Buy American Act (BAA Compliance) Frequently Asked Questions

Act quickly if you are under investigation or worried about violating Buy American Act compliance requirements.

Theodore P Watson, Esq – Practice Leader

This section is only written to provide information to small businesses and larger federal government contractors regarding common issues and questions raised about the Buy American Act. If you happen to be under investigation or charged with False Claims Act violations due to the Buy American Act violations, contact a BAA construction attorney for immediate help. We represent small businesses, large DOD contractors, manufacturers (local and overseas) and prime and subcontractors doing business with the federal government.

The following are some of the most frequently asked questions regarding the Buy American Act.

What is the Buy American Act (BAA)? What is BAA Compliance?

BAA Compliance is a requirement imposed on federally funded procurements to prioritize the use of domestic end products over foreign-made items. It serves as a form of economic protectionism and is designed to support American businesses, creating jobs and providing economic benefits to the United States.

BAA Compliance requires that certain items used in government contracting projects must be produced within the country, either by an American manufacturer or sometimes with parts produced in the United States. Government contracts may include specific language granting preference for domestic supplies, materials or products. Contractors must certify that their products are BAA compliant. Failure, even if by mistake, can lead to civil and criminal investigations.

The Buy American Act (BAA) of 1933 was originally created to protect American industry during the Great Depression. The idea was to stimulate employment in the USA and investment in industries within the US while protecting them from foreign competition. All Federal government agencies must adhere to this act when conducting procurements; however,  BAA waivers may be granted if competitive sourcing successfully discovers domestic sources unable to meet certain requirements for cost, quality or availability. Corporations that wish to bid on federal government contracts must take a stand with regard to BAA compliance and ensure they can supply domestically manufactured goods when necessary for government projects.

In sum, the Buy American Act regulates how federal agencies purchase “foreign” goods as it relates to public construction projects. In other words, federal government contracting agencies can only purchase “.. unmanufactured articles, materials, and supplies that have been mined or produced in the United States, and only manufactured articles, materials, and supplies that are manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured in the United States.

The Buy American Act, under 41 USC 83, applies to the purchase and acquisition of supplies (i.e., domestic end products) and construction materials. There is an overarching preference to buy products made in the United States and also to keep jobs within the US.

Buy American Act Exceptions

The Buy American Act (BAA) requires federal agencies to purchase products that are manufactured in the US. However, there are certain exceptions to this rule. For example, if a product is not available domestically or if it would be significantly more expensive than an imported product, then a Buy American Act exception may be granted. Additionally, if foreign-made goods have been substantially transformed into new and different articles of commerce with a distinct name, character and use than those from which they were originally derived, then these items may also qualify for an exemption from the BAA.

In order to remain compliant with the BAA, organizations must ensure that any purchases meet all BAA requirements established by both federal agencies and their clients. They must also document any exceptions to the BAA, including any foreign-made goods that have been substantially transformed into new products. By following these regulations, organizations can ensure they remain compliant with the Buy American Act and avoid any potential penalties or other issues that may arise from non-compliance.

Government contractors and manufacturers must be aware of the rules and regulations surrounding BAA compliance in order to remain in compliance with federal law. They must take steps to document any exceptions to the BAA, as well as any foreign-made goods that have been substantially transformed into new products. With proper planning and understanding of the law, organizations can remain compliant with the Buy American Act and avoid any potential civil and criminal penalties that may arise from non-compliance.

What is “Substantially Transformed” under the Buy American Act?

To meet the overall goal of domestic preferences under the Buy American Act (BAA), a product must be “substantially transformed” in the United States to qualify for BAA compliance. To determine if an item is substantially transformed, U.S. Customs and Border Protection (CBP) looks at two criteria: the manufacturing process of the article and its origin.

The manufacturing process criterion requires that a major transformation take place within the U.S., such as changing the form, fit or function of an article through processing or assembly operations. The origin criterion requires that all significant parts and/or components comply with applicable BAA provisions, which may include being manufactured domestically, purchased from an eligible foreign country, or produced from domestic materials under certain conditions. If you are a Federal Contractor doing business with the federal government, consider retaining a BAA compliance attorney to help increase your chances of becoming BAA compliant.

