Given the heightened efforts by federal law enforcement agencies to pursue Large DOD contractors and small businesses for violating Buy American Act requirements, companies want to ensure that they avoid criminal and civil liability. When challenging government contract award decisions under Buy American Act FAR 52.225-1, FAR Part 25, DFARS 252.225 7001 and 41 USC 10a in a bid protest, contractors often are surprised by court decisions. However, to proceed in such a protest, bidders must be aware of the relevant aspects of the regulations to challenge an award decision effectively.
Under FAR Buy American Act Requirements What is an End Product Manufactured in the United States?
Under FAR 52.225 1 an end product is manufactured in the United States if:
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.
What Must Contractors Do Under FAR 25.225-9 When Requesting Buy American Act Exception Due to Unreasonable Cost?
Under FAR Clause 52.225-9, a government contractor requesting an exception to the Buy American Act construction materials requirement on the basis of unreasonable cost to include, with its bid, the price, quantity, unit of measure, and a description of the foreign and domestic materials at issue, along with a detailed justification for the use of foreign construction materials, a “reasonable survey of the market,” and a completed price comparison table in the format provided in FAR clause 52.225-9(d). In addition, FAR 52.225-9 requires the contractor to provide the time of delivery or availability of the materials, the location of the construction project, specific supplier information (including the name, address, and telephone number for the supplier, and a copy of the supplier’s response or a summary thereof), and “other applicable supporting information.”
Common areas where companies make painful mistakes in a bid protest include:
- Refurbished foreign-made cargo materials
- Whether the proper steps were taken to refurbish the imported materials in the United States not constituting “manufacturing” within the meaning of the Act
Government contractors selling products or services to the federal government should assess their day-to-day operations before the bidding process. Waiting to litigate the issue in a bid protest can be a dangerous mistake. Congress passed Buy American Act Statute in 1933. It passed the Act to give special treatment for domestic sources of unmanufactured articles, construction materials for public use and manufactured goods. See 41 USC 10a and DFARS 252.225 7001
The gist of the FAR Buy American Act and applicable trade agreements is that the government must use all efforts to buy domestic supplies for use in the U.S. The requirement is applicable if a supply procurement exceeds the micro-purchase threshold or the supply portion of a contract for services involves the furnishing of supplies that exceed the micro-purchase threshold. The federal government pays attention to the place of production, mining or manufacture.
The Buy American Act establishes a preference for the acquisition of domestic end products over foreign end products. The preference is implemented by adding, solely for evaluation purposes, a specified percentage premium to the price of foreign end products if there is an offer of a domestic end product that is not otherwise lowest-priced.
- For civilian agency procurements, the price adjustment is either 6 or 12 percent.
- For DOD procurements, the price adjustment is 50 percent. DFARS 225.105.
If the price of the domestic offer remains higher than the price of the foreign offer after applying the evaluation preference, the price of the domestic offer is deemed to be unreasonably high and the award is made to the foreign offer. FAR 25.103(c), 25.105(c); DFARS 225.103(c), 225.502(c)(ii)(E)(2).
Buy American Qualifying Countries of Origin
Qualifying countries include Australia, Spain, Austria, Belgium, Canada, Czech Republic, Netherlands, Denmark, Luxembourg, Egypt, Finland, France, Germany, Greece, Israel, Italy, Netherlands, Norway, Poland, Portugal, Sweden, Switzerland, Turkey and the United Kingdom.
Taiwan is, however, a designated country for the purposes of the World Trade Organization Government Procurement Agreement (WTO GPA). See FAR 25.003 (defining designated countries to include WTO GPA countries and listing Taiwan as a WTO GPA country).
- Products from designated countries are exempt from the provisions of the Buy American statute if the WTO GPA is applicable. FAR 25.402(a)(1), FAR 252.225-7001.
- The WTO GPA is only applicable to procurements for supplies valued at $204,000 or more, FAR 25.402(b), which is well above the value of the procurement at issue.
FAR Buy American Act Exceptions
An exception to the FAR Buy American Statute exists where the head of an agency determines that requirements of the statute would be inconsistent with the public interest. 41 USC 8302(a); FAR Part 25.103(a); DFARS 225.103(a).
Consistent with normal Buy American Act exceptions, DOD has exempted from the Buy American Act end products from countries that have entered into “a reciprocal defense procurement memorandum of understanding or international trade agreement with the United States in which both countries [have] agree[d] to remove barriers to purchases of supplies produced in the other country.” See DFARS 225.003(10) (defining and identifying qualifying countries); DFARS 225.872-1 (exempting qualifying country end products from the Buy American statute).
- The contracting officer may determine that the lowest price for the domestic purchase is unreasonable. The exception is covered in more detail in FAR 25.1)
- FAR Buy American Act requirements will not apply if the procurement is subject to a specific Trade Agreement Act. (see FAR Part 25.4).
- When challenging Buy American Act decisions in a bid protest, it may be prudent to inquire in your debriefing if the Agency has made such an exception.
- Always respond to a contracting officer’s request for certification as per DFARS 252.225 7001.
