The U.S. Department of Defense (DoD), U.S. General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) issued a final rule, which generally adopts the Trump Administration's July 2019 Executive Order on "Maximizing Use of American-Made Goods, Products, and Materials." The final rule makes a few noteworthy modifications to the Buy American Act (BAA) rules.
First, under the rule, the Federal Acquisition Regulatory (FAR) Council increased price evaluation preferences. While the BAA does not prohibit agencies from purchasing foreign end products or using foreign construction material, it encourages the use of domestic end products and construction material by imposing a price preference for domestic end products and construction material. The final rule increases the price evaluation preferences to 20 percent from 6 percent for large businesses and to 30 percent from 12 percent for small businesses – while the price preference for DoD procurements remains unchanged at 50 percent for both large and small businesses. These heightened price evaluation preferences create a marked competitive advantage for contractors offering domestic end products covered by the BAA.
Second, the final rule significantly increases the required domestic content that an end product for steel or iron products must have. Specifically, the domestic content requirement for iron and steel increases from 50 percent to 95 percent. This means that to qualify as a domestic steel or iron product, the cost of foreign iron and steel must be less than 5 percent of the cost of all components in the product.
The final rule provides the following three step test to determine whether, a product consists wholly or predominantly of iron or steel or a combination of both, is foreign or domestic.
- Does the product consist wholly or "predominantly of iron or steel or a combination of both" (as defined in FAR 25.003)?
- Is any of the iron or steel content not produced in the United States?
- Based on a good-faith effort, is the cost of foreign iron or steel mill products (such as bar, billet, slab, wire, plate or sheet), castings or forgings utilized in the manufacture of the end product, (excluding Commercial Off-the-Shelf (COTS) fasteners), less than 5 percent of the cost of all the components used in the end product (or construction material)?
If the product contains multiple components, the cost is to be calculated consistent with the definition of "cost of components" at FAR 25.003, which provides either that (a) "[f]or components purchased by the contractor, the acquisition cost, including transportation costs to the place of incorporation into the end product or construction material (whether or not such costs are paid to a domestic firm), and any applicable duty (whether or not a duty-free entry certificate is issued)"; or (b) "[f]or components manufactured by the contractor, all costs associated with the manufacture of the component, including transportation costs as described in paragraph (1) of this definition, plus allocable overhead costs, but excluding profit. Cost of components does not include any costs associated with the manufacture of the end product."
Third, the final rule also increases the required domestic content for other end products (i.e., those products that are not steel or iron) and construction materials, to 55 percent from 50 percent.
The final rule does not change the applicability of existing provisions or clauses to contracts at or below the simplified acquisition threshold and contracts for the acquisition of commercial items, including COTS items.
This new rule coupled with the executive order signed by President Joe Biden on Jan. 25, 2021, will continue to emphasize the domestic sourcing of end products. Contractors should continue to monitor this space for further developments and for our next installment, which will provide analysis and an overview of Biden's order.
Originally Published by Holland & Knight, January 2021
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