In order for an item to be considered substantially transformed under the BAA, both criteria must be met. If either criterion fails, the item is deemed not to be substantially transformed and therefore not compliant with the Buy American Act. It is important to note that even if an article has some U.S.-made parts or components, it will not necessarily meet BAA compliance requirements if it does not also meet the substantial transformation requirement. Consequently, companies should carefully consider how their products are made to ensure they meet the necessary criteria for BAA compliance.

What Constitutes Construction Materials Under the Buy American Act? 48 CFR 25.003

The BAA statute, as a general rule, also requires that every construction contract for any public building or public work include a contract clause that requires the prime contractor (and ultimately their subcontractors and suppliers) to procure or acquire domestic construction materials. See 48 CFR 25.003

The definition of “construction materials” would normally include any “article, material, or supply brought to the public construction site by a contractor or subcontractor for incorporation into [a] building or work,” including items brought to the site preassembled from articles, materials, or supplies. See also 48 CFR. 25.003 (definition of “construction material”).

Tip: Note that “emergency life safety systems” (e.g., emergency lighting, fire alarms) that are discrete systems that are incorporated into a public building or work and are produced as complete systems, are evaluated as single and discrete construction material regardless of when or how the individual parts or components are delivered to the construction site.

• Materials purchased directly by the government and not through a prime contractor for construction projects are treated as supplies, not construction materials.

Does the Buy American Act Apply to Leasing?

Although the Buy American Act would apply to leasing supplies that are foreign in nature. In the case of Postmaster General, B-156082 (July 20, 1966) it was found that it would not make sense to prohibit the purchase of foreign-made products but allow construction. companies and suppliers to lease the same supplies and products. If in doubt, always ask your contracting officer.

How to Get Buy American Act Waiver Under the FAR?

The Federal Acquisition Regulation (FAR) provides a method for federal contractors to get a waiver of the Buy American Act (BAA). This means that government contractors may purchase products from foreign sources if they can demonstrate that it is in the public’s best interest and there are no domestic suppliers available. To obtain a BAA Waiver, the following steps must be taken:

1. Submit an application to your contracting agency containing all relevant information needed to assess the request, such as the proposed source of supply, estimated cost savings, and technical requirements.

2. Once received, the contracting agency will review your application and determine whether or not it meets all applicable criteria for granting a waiver. The decision will depend on factors such as the availability of domestic sources, cost savings, and other factors.

3. If approved, the contracting agency will submit a request to their respective Office of Federal Procurement Policy (OFPP) seeking approval of the BAA Waiver.

4. The OFPP will review the application and make a recommendation on whether or not to grant a waiver.

5. Once a decision is made by the OFPP, it must be communicated to both the contractor and their contracting agency for implementation.

By following these guidelines when applying for a Buy American Act waiver under the FAR, federal contractors can ensure that they are in full compliance with all applicable laws and regulations pertaining to federal contracting activities.

When federal government procurements are not covered by trade agreements (which by its nature creates a waiver to the Buy American Act requirements), the contracting agency may issue a waiver if:

•  using U.S. products is impractical or inconsistent with the public interest; or
• the specific product is not mined, produced, or manufactured in the U.S. in sufficient and reasonably available commercial quantities of a satisfactory quality; or
• the use a domestic product would lead to an unreasonable increase of the total cost of the project.

Tip: When selling construction materials to the federal government, it is up to you the contractor to seek a waiver. There are situations where waivers have been issued after the contract award. However, do not count on post-ward BAA construction waivers. See more on Buy American Act Exceptions.

How do the terms ‘public building’, ‘public use’, and ‘public work’ apply to the Buy American Act?

Under 41 USC 8301 (1) (“The terms‘ public building’, ‘public use’, and. ‘public work’ means a public building of, use by, and public work of, the Federal Government, the District of Columbia ( Washington DC), Puerto Rico, American Samoa, and the Virgin Islands.”)

What is a Domestic End Product for BAA Compliance?

Many government contractors find themselves being investigated or criminally indicted because they thought that they were purchasing domestic end products under the BAA. Understanding the letter of the law for BAA compliance is critical. If the procurement is over the “micro-purchase threshold” to purchase domestic end products depends, in part, upon whether it is unmanufactured or manufactured.

The Buy American Act (BAA) requires that federal government agencies acquire products and services that are “domestic end products” when they are available. A domestic end product is made in the United States, either wholly or substantially. It must contain components mined, produced, or manufactured in the U.S., with certain exceptions for foreign-sourced components and materials purchased outside of the US.