Dfars 252.225 7020 – Trade Agreements Certificate
(a) Definitions. Designated country end product, non-designated country end product, qualifying country end product,and U.S.-made end product, as used in this provision have the meanings given in the Trade Agreements – Basic clause of this solicitation.
(b) Evaluation. The Government –
(1) Will evaluate offers in accordance with the policies and procedures of part 225 of the Defense Federal Acquisition Regulation Supplement; and
(2) Will consider only offers of end products that are U.S.-made, qualifying country, or designated country end products unless –
(i) There are no offers of such end products;
(ii) The offers of such end products are insufficient to fulfill the Government’s requirements; or
(iii) A national interest waiver has been granted.
(c) Certification and identification of country of origin.
(1) For all line items subject to the Trade Agreements – Basic of this solicitation, the offeror certifies that each end product to be delivered under this contract, except those listed in paragraph (c)(2) of this provision, is a U.S.-made, qualifying country, or designated country end product.
(2) The following supplies are other nondesignated country end products:
Beware of Manufactured Products Requirements Under BAA
For manufactured end products, the FAR uses a two-part test to define a domestic end product:
- the article must be manufactured in the United States, and
- the cost of domestic components ( i.e. , components mined, produced, or manufactured in the U.S.) must exceed 50 percent of the cost of all components. FAR Part 25.003 and 25.101; see also DFARS Section 225.101.
Buy American Act Construction Materials
When it comes to buying construction materials for a government construction project, the Buy American Act precludes an agency from using non-domestic construction materials absent exceptional circumstances. In Federal contracting, construction materials generally include any “article, material, or supply brought to the 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.
What Constitutes a Manufacturer in the United States Under the Buy American Statute?
The regulations require that the end product and at least 50% of the costs of all components be manufactured in the United States. depending on your specific case, manufacturing in the U.S. does not mean that you cannot process materials overseas. See General Kinetics, Inc., Cryptek Div., B-242052.2 (May 7, 1991). The fact that the manufacturer of a
domestically manufactured end product may be foreign-owned is not a factor to be considered in determining whether to apply the Buy American Act.
Many recent cases focus on the unique process of each company. The details of every company’s manufacturing processes are very relevant when involved in DOJ Buy American Act investigations that lead to False Claims Act charges.
Solicitations are usually incorporated by reference Department of Defense Federal Acquisition Regulation Supplement DFARS 252.225-7000, “Buy American and Balance of Payments Program.”
This clause implements the Buy American statute, 41 USC 8301-8305 (formerly the Buy American Act, 41 USC 10a-10d) and the Department of Defense (DOD) Balance of Payments Program by establishing a preference for domestic end products over foreign end products, except for foreign end products of certain qualifying Buy Buy American Act countries.
When the solicitation contains DFARS 252.225-7001, Buy American–Balance of Payments Program Certificate, it requires contractors to certify whether their proposed products are domestic end products made in the USA, foreign end products from a qualifying country, or foreign end products from a non-qualifying country.
Preference for Domestic Products: The Buy American Statute requirements establish a preference for the acquisition of domestic end products over foreign products. The choice is implemented by adding, solely for evaluation purposes, a specified percentage premium to the price of foreign end products if there is an offer of a domestic end product that is not otherwise lowest-priced.
For civilian agency procurements, the price adjustment under the Buy American Act is either 6 or 12 percent. For DOD procurements, the price adjustment is 50 percent. DFARS 225.105. If the price of the domestic offer remains higher than the price of the foreign offer after applying the evaluation preference, the price of the local offer is deemed to be unreasonably high, and an award is made to the foreign offer. FAR Part 25.103(c), 25.105(c); DFARS 225.103(c), 225.502(c)(ii)(E)(2), DFARS 252.225 7001. See information about buy American exemptions.
Price Adjustments Under the Buy American Act DFARS 252.225-7001 and FAR Part 25,
Under the Buy American Act FAR requirements, the price of the foreign offer, inclusive of duty, is increased by 6 percent if the lowest domestic offer is from a large business concern, and by 12 percent if the lowest domestic offer is from a small business concern. See FAR Part 25.105(b).
The Buy American statute provides for preferential treatment of domestic countries and qualifying country end products but does not prohibit the acquisition of foreign country end products from non-qualifying countries. Yohar Supply Co., B-225480, Feb. 11, 1987, 87-1 CPD ¶ 152 at 2.
Solicitations that do not on their face include the Buy American statute: When challenging Buy American Act decisions in a bid protest, arguing that the solicitation did not include statutory Buy American Act compliance provisions of FAR clause 52.225-1 may not always win your bid protest.
If the solicitation incorporated by reference DFARS 252.225-7001, which expressly states that it “implements 41 USC 83, Buy American” and requires contractors to deliver only domestic end products unless they certify that they are providing other end products, a GAO protest decision may show that the RFQ made apparent that the Buy American statute applied.
For help challenging FAR 52.225 1 Buy American Act DFARS requirements and compliance decisions with various TAA compliance requirements in government contract protests, call our Buy American Act Attorneys and GAO bid protest lawyers at 1-866-601-5518. FREE INITIAL CONSULTATION.