Domestic preference rules are set to change again, as just recently (January 25, 2021), President Biden continued his series of first-week Executive Orders with a new Order on Ensuring the Future Is Made in All of America by All of America’s Workers. The new Executive Order is part of the Biden Administration’s Build Back Better Recovery Plan, and its purpose is to enhance Buy American policies primarily through the federal procurement process. To this end, the first Section of the President’s new law begins with the following overarching policy statement: “It is the policy of my Administration 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.”

The Executive Order touches Buy American policies under the Buy American Act (BAA) as well as other domestic preference regimes. Importantly, Section 3 of the Order directs federal agencies to “as soon as practicable and as appropriate and consistent with applicable law, including the Administrative Procedure Act, consider proposing any additional agency actions necessary to enforce the policy” set forth in Section 1. Specifically, with regard to the BAA, the law currently requires that agencies give preference to domestic materials and products when procuring goods and construction materials for the federal government.  The BAA generally applies, though there are myriad exceptions, when a procurement is intended for public use within the U.S. and the items to be procured in the U.S. are in sufficient and reasonably available quantities of a satisfactory quality. The goal of the new Executive Order is to strengthen the already-existing BAA requirements by closing what some consider to be loopholes in the domestic preference framework and by improving the way domestic content requirements are measured. Significant changes for federal contractors and federal award recipients are discussed below.

Changes to the FAR. Section 8 of the Executive Order requires the FAR Council to consider proposing FAR amendments aimed at: (i) replacing the “component test,” currently used to identify domestic end products and domestic construction materials, with a test where 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; (ii) increasing the numerical threshold for domestic content requirements for end products and construction materials; and (iii) increasing the price preferences for domestic end products and construction materials.

The FAR Council already started making some movement in this area last week when it published a final rule (86 Fed. Reg. 6180, Jan. 19, 2021) to implement Executive Order 13881, Maximizing Use of American-Made Goods, Products, and Materials (84 Fed. Reg. 34257, July 18, 2019). Under the final rule, in order to meet the BAA definition of “domestic end product” or “domestic construction material,” the cost of foreign iron and steel for iron and steel products must be less than 5 percent of the cost of all components in the product. For all other types of non-iron and non-steel products, the domestic content of such products must exceed 55 percent of the cost of all components. The final rule also increases the price preference for offerors proposing to use domestic end products and domestic construction material from 6 percent to 20 percent for large businesses, and from 12 percent to 30 percent for small businesses. The rule went into effect on January 21, 2021, and the FAR changes apply to solicitations issued on or after February 22, 2021 and the resultant contracts. Based on the recent final rule, and the January 25, 2021 Executive Order, government contractors should evaluate their compliance with these requirements going forward to ensure compliance. Note that additional FAR changes are expected in the next 180 days.

Commercial item IT procurements. Section 10 of the Executive Order also directs the FAR Council to promptly review existing constraints on the extension of Made in America Laws to commercial item information technology procurements and to develop recommendations for lifting these constraints. As relevant here, FAR Part 25 currently states that “the restriction on purchasing foreign end products does not apply to the acquisition of information technology that is a commercial item.” FAR § 25.103(e). Any changes to the current exception could have major implications for commercial IT contractors and subcontractors.

Buy American Act waivers. Section 4 of the Executive Order discusses BAA waivers and states that before an agency may grant a waiver, the agency must submit to the new Director of Made in America a description of its proposed waiver with a detailed justification for the use of goods, products, or materials that were not mined, produced, or manufactured in the U.S. Prior to approval, the waivers and justifications will be publicly posted on a new website that will allow American manufacturers and other companies to have insight into the government’s need for their capabilities. The public website also will allow American companies to identify proposed waivers and check whether they have been granted. Given the Executive Order’s emphasis that waivers will be granted only in limited circumstances (e.g., national security, humanitarian, or emergency needs), contractors that rely on foreign suppliers in connection with procurements covered by the BAA should begin to consider the law’s potential impacts on the goods they offer for sale to the government.

Made in America Office, Director. For purposes of coordination across the federal government, the Executive Order establishes within the White House Office of Management and Budget (OMB) a Made in America Office, which will be overseen by the new OMB senior official called the Director of Made in America. The Director will specifically oversee the Biden Administration’s all-of-government Made in America initiative. Additional information is likely to follow on the selection of the new Made in America Official and the specific efforts that will drive the new Made in America policy initiative. Contractors should expect coordinated oversight and enforcement activities coming out of this new Office.

Domestic supply chain partnerships. In Section 7, the Executive Order encourages agencies to partner with the Manufacturing Extension Partnership (MEP), a national network discussed in the Manufacturing Extension Partnership Improvement Act (Title V, Pub. L. No. 114-329), to help connect the federal government with new domestic suppliers across the U.S. The anticipated increased participation of domestic suppliers in the government supply chain means that contractors in affected industries should begin to identify potential domestic partners for upcoming federal opportunities.

Prior Executive Orders revoked. Finally, under Section 14, the following under prior Executive Orders issued in the last Administration are revoked:   

• Executive Order 13788 of April 18, 2017 (Buy American and Hire American);
• Section 5 of Executive Order 13858 of January 31, 2019 (Strengthening Buy-American Preferences for Infrastructure Projects); and
• Executive Order 13975 of January 14, 2021 (Encouraging Buy American Policies for the United States Postal Service).

Considering these significant changes, contractors should continue to watch closely for the FAR and DFARS rules that will implement new domestic preference rules, consider submitting comments during the public review and comment period, and get an early start on identifying any potential compliance and supply chain issues. Contractors also likely will need to revisit their current policies and procedures regarding domestic preference requirements and determine whether updates based on changes and/or implementation of the prior Executive Orders are warranted.