The new administration has placed a unique focus on both Buy American Act and Buy America Act. Many companies, including federal government contractors, should assess how the new administration’s focus will impact their daily business operations. Buy American Act requirements has now become an issue of serious concern for thousands of companies throughout the United States.
President Trump has issued a Presidential Memorandum in January 2017 which directs the Secretary of Commerce to “develop a plan under which all new pipelines . . . inside the borders of the United States . . . use materials and equipment that are produced in the U.S.
This paves the road for penalties and fines for contractors that fail to comply with the new directive. For example, government contractors must certify that it will comply with the both the Buy American Act requirements and Buy America Statute. The main concern is what are prime contractors doing to make sure that subcontractors are also complying with Buy American laws.
Federal government contractors should also be mindful that they too are liable for violations of subcontractors. Given the stiff criminal penalties and fines associated with Buy American Act violations and failure to comply with Buy American law, one mistake whether through failure to act or simply negligence can cripple a company both financially or through loss of reputation.
Requirements of Buy American Act of 1933
The Buy American Act of 1933 was enacted to give preference to buying products made in America. The statute attempts to protect U.S. businesses and labor by restricting the acquisition and use of end products or construction materials that are not “domestic.”
For purposes of the Buy American Act, domestic end products and domestic construction materials include (1) unmanufactured end products or construction materials mined or produced in the United States, as well as (2) end products or construction materials manufactured in the United States, provided that (a) the cost of the components mined, produced, or manufactured in the United States exceeds 50% of the cost of all components, or (b) the product is a commercially available off-the-shelf item. End products or construction materials that do not qualify as domestic under these definitions are generally treated as foreign and offers that supply foreign end products or construction materials are foreign offers, regardless of the offeror’s nationality. Purchases of services are generally not subject to the Buy American Act.
Statutory Language of 41 USC 8302(a)(1) and 41 USC 8303(a)(1)-(2) (“Every contract for the construction, alteration, or repair of any public building or public work in the United States shall contain a provision that in the performance of the work the contractor, subcontractors, material men, or suppliers shall use only (1) unmanufactured articles, materials, and supplies that have been mined or produced in the United States…. ”).
Prime contractors and their subcontractors can expect more oversight over Buy American Act compliance. In addition, and based on the President’s heightened focus on buying American made products, government contractors can also expect to see more criminal investigations and severe fines issued for violations and non-compliance with Buy American Act requirements.
Although Buy American Act requirements sometimes uses the word “purchase,” a question arises as to whether the act has been found to apply to leases of goods on the grounds that “it would be unreasonable to presume that Congress intended to narrow the protection afforded to American manufacturers by allowing the lease of foreign-made products where the purchase of such products is prohibited.” Postmaster General, B-156082 (May 1, 1967)
Buy American Act Exceptions (FAR 25.202)
FAR 25.202 lists five “exceptions” to the Buy American Act, or five situations in which an agency may purchase foreign end products or use foreign construction materials from government contractors without violating federal law.
These exceptions apply when (1) the procurement of domestic goods or the use of domestic construction materials would be inconsistent with the public interest; (2) domestic end products or construction materials are unavailable; (3) the contracting officer determines that the costs of domestic end products or construction materials would be unreasonable; (4) the agency is procuring information technology that is a commercial item; or (5) the goods are acquired specifically for commissary resale.
- Contractors should look to see if the purchases are above the micro-purchase threshold, and for use in the United States.
- The government procurement agency usually makes the decision whether Buy American Act exceptions apply
Waiver Due to Trade Agreements Act
Waiver of Buy American Act statutory provisions become available through the Trade Agreements Act. When a waiver is present, certain products that are wholly grown, produced, or manufactured in foreign jurisdictions, or “substantially transformed” into new and different articles within foreign jurisdictions, are treated the same as “domestic” ones for purposes of the government procurement.
Government contractors should not think that the Trade Agreements Act of 1979 (TAA) on its face is an exception to the Buy American Act. Instead, by becoming TAA compliant, the result could be that you get the same result as an exception to the Buy American Act.
Being TAA compliant may then authorize the waiver of “any law, regulation, procedure, or practice regarding Government procurement” that would result in “eligible products” from countries with which the United States has a trade agreement.
The Trade Agreements Act does not apply to federal government contracts that are:
(1) Acquisitions set aside for small businesses;
(2) Acquisitions of arms, ammunition, or war materials, or purchases indispensable for national security or for national defense purposes;
(3) Acquisitions of end products for resale;
(4) Acquisitions from Federal Prison Industries, Inc., under FAR Subpart 8.6, and acquisitions under FAR Subpart 8.7, Acquisition from Nonprofit Agencies Employing People Who Are Blind or Severely Disabled; and
(5) Other acquisitions not using full and open competition, if authorized by FAR Subpart 6.2 or 6.3, when the limitation of competition would preclude the use of the procedures of this subpart; or sole source acquisitions justified in accordance with 13.501(a).
MEMORANDUM FOR THE SECRETARY OF COMMERCE
SUBJECT: Construction of American Pipelines
The Secretary of Commerce, in consultation with all relevant executive departments and agencies, shall develop a plan under which all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside the borders of the United States, including portions of pipelines, use materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law. The Secretary shall submit the plan to the President within 180 days of the date of this memorandum.
“Produced in the United States” shall mean:
(i) With regard to iron or steel products, that all manufacturing processes for such iron or steel products, from the initial melting stage through the application of coatings, occurred in the United States.
(ii) Steel or iron material or products manufactured abroad from semi-finished steel or iron from the United States are not “produced in the United States” for purposes of this memorandum.
(iii) Steel or iron material or products manufactured in the United States from semi-finished steel or iron of foreign origin are not “produced in the United States” for purposes of this memorandum.
The Secretary of Commerce is hereby authorized and directed to publish this memorandum in the Federal Register.
DONALD J. TRUMP
For help with Buy American Act requirements or BuyAmerican statutes in federal government procurement, Call the consultants and attorneys at Watson & Associates, LLC. 1.866.601.5518.