United States: 3 Things Contractors Should Do Now To Ensure "Buy American" Compliance In The Wake Of Trump's Executive Order

Last Updated: April 25 2017
Article by Eleanor M. Yost

"Buy American, Hire American" is no longer just a campaign slogan. It is the subject of an Executive Order signed by President Trump on April 19. The order details the Trump administration's policy of ensuring compliance with existing domestic preference requirements, including by:

  • requiring all federal agencies to assess compliance with Buy American laws and develop policies to ensure that federally-funded projects "maximize the use of materials produced in the United States," in accordance with guidance to be issued by the Secretary of Commerce;
  • requiring the Secretary of Commerce and the U.S. Trade Representative to assess "the impacts of all United States free trade agreements and the World Trade Organization Agreement" on domestic procurement preferences and create specific recommendations "to strengthen implementation" of Buy American requirements; and
  • limiting public interest waivers to ensure "the maximum utilization of goods, products, and materials produced in the United States," and requiring agency heads take into account whether a significant portion of the cost advantage of a foreign-sourced product is the result dumping or the use of injuriously subsidized goods before granting a waiver.

Although the order does not change existing Buy American laws, compliance has become more important than ever for companies that sell products or provide services in connection with federally-funded projects. Below are three steps these companies should take now.

  1. Know Which Domestic Preference Rules Apply to Your Projects

    Many contractors do not understand that there are actually several different "Buy American" regimes — and some of them, unhelpfully, have very similar names. It is critical to understand which domestic preference regime applies to each of your federally-funded projects.

    • The Buy American Act of 1933 (41 U.S.C. §§ 8301-8305) applies to all U.S. federal government agency purchases of goods valued over the micro-purchase threshold. It establishes a price preference for domestic offers. When the low offer is not domestic, the procuring agency must add a certain percentage of the low offer's price (6 to 50 percent) before determining which offer is the best value. The Buy American Act is often waived pursuant to the Trade Agreements Act.
    • The Buy America Act (49 U.S.C. 5323(j)) applies to certain purchases related to transportation, such as the construction of highways, railways, or rapid transit systems by the Federal Transit Administration and the Federal Highway Administration. Unlike the Buy American Act, the Buy America Act operates to restrict foreign purchases, even from countries like Canada.
    • The Trade Agreements Act (19 U.S.C. §§ 2501-2581) opens some procurements to products from "designated countries" to meet certain requirements under the General Agreement on Tariffs and Trade (GATT). Importantly, China and India are not designated countries.
    • The Berry Amendment (10 U.S.C. § 2533a) requires the Department of Defense to give preference to domestically produced, manufactured, or homegrown products, most notably food, clothing, fabrics, and specialty metals.
    • It is important to remember that domestic preferences may apply even if the project is administered by a state government, and many localities have their own "Buy American" requirements.
    Domestic preference requirements change from contract to contract and agency to agency, depending on what is being purchased and the contract's total value. Understanding the applicable regime on a project-by-project basis is the first step to ensuring compliance.
  2. Do Not Permit Just Anyone to Certify Buy American Compliance

    The government often requires its contractors to sign "Buy American" certification forms. Prime contractors, in turn, ask all of their subcontractors and suppliers to certify compliance as well. But many prime contractors issue informal certification requests (often via email) that are sometimes defective — reciting the wrong procurement regime applicable to the project ("Buy American" vs. "Buy America"), failing to provide any details about the award itself, or identifying a subcontractor's salesperson or project manager as the proposed certifier.

    Contractors must make independent determinations about whether to sign a certification. In conjunction with your legal team, investigate which domestic preference regime applies to a given project, and whether a certification can even be made in a particular case. Salespeople and managers should not make Buy American certification decisions on their own.
  3. Create Buy American Compliance Processes and Audit Your Projects

    Compliance in this field is challenging. Training employees and creating internal processes now will help avoid running afoul of Buy American rules in the future.

    • Training. Employees involved in bidding on or managing projects that involve federal funding must be trained in Buy American requirements. This is particularly important for companies in countries outside of the United States that sell products to prime contractors working on federal projects. Invite your U.S. government contracts counsel to your office to present to your legal, sales, and project management teams on a regular basis.
    • Recordkeeping. Collect price and place of manufacture information for product components in a central location, which will help keep records up-to-date and easy to access.
    • Supply Chain. Regularly review your supply chain. If your product includes components from countries that are not on the "designated countries" list like China or India, an investigation should be conducted to ensure Buy American compliance. Make sure subcontractors and vendors certify their compliance and indemnify you; collect and maintain compliance certifications.
    • Audit. Periodically audit your most important projects to ensure compliance. Over time, components, parts, and even suppliers, may change.

In the months and years to come, contractors should expect and prepare for changes in the law, an uptick in enforcement, and an increase in False Claims Act claims. Contact your Carlton Fields lawyer to stay abreast of the latest changes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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