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Client Alert: Proposed FAR Amendment Strengthens Domestic Preferences Under the Buy American Act

The U.S. Department of Defense (DOD), the National Aeronautics and Space Administration (NASA), and the U.S. General Services Administration (GSA) proposed to amend the Federal Acquisition Regulation (FAR) to enforce Executive Order 13881, which seeks to strengthen domestic preferences in government procurements.  Once final, the rule will amend current FAR provisions implementing the Buy American Act (BAA).

Where applicable, the BAA “restricts the purchase of supplies that are not domestic end products.”  FAR 25.101(a).  To qualify as a “domestic end product,” (1) the product must be domestically manufactured, and (2) the cost of the product’s domestic components must exceed 50 percent of the cost of all components.  Id.  Since 2009, the government has not applied the domestic content test to commercially available off-the-shelf (COTS) products that were manufactured in the United States.  FAR 25.101(a)(2).

Currently, the BAA provides an exemption where the contracting officer determines that the cost of the domestic end product is unreasonable.  FAR 25.103(c).  The price of the domestic offer is deemed reasonable “if it does not exceed the evaluated price of the low offer after addition of the appropriate evaluation factor.”  FAR 25.105(c).  For civilian agencies, the baseline “evaluation factor” added to the price of the lowest domestic offer is 6% if the domestic offer is from a large business and 12% if the lowest domestic offer is from a small business.  DOD applies a 50% evaluation factor regardless of whether the lowest domestic offer is from a small or large business.  DFARS 225.105.

The proposed rule would make the following changes:

  • For iron and steel products, rather than assess the cost of the product’s domestic components, the Government would instead assess the overall percentage of domestic components measured by the offeror’s good faith estimate of the percentage of the product’s domestic iron and steel content. Under the new rule, at least 95 percent of the components of iron and steel products must be domestic.  Iron and steel products must also be domestically manufactured.
  • The domestic content test will apply to iron and steel COTS products, except for fasteners (g., nuts, bolts, screws, nails), reversing the prior waiver of the domestic content test for this subset of COTS products. The FAR Council reasoned this change was necessary to give effect to E.O. 13881, but due to the relatively small size of fasteners, tracking the origin of their components would be too burdensome. 
  • For all other products, the domestic content cost requirement is increased from 50 percent to 55 percent.
  • The evaluation factor used to assess the reasonableness of the cost of domestic end products is increased from 6 to 20 percent for large businesses and from 12 percent to 30 percent for small businesses. DOD’s current 50 percent price preference remains unchanged.

The changes in the proposed amendment are sure to have a significant compliance impact for companies providing goods to the federal government.  Public comment on the proposed rule will be accepted until November 13, 2020.

Smith Pachter McWhorter will continue to monitor the proposed amendments to the FAR and provide additional guidance as it becomes available.  We are available to answer any questions on the Buy American Act and other domestic preference laws.

Authors:

Armani Vadiee
avadiee@smithpachter.com 

Elizabeth N. Jochum
ejochum@smithpachter.com 

Zachary D. Prince
zprince@smithpachter.com 

Jessica L. Nejberger
jnejberger@smithpachter.com 

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