American Act ("BAA," 41 U.S.C. §§ 8301-8305).1  The Order follows the Federal Acquisition Regulatory Council's issuance of a final rule on January 19 (the Trump administration's last full day in office) that increased the domestic content thresholds and price preferences under the BAA pursuant to a July 2019 Executive Order issued by President Trump.2  President Biden's Order directs the FAR Council to "consider" proposing further increases, along with changes to the methodology used to measure domestic content under the BAA.  The Order also establishes a new, centralized process aimed at minimizing federal agencies' use of the waivers and exceptions authorized by the BAA, and by other statutes that require or give preference to the use of domestic content in federal procurement.  These changes are intended to advance the Biden administration's policy to utilize "the full force of current domestic preferences to support America's workers and businesses[.]"  

We provide an overview of the Order below.

 

Policy and Scope

The Order establishes the Biden Administration's policy "that the United States Government should, consistent with applicable law, use terms and conditions of Federal financial assistance awards and Federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States."  Certain provisions of the Order relate specifically to the calculation of domestic content and price preferences for domestic goods under the BAA, which requires federal agencies to purchase "domestic end products" and use "domestic construction materials," subject to various exceptions.  Other directives set forth in the Order, including the new waiver review process, apply more broadly to "all statutes, regulations, rules, and Executive Orders relating to Federal financial assistance awards or Federal procurement, including those that refer to ‘Buy America' or ‘Buy American,' that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods offered in the United States."  Such statutes would include the various "Buy America" laws (e.g., 49 U.S.C. § 5323(j) and 23 U.S.C. § 313) that require the use of domestic content in certain federally funded infrastructure projects.  The Order also specifies that such statutes "include laws requiring domestic preference for maritime transport, including the Merchant Marine Act of 1920 (Public Law 66-261), also known as the Jones Act."  The Jones Act generally prohibits foreign-flag, foreign-constructed, foreign-owned, or foreign-crewed vessels from engaging in "Coastwise Trade" (i.e., from carrying goods from one U.S. port to another U.S. port).3

 

Changes to Domestic Content Threshold and Price Preferences Under the Buy American Act

Section 8 of the Executive Order concerns the Buy American Act only, whose requirements, exceptions, and benefits can differ from those of other government-procurement rules.  For example, waivers under the Trade Agreements Act ("TAA"), 19 U.S.C. § 2511 and 48 C.F.R. §§ 25.400 through 25.408, can limit Buy American Act's applicability by requiring equal treatment of U.S. and foreign inputs when the procurement uses materials from a country that has signed a relevant trade agreement with the United States, is by a governmental unit that the agreement positively lists and does not expressly exclude, is sufficiently high in value (because agreements sometimes exclude procurements below monetary thresholds), and involves supplies or services that the agreement does not expressly exclude.  But importantly, the TAA does not affect the applicability of certain other statutes to other procurements.  Moreover, country-of-origin rules for government procurement purposes differ from country-of-origin rules for purposes of determining ordinarily, preferential, and trade-remedies duties, as well as for evaluating "Made in USA" claims that the Federal Trade Commission oversees.  To determine whether the following rules might affect a particular procurement, therefore, contractors must carefully examine the granting agency, the project's nature, the statutory source of the funds, the country from which any foreign inputs used in the project originate, and the like.  

Section 8 of the Executive Order provides that, by July 24, 2021, the FAR Council "shall consider" proposing for notice and public comment amendments to the applicable provisions in the Federal Acquisition Regulation ("FAR," Title 48 C.F.R), "consistent with applicable law," that would do the following:

  • Replace the current cost-based "component test" with a value-based methodology.  The FAR currently uses a two-part test to define a "domestic end product" or "domestic construction material" for purposes of the BAA.4  The first part of the test considers whether the good was "manufactured in the United States[.]"  The second part of the test, referred to in the FAR as the "component test," considers whether the cost of the good's components mined, produced, or manufactured in the United States exceeds a specified percentage of the cost of all of the good's components.  President Biden's Order directs the FAR Council to consider proposing regulations that would replace the current component test with a new test "under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity," rather than cost.
  • Increase domestic content thresholds.  The FAR Council's January 19 Final Rule increased the domestic content threshold5 for most "domestic end products" and "domestic construction materials" to 55% of the cost of all components, from the previous level of 50%.6  The Final Rule also established a new, higher threshold for iron and steel products, providing that, to meet the definition of a "domestic end product" or "domestic construction material," the cost of foreign iron and steel must constitute "less than 5 percent of the cost of all the components used" in the end product or construction material.7  These increases were adopted pursuant to President Trump's Executive Order of July 2019.  President Biden's Order directs the FAR Council to consider proposing regulations that would further "[i]ncrease the numerical threshold for domestic content requirements for end products and construction materials," though it does not specify any target percentages.
  • Increase the price preferences for domestic goods.  The BAA does not prohibit federal agencies from purchasing foreign end products or using foreign construction materials. Instead, it encourages the use of domestic end products and construction materials by imposing a "price preference" for such goods, applied when the procuring agency assesses the "reasonableness" of the cost of domestic offers.8  Where a domestic offer is not the "low offer," the price preference is applied by adding a specified percentage to the price of the foreign low offer, inclusive of duty.9 Previously, the FAR provided a price preference of 6 percent (where the lowest domestic offer was from a large business concern) or 12 percent (where the lowest domestic offer was from a small business concern).  However, the FAR Council's January 19 Final Rule increased the price preference to 20 percent for large businesses and 30 percent for small businesses.10 President Biden's Order directs the FAR Council to consider proposing regulations that would further "increase the price preferences for domestic end products and domestic construction materials," but does not specify any target percentages.  

The Order does not require the FAR Council to adopt any of the changes proposed above.  The Order provides that the FAR Council "shall consider and evaluate public comments on any regulations proposed" and "shall promptly issue a final rule, if appropriate and consistent with applicable law and the national security interests of the United States."  

The Order does not rescind or reference the FAR Council's January 19 Final Rule, which took effect on January 21 and applies to solicitations issued on or after February 22, 2021 and resultant contracts.  Moreover, the Final Rule does not appear to have been revoked or delayed by the Biden administration's "regulatory freeze" Memorandum of January 20, which directed federal agencies to "consider" postponing the effective dates of "rules that have been published in the Federal Register, or rules that have been issued in any manner, but have not taken effect," for the purpose of reviewing any questions of fact, law, and policy the rules may raise.11  At this stage, there is not yet a clear indication that the Biden administration will, in accordance with the Memorandum, postpone or reconsider the application of the Final Rule.  Thus, the amendments provided for in the Final Rule will likely become applicable on February 22, and the FAR Council will likely consider proposing further revisions of the FAR in line with President Biden's Order.

 

"Updating and Centralizing" Waiver Processes 

As mentioned above, several procurement statutes covered by the Order contain waiver provisions that allow agencies to deviate from the requirement to purchase or give preference to domestic goods.  For example, the BAA and its implementing regulations identify several circumstances in which an agency may purchase foreign end products, or permit the use of foreign construction materials (e.g., where the procurement of domestic goods or the use of domestic construction materials would be "impracticable" or "inconsistent with the public interest";12 or where such goods are unavailable "in sufficient and reasonably available commercial quantities and of a satisfactory quality[.]"13  Certain "Buy America" statutes applicable to infrastructure projects provide for similar waivers, including where consistent with the "public interest," where the materials are not produced in the United States in sufficient quantities or of a satisfactory quality, or where the inclusion of domestic materials will raise the cost of the overall project by more than 25%.14

President Biden's Order mandates the establishment of a new "Made in America Office" within the Office of Management and Budget ("OMB") that will review proposed agency decisions to grant waivers from the Buy American Act and the other procurement statutes covered by the Order.  Under the new, "centralized" process established by the Order, an agency must provide the Director of the Made in America Office with a description of any proposed waiver and "a detailed justification for the use of goods, products, or materials that have not been mined, produced, or manufactured in the United States."  The Director may then review (or decline to review) the submission to determine whether issuing the proposed waiver "would be consistent with applicable law" and with the Biden administration's policy "to maximize the use of goods, products, and materials produced in, and services offered in, the United States."  

A negative determination by the "Made in America Director" would not necessarily preclude the issuance of a waiver.  Rather, in the event of a negative determination, the proposed waiver will be returned to the head of the relevant agency "for further consideration."  In the event that there are "disagreements or conflicts between the Made in America Director and the head of any agency" regarding a proposed waiver, the administration will resolve such conflicts "in accordance with procedures" set forth in Executive Order 12866 of September 30, 1993.  Those procedures provide that, where the Administrator of the OMB's Office of Information and Regulatory Affairs cannot resolve a disagreement between OMB and any agency, it shall be resolved "by the President, or by the Vice President acting at the request of the President[.]"