In order to determine if a product meets BAA requirements it must be evaluated according to multiple criteria. These criteria include its cost, origin, sourcing of components, assembly process and origin of labor used in production. Manufacturers must consider the cost and country of origin of all direct components as well as indirect labor costs associated with manufacturing.

In order to be compliant, products must also adhere to the domestic nonavailability exception and may not exceed a certain cost threshold determined by the federal government. Products that meet these requirements are eligible for BAA compliance. However, manufacturers should take caution when making claims of BAA compliance as the requirements can change over time. It is important to stay up-to-date on any changes or updates related to the Buy American Act.

By understanding what constitutes a domestic end product and following all of the necessary criteria, manufacturers can ensure their products comply with the Buy American Act and satisfy federal procurement requirement standards. Compliance with this act helps ensure that taxpayer money is spent responsibly and supports US businesses.

What Does Commercial Off the Shelf (COTS) Mean Under the Buy American Act?

Under 48 CFR 25.003c “COTS items”  under the Buy American Act tend to include supply items (including construction material) that are (1) “ commercial items”; (2) sold in substantial quantities in the commercial market place; and (3) offered to the government without modification. in the same form in which they are sold in the commercial marketplace.  Under 48 CFR 2.101. “Commercial items” are items of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental. Purposes that. Have been sold, leased, or licensed to the general public, or offered for sale, lease, or license to the general public.

What Does Manufactured Mean Under the Buy American Act?

Contrary to popular belief, the term “manufacture” is not openly defined under the Buy American Act. Neither the FAR or executive orders that implement the statute also does not define the term “manufacture”. If you are under investigation by the DOJ or IG for noncompliance of the Buy American Act you will more than likely see the agency making its own determinations of whether something is manufactured or not in the United States. The reality is that courts openly state that whether an item is manufactured in the US is factual in nature. Each case must stand on its own merits and facts. See a list of Buy American Act qualifying countries.

Tip: Your company’s day-to-day activity has to be looked at uniquely to decide whether your company’s process actually amounts to constitute manufacturing in the United States.

As a general rule, after your item has been manufactured or in its final form, activities such as packaging and testing do not constitute manufacturing under the BAA.

• There can be room to argue that pre-manufacture testing before the end product is finished under a unique set of facts could arguably be manufacturing.

How is the Cost of Components Determined Under the Buy American Act?

This is a highly debated issue when if you or your company is under investigation or facing criminal liability for false claims stemming from Buy American statute violations. As stated before, each case is fact-specific and one must carefully look at your day-to-day. Activities and company processes to make an educated conclusion.

Under the Buy American Act (BAA), federal agencies must calculate the cost of components in accordance with certain criteria. The BAA requires that all components used to complete a project be produced in the United States, with at least 50% U.S.-sourced labor and materials. All costs associated with the manufacturing process, including overhead and transportation, must also be included when determining whether a component is compliant with BAA standards.

In order to determine whether a component meets these requirements, it’s important to understand how its total cost is calculated. This includes adding up both direct and indirect costs related to producing the component. Direct costs include things like raw material costs and wages for workers who directly handle or manufacture the component. Indirect costs such as overhead, administrative and transportation expenses should also be included when calculating the total cost of a component.

Once all direct and indirect costs are calculated, they should then be compared to the selling price of the product or service in order to determine compliance with BAA standards. If the sum of all associated costs is equal to or greater than the selling price, then the component meets BAA criteria and can be used for a federal project. On the other hand, if it’s less than the selling price, then it does not meet Buy American Act requirements and cannot be used for a federal project. See information under the (Trade Agreements Act TAA)

Calculating the cost of components in accordance with Buy American Act regulations may seem like an intimidating process, but it’s important to ensure that federal projects are completed in accordance with government standards. By understanding how to accurately calculate the cost of components and determine compliance with BAA criteria, you can help ensure that any federal project you work on is compliant and meets all requirements.

