Earlier this month, the U.S. Federal Acquisition Regulatory Council issued a final rule aimed at strengthening “Buy American” rules applicable to federal procurement.
The Buy American statute requires public agencies to procure articles, materials, and supplies that were mined, produced, or manufactured in the United States, substantially all from domestic components, subject to exceptions for non-availability or unreasonable cost of domestic products, and when it would otherwise not be in the public interest to buy domestic products. Additional exceptions have been added over time, such as where trade agreements apply, and for commissary resale, micro-purchases, and commercial information technology.
The final rule makes three significant changes to the FAR Council’s Buy American Act rules:
Increasing the Domestic Content Threshold: In the short term, the rule increases the domestic preference threshold for non-iron and steel products from 55% to 60%, effective October 25, 2022. Longer term, the domestic content threshold will increase to 65% starting in calendar year 2024, and ultimately to 75% beginning in calendar year 2029.
Allowing for a Lower Domestic Content Threshold in Certain Cases: The rule creates a “fallback threshold,” — available until calendar year 2030 — which allows an agency to use the prior 55% threshold for products or construction materials that are not available or are of an unreasonable cost.
Increasing Price Preference for “Critical Items” and “Critical Components”: The rule also creates a framework for applying a higher price preference for critical items and components — a list of which will be developed by the FAR Council through a future rulemaking — in accordance with EO 14017, America’s Supply Chains.
Waivers Among Outstanding Issues
No action is being taken at present with regards to a number of issues raised by President Biden’s Executive Order and contemplated by the rule proposed by the FAR Council last July, such as the commercial information technology acquisition exemption, the partial waiver for commercially-available off-the-shelf items, and the use of waivers to the Buy American statute in general. These issues remain to be addressed in future rulemakings though the FAR Council has not provided any timeline for this.
Why It Matters
Though these changes only are applicable to acquisitions subject to the Buy American Act (generally, those contracts valued under $183,000 for supplies or $7 million for construction), all contractors are encouraged to review and revise their supply chains to ensure compliance with the increased 60% domestic content threshold that takes effect beginning in 2022.
Contractors should also start looking at how best to ensure continued compliance with the Buy American rules as the thresholds increase over the next seven years. Violations of the Buy American Act can result in significant criminal and civil penalties.