When submitting a government bid, companies may incorrectly guess that they do not have to comply with the Buy American Act because their products meet the exception requirements. However, that guess could end up being a costly mistake causing your company to lose the contract in a bid protest.
Many small businesses and large companies mistakenly believe that the products will automatically pass the Buy American test but may also have not taken the time to evaluate their internal manufacturing or procurement process. When the Department of Justice of other law enforcement agencies investigate for alleged violations of the False Claims Act, contractors can quickly see the complexity and expense needed to deal with the allegations. Violations of both the Buy Amercian Act and False Claims Act can cripple a company given the substantial amount of civil and or criminal fines imposed.
The Buy American Act (“BAA”), 41 USC 8301, et seq., creates a preference for domestic construction material and products and applies to goods and services on supply and construction contracts with the federal government.
Buy American Act exemptions exist if the head of the contracting agency makes a determination that applying the Buy American Act to the procurement would be inconsistent with the public interest. See 41 USC 8302(a); FAR 25.103(a); DFARS 225.103(a).
In line with American-made exemptions, DOD has exempted from the Buy American statute end products from countries that have entered into “a reciprocal defense procurement memorandum of understanding or international trade agreement with the United States. The memorandum of understanding allows for both countries to agree to remove barriers to purchases of supplies produced in the other country.” See DFARS 225.003(10); DFARS 225.872-1 (exempting qualifying country end products from the Buy American statute). Government contract and DOD procurements are exempt from the “made in the USA” product requirement if purchased from qualifying countries. IAW with Acquisition.gov, the Buy American Act exceptions are listed below.
FAR 25.202 Buy American Act Exceptions.
Your company can be Buy American Act compliant if the contracting officer believes that you meet one of the following exceptions.
(a) When one of the following exceptions applies, the contracting officer may allow the contractor to acquire foreign construction materials without regard to the restrictions of the Buy American statute:
(1) Impracticable or inconsistent with public interest. The head of the agency may determine that application of the restrictions of the Buy American statute to a particular construction material would be impracticable or would be inconsistent with the public interest. The public interest exception applies when an agency has an agreement with a foreign government that provides a blanket exception to the Buy American statute.
(2) Nonavailability. The head of the contracting activity may determine that a particular construction material is not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities of a satisfactory quality. The determinations of nonavailability of the articles listed at 25.104(a) and the procedures at 25.103(b)(1) also apply if any of those articles are acquired as construction materials.
(3) Unreasonable cost. The contracting officer concludes that the cost of domestic construction material is unreasonable in accordance with 25.204.
(4) Information technology that is a commercial item. The restriction on purchasing foreign construction material does not apply to the acquisition of information technology that is a commercial item, when using Fiscal Year 2004 or subsequent fiscal year funds (Section 535(a) of Division F, Title V, Consolidated Appropriations Act, 2004, and similar sections in subsequent appropriations acts).
(b) Determination and findings. When a determination is made for any of the reasons stated in this section that certain foreign construction materials may be used, the contracting officer must list the excepted materials in the contract. The agency must make the findings justifying the exception available for public inspection.
(c) Acquisitions under trade agreements. For construction contracts with an estimated acquisition value of $7,008,000 or more, see subpart 25.4.
What Does Manufacture Mean Under the Buy American Act?
The term “manufacture” means completion of the article in the form required for use by the government. General Kinetics, Inc., Cryptek Div., B-242052.2, May 7, 1991, 91-1 CPD para. 445 at 7. The regulations typically require that your end product and at least 50% of the costs of all components be manufactured in the United States. Keep in mind that not all overseas manufacturing is automatically excluded. The facts of each case are important and must be analyzed. . Having your Buy American Act lawyer in place can make a huge difference when analyzing the specific facts of your case. See How Does the President’s View on Buy American Act Requirements.
One of the main and highly relevant pieces of information is whether the assembly or final form of the product needed by the government was done within the United States. See also General Kinetics, Inc., Cryptek Div., B-242052.2 (May 7, 1991).
To be Buy American Act compliant, Government contract components could potentially be deemed to be mined, produced, or manufactured in the United States, regardless of their actual place of origin, if the following can be shown:
- the end product in which they are incorporated is manufactured in the United States, and
- the components are of a kind or class that the federal government determines not to be mined, produced, or manufactured in the United States in “sufficient and reasonably available commercial quantities of a satisfactory quality.” See 48 CFR 25.003 (“Components of foreign origin of the same class or kind for which nonavailability determinations have been made are treated as domestic.”); Octagon Process, Inc., B-186850 (Dec. 22, 1976).
How is the Cost of Components Determined Under the Buy American Act?
The costs of components in a Buy American case are generally determined based upon allowed costs incurred by your company when either purchasing or manufacturing the components.
- 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 or construction material), 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, as discussed above), and allocable overhead costs, but excluding profits and any costs associated with the manufacture of the end product.
What is COTS?
To be compliant under the Act, commercially available off the shelf (COTS) items under the Buy American Act usually includes supply items (including construction material) that are
- “commercial item,”
- sold in substantial quantities in the commercial marketplace; and
- offered to the government without modification, in the same form in which it is sold in the commercial marketplace.
Does Refurbishing Count As Manufacturing Under Buy American Made Exemptions?
In one case, GAO said that refurbishing does not count as meeting the “made in the USA” requirement. GAO decided that that “minimal operations such as assembly of certain components may constitute manufacturing for purposes of the Act, where they are necessary for the product to meet the operational or performance requirements of the solicitation.” See, e.g.,Saginaw Machine Sys. Inc., B-238590, June 13, 1990, 90-1 CPD para. 554 at 4. See information about Challenging Buy American Act FAR Decisions in Bid Protests.
When it comes to refurbished products, GAO has also decided that “limited domestic assembly or manufacturing operations which do not alter the essential nature of a component which is the core or essence of the end product being procured may not be used to circumvent the plain requirement of the Buy American Act that the end product must be manufactured “substantially all” from domestic articles, material or supplies.” See 41 USC 10a.
DFARS uses a two-part test under the BAA to determine whether your product is manufactured in the USA. An end product
- must be manufactured in the United States, and
- the cost of its domestic components must exceed 50 percent of the cost of all its components.
To avoid costly mistakes with Buy American Act exceptions and DOJ investigations call the BAA attorneys at Watson & Associates, LLC at 1-866-601-5518.
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