FAR 52.225-1

Domestic end product means—

(1) For an end product that does not consist wholly or predominantly of iron or steel or a combination of both-

(i) An unmanufactured end product mined or produced in the United States;

(ii) An end product manufactured in the United States, if-

(A)The cost of its components mined, produced, or manufactured in the United States exceeds 60 percent of the cost of all its components, except that the percentage will be 65 percent for items delivered in calendar years 2024 through 2028 and 75 percent for items delivered starting in the calendar year 2029. Components of foreign origin of the same class or kind as those that the agency determines are not mined, produced, or manufactured in sufficient and reasonably available commercial quantities of a satisfactory quality are treated as domestic. Components of unknown origin are treated as foreign. Scrap generated, collected, and prepared for processing in the United States is considered domestic

48 CFR 25.003 lays the groundwork for the definition of “cost of components”. Specifically, the regulations state that the cost of components, in turn, is generally determined based on certain costs incurred by the contractor in purchasing or manufacturing the components. Specifically,

• for components purchased by the contractor, the cost of components includes the acquisition costs (including transportation costs to the place of incorporation into the end product), and any applicable duty (regardless of whether a duty-free certificate of entry is issued); and
• for components manufactured by the contractor, the cost of components includes all costs associated with the manufacture of the component (including transportation costs), and allocable overhead costs, but excludes profits and any costs associated with the manufacture of the end product. See also Marbex, Inc., B-225799 (May 4, 1987).

If you are a subcontractor, prime contractor or supplier / manufacturer of products on a federal construction project, then make sure you hire a BAA construction lawyer that understands the federal contracting process.

What do allocable costs to a government contract mean under the BAA?

This is another area of the BAA compliance analysis in which federal law enforcement agencies tend to unilaterally decide the end result. Construction contractors and their BAA compliance attorneys must remember that each case is driven by facts. There are very few cases that automatically mirror your particular case. Courts have repeatedly stated that compliance with the Buy American Act is decided on a case-by-case basis.

Allocable costs to a federal government contract are allowed if they

• are incurred specifically for the contract;
• benefit both the contract and other work, and can be distributed to each in reasonable proportion to the benefits; or
• are necessary to the overall operation of the business, even if a direct relationship to any particular cost objective cannot be shown. See 48 CFR 31.201-4.

What is an end product under the Buy American Act?

This is probably one of the most difficult issues to assess when defending against Buy American and False Claims Act criminal or civil allegations.
The critical point is to look at the end-result the procuring agency is looking to acquire or accomplish. For example, there is a stark difference between buying horsehair that may have a different fermenting process (but the underlying form of the product does not change) compared to buying a total cleaning system that has several individual components that must ultimately be put together to then compete the entire system to be sold to the agency.

Tip: The general rule is that anything that is not itself bought by the procuring agency as an end product (such as a knife, headset or some other individual piece of equipment) is seen as a component, even if the agency could theoretically have purchased it as an end product.

Always look to see if the agency is procuring a system versus a single product that can operate on its own or serve its own purpose. These are all very complex areas that having a Buy American Act compliance attorney could help. For more on end product definition, see the case of Data Transformation Corp., GSBCA 89082 P,87.3B.C.A. ¶20,017(July15,1987).

What can happen to you or your business if you do not comply with the Buy American Statute? 

If you are a government contractor, prime contractor or subcontractor selling construction materials to the federal government you are generally required to certify that you are complying with the Buy American Act. If the government has reason to believe that you are not complying with the Buy American Act, then you can be subject to a government investigation, criminal and civil indictments – jail time, hefty fines and treble damages, suspension and debarment from government contracts.

Putting it mildly, if you do not have a waiver, and you are caught violating the Buy American Statute, your company and its officers can be subject to serious criminal and civil penalties. See also 15 USC 1536.

What must you do initially when notified that you are under investigation for failure to comply with Buy American Act requirements?

The first thing to do is to seek legal counsel from a government contractor defense attorney that understands the procurement process and can immediately look at the facts of your case and form a strong team for your defense. In addition, be mindful not to speak to investigators without your attorney.

Looking at your internal controls and policies may also call for a swift internal investigation. As lawyers, we would want to know every single detail about your process when selling products to the government. Missing one minor detail can fatally change the outcome of Buy American Act litigation and or compliance.

Note: This content is for informational purposes only and should not be used as legal advice. Please consult a qualified attorney for specific legal questions or concerns related to the Buy American Act compliance.

Contact a BAA Compliance Attorney for Immediate Help

If you are facing a federal investigation, or subject to criminal and civil liability, call our BAA compliance lawyers at 1.866.601.5518 for immediate help.