 

Other Requirements

Section 5 of the Order contains additional language aimed at discouraging the use of public interest waivers to procure products that benefit from alleged unfair trade practices.  Section 5 states that, "[t]o the extent permitted by law, before granting a waiver in the public interest, the relevant granting agency shall assess whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods."  The granting agency "shall integrate any findings from the assessment into its waiver determination as appropriate."  However, this requirement is unlikely to have any substantive impact, as federal agencies already face a nearly-identical requirement pursuant to President Trump's "Buy American, Hire American" Executive Order of April 18, 2017.15

Other provisions of President Biden's Order seek further to limit the use of waivers and exceptions.  For example, Section 9 would enhance scrutiny of any additions to the list of domestically nonavailable articles set forth in section 25.104(a) of the FAR and would thus provide that any proposed updates to the list must be reviewed in advance "in consultation with the Secretary of Commerce and the Made in America Director[.]"  Section 10 directs the FAR Council to review the existing constraints in the FAR "on the extension of the requirements in Made in America Laws to information technology that is a commercial item," and to develop recommendations for lifting those constraints.16

 

Outlook

Though President Biden's Order will have little immediate effect, it sets the stage for potentially significant changes to the U.S. government's implementation and enforcement of the Buy American Act.  The Order contemplates not only the further increase of domestic content thresholds and price preferences (on top of the recent increases), but also a potential overhaul of the methodology for assessing domestic content. Depending on the extent of any such changes, they may force some companies to alter their sourcing and manufacturing practices to continue benefiting from domestic preferences under the BAA.  Signaling more stringent enforcement of the BAA and similar statues going forward, the Biden administration has also made clear that the purpose of its new waiver review process is to "crack down on unnecessary waivers."     

On the other hand, the Order makes clear that its directives are to be implemented "consistent with applicable law," and some applicable statutes will limit the Order's reach.  As mentioned above, applicable law here would include the Trade Agreements Act, which in certain circumstances can limit the Buy American Act's applicability by requiring US government procurements to treat as if they were domestic those materials originating in a country with which the United States has a covered trade agreement (e.g., the WTO Government Procurement Agreement (GPA)) or a free trade agreement).  

During the 2020 campaign, President Biden suggested that he would renegotiate existing trade agreements to facilitate an expansion of Buy American preferences, pledging that he would "work with allies to modernize international trade rules and associated domestic regulations regarding government procurement to make sure that the U.S. and allies can use their own taxpayer dollars to spur investment in their own countries."  The Executive Order does not mention this plan.  However, the Order does require federal agencies to prepare new bi-annual reports assessing, among other things "spending as a result of waivers issued pursuant to the Trade Agreements Act…separated by country of origin," indicating that the administration intends to further study the issue.  

 

The Order can be viewed here.

 

1 Ensuring the Future Is Made in All of America by All of America's Workers, Executive Order 14005, January 25, 2021 (86 Fed. Reg. 7475).
2 Federal Acquisition Regulation: Maximizing Use of American-Made Goods, Products, and Materials, Department of Defense, General Services Administration, and National Aeronautics and Space Administration,
January 19, 2021 (86 Fed. Reg. 6180). This rule implements President Trump's Executive Order 13881 of July 15, 2019 on Maximizing Use of American-Made Goods, Products, and Materials.
3 46 U.S.C. §§ 861-889.
4 48 C.F.R. §§ 25.003 and 25.101(a). The FAR Council's January 19 Final Rule renamed the "component test," which is now described in the FAR as the "domestic content test," though the methodology remains the same.
5 This term refers to the percentage of domestic content required to satisfy the component test.
6 48 C.F.R. § 25.003, 25.101(a)(2)(i), and 25.201(a)(2)(i).
7 48 C.F.R. § 25.003, 25.101(a)(2)(ii), and 25.201(a)(2)(ii).
8 48 C.F.R. § 25.105.
9 48 C.F.R. § 25.105(b).
10 48 C.F.R. § 25.105(b)(1) and (2).
11 Memorandum from Ronald A. Klain, Assistant to the President and Chief of Staff, for the Heads of Executive Departments and Agencies on Regulatory Freeze Pending Review, January 20, 2021 (86 Fed. Reg. 7424).
12 41 U.S.C. §8302(a)(1); 41 U.S.C. §8303(b)(3); 48 C.F.R. §25.103(a); 48 C.F.R. §25.202(a)(1).
13 41 U.S.C. §8302(a)(2)(B); 41 U.S.C. §8303(b)(1)(B); 48 C.F.R. §25.103(b); 48 C.F.R. §25.202(a)(2).
14 22 U.S.C. § 313(b).
15 Buy American and Hire American, Executive Order No. 13788, April 18, 2017 (82 Fed. Reg. 18837) at Sec.4(c).
16 Such constraints are set forth in 48 C.F.R. §25.103(e) (supplies) and 48 C.F.R. §25.202(a)(4) (construction materials).

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP