When submitting a government bid, companies may incorrectly guess that they do not have to comply with the Buy American Act requirements 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. Buy American made products rules are seriously being prosecuted when federal contractors violate the rules. Many companies do not intentionally violate the law, but many find themselves in legal hot water because they incorrectly assume that they are in compliance under Buy American Act exceptions regulations.
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 (DOJ) or 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 FAR 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 materials 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).
VI. Overview of the Buy American Act
A. Brief history and purpose:
The Buy American Act was enacted in 1933 with the primary objective of supporting American manufacturers and suppliers during the Great Depression. It aimed to stimulate domestic economic growth, create jobs, and protect American industries by requiring the U.S. government to purchase goods made in the United States.
B. Scope and applicability:
The Buy American Act applies to federal government procurement contracts exceeding a certain threshold, currently set at $10,000 for most products. It covers a wide range of goods, including supplies, materials, and equipment, with specific requirements for their origin and manufacturing processes.
C. Key objectives:
The Act seeks to achieve the following objectives:
1. Support domestic industries: By giving preference to American-made products, the Act aims to strengthen domestic manufacturing capabilities, enhance competitiveness, and foster economic growth.
2. Job creation: The Act intends to create employment opportunities for American workers by increasing demand for domestically manufactured goods.
3. National security considerations: By promoting the procurement of domestic products, the Act aims to safeguard critical industries and supply chains, ensuring the availability of essential goods during times of crisis.
VI. Products Covered by the Buy American Act
A. Definition of a domestic end product:
According to the Buy American Act, a domestic end product is one that is manufactured in the United States, with at least 55% (Changes in 2024) of the cost of its components originating from the United States. Additionally, the final assembly of the product must occur within the United States.
B. Exceptions and waivers:
The Act provides for certain exceptions and waivers when domestic products are unavailable, or their cost is unreasonable. Federal agencies may grant waivers on a case-by-case basis, considering factors such as national security, international agreements, and public interest.
C. Components and materials sourcing requirements:
The Buy American Act imposes strict requirements on the sourcing of components and materials used in the manufacturing process. It stipulates that the cost of foreign components cannot exceed 45% of the total cost of all the components, unless a waiver or exception is granted.
VIII. Requirements for Federal Agencies
A. Procurement process:
When procuring goods covered by the Buy American Act, federal agencies are required to give preference to domestic end products. They must include specific language in their solicitations and contracts to notify potential suppliers about the Act’s applicability.
B. Evaluation criteria for domestic products:
Federal agencies evaluate offers based on their compliance with the Buy American Act requirements. Domestic products meeting the Act’s criteria are given preference over foreign products during the procurement process.
C. Price preferences for domestic products:
The Act allows federal agencies to provide a price preference for domestic products, allowing them to choose a slightly higher-priced domestic offer over a lower-priced foreign offer, thus promoting the purchase of American-made goods.
IV. Implications of the Buy American Act
A. Impact on domestic manufacturers and suppliers:
The Buy American Act has a positive impact on domestic manufacturers and suppliers by increasing demand for their products, supporting their growth, and helping them remain competitive in the market. It encourages investment in local production facilities, technology, and workforce development.
B. Considerations for international trade agreements:
The Act can sometimes create tensions with international trade agreements and obligations. To address these concerns, the U.S. government negotiates exemptions and waivers in trade agreements to ensure compliance with both the Buy American Act and international trade commitments.
C. Potential challenges and criticisms:
The Buy American Act has faced criticisms and challenges over the years. Some argue that it can increase costs for federal agencies, limit the availability of certain specialized products, and potentially lead to retaliatory measures from other countries, affecting global trade relations.
V. Benefits of the Buy American Act
A. Economic benefits for domestic industries: The Buy American Act provides significant economic benefits to domestic industries. By prioritizing American-made products, the Act stimulates demand for goods produced within the United States, leading to increased sales, revenue, and profitability for domestic manufacturers and suppliers. This, in turn, supports the growth of local businesses and contributes to the overall health of the domestic economy.
B. Job creation and support for American workers: One of the primary goals of the Buy American Act compliance rules is to create employment opportunities for American workers. By promoting the purchase of domestic products, the Act drives demand for goods that are manufactured, assembled, and packaged by American workers. This not only helps to reduce unemployment rates but also enhances the livelihoods of individuals and strengthens local communities.
C. Strengthening national security: The Buy American Act plays a crucial role in strengthening national security by safeguarding critical industries and supply chains. By relying on domestically produced goods, the government reduces its dependence on foreign sources, ensuring the availability of essential products during times of national emergencies or disruptions in international trade. This promotes resilience and enhances the country’s ability to protect its interests and respond effectively to crises.
What Are FAR Buy American Act Requirements?
The Buy American Act (BAA) is a complex set of rules and regulations that are designed to ensure that the U.S. government prefers products manufactured in the United States over those made in foreign countries when making purchases for federal agencies. The BAA requires federal agencies to purchase domestic products from U.S.-based companies, whenever possible.
In order to comply with the BAA, companies must understand and adhere to the restrictions that are outlined in the act. These requirements include a preference for domestic components; an evaluation of price, quality, availability and delivery of domestic products versus foreign-made products; and limits on when federal agencies can waive or modify these rules.
In line with American-made exemptions, DOD has exempted from the Buy American made products 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.
When it comes to selling the federal government buy American made products, your company can be BAA compliant if the contracting officer believes that you meet one of the following FAR Buy American Act exceptions.
How Does Your Company Find Out If It Meets Any of the Buy American Act Exceptions?
If your company needs to know if it meets any of the Buy American Act exceptions, there are several steps you should take. First, contact a government contracts lawyer who focuses in BAA requirements and is familiar with the various exceptions that may apply to your company’s situation. Your BAA requirements lawyer can review all relevant documents, including contracts and regulations, your buying and manufacturing sources and determine whether you qualify for any Buy American Act exceptions. They can also advise on necessary steps to ensure your company stays compliant with BAA requirements.
What Does Manufactured in the United States Mean Under the Buy American Act Requirements?
When it comes to defining buy American made products, 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 Buy American Act regulations typically require that your end product and at least 50% of the costs of all components be manufactured in the United States to meet Buy American Act requirements. 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.
Under Buy American Made Products What is COTS?
To be compliant with Buy American Act requirements, commercially available off-the-shelf (COTS) items under the Buy American Act usually include 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 “minimal operations such as assembly of certain components may constitute manufacturing for purposes of the FAR Buy American 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 buy American made 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 Buy American Act 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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