Executive Order 14005
Not even one week into the Biden Administration's tenure, Buy American rules are yet again taking center stage as a fundamental policy objective. On January 25, 2021, President Biden issued Executive Order 14005 entitled "Ensuring the Future is Made in All of America by All of America's Workers," which sets forth the new Administration's policy of utilizing the federal procurement process to maximize the use of goods, products, and materials that are US-origin. Executive Order 14005 takes aim at overhauling "Made in America Laws," which it defines broadly as inclusive of all statutes, regulations, rules, and Executive Orders relating to federal financial assistance awards or federal procurement—known interchangeably as Buy America or Buy American rules—which provide a preference for purchase of domestic goods and materials that are US-origin. But like Executive Order 13788 issued by the Trump Administration making changes to Buy America rules, President Biden's Executive Order 14005 does not make any immediate changes to those rules. Rather, it calls for a review of existing laws and implementing rules. That review, however, and what proposed changes in existing laws comes out of that review, could be significant.
Of greater significance is the fact that Executive Order 14005 immediately provides for a more extensive review of requests for waivers from existing requirements. One might expect that such more extensive review will discourage persons from requesting waivers and may discourage agencies from approving them.
This new Order revokes or supersedes each of President Trump's Buy American Executive Orders. The new Order revokes Executive Order 13788 ("Buy American and Hire American"), Executive Order 13975 ("Encouraging Buy American Policies for the United States Postal Service"), and section 5 of Executive Order 13858 ("Strengthening Buy-American Preferences for Infrastructure Projects"). In addition, the new Order supersedes Executive Order 13881 ("Maximizing Use of American-Made Goods, Products, and Materials.")
Key requirements of Executive Order 14005
Enforcement of the Buy American Act of 1933
Executive Order 14005 does not revise any existing Buy America rules. Rather, it simply calls for a review of existing rules—perhaps the most well-known of which is the Buy American Act of 1933 ("BAA"). Congress passed the BAA during the Great Depression to protect American industry from foreign competition for federal procurement contracts. The BAA affords generous pricing preferences to offerors who certify their compliance with the domestic purchasing requirements stated in the Act. Specifically, the BAA requires public agencies to procure articles, materials, supplies, that were mined, produced, or manufactured in the United States, except under five exempt circumstances. See 41 U.S.C. § 8302(a).
The key to understanding the BAA is determining whether the solicited goods or "end products" are domestic, i.e. were mined, produced, or substantially manufactured in the United States. The FAR defines an "end product" as "those articles, materials, and supplies to be acquired for public use." The analysis of whether a manufactured end-product qualifies as domestic is done using a two-part test. First, the end-product must be manufactured in the United States; second, more than 50% of all component parts (determined by cost of the components) must also be manufactured in the United States. If a product meets this two-part test, then it can be considered a "domestic end product" under the BAA. End products that do not qualify as domestic under this test are treated as foreign.
Executive Order 14005 directs the FAR Council to consider proposing changes to the Buy American rules in FAR Part 25 that would:
(i) change the domestic content test from a component test to a value added test;
(ii) increase the required percentage of domestic content, and;
(iii) increase the price preference afforded to domestic end products and construction materials.
The Order requires the FAR Council to consider such proposed changes within 180 days of the date of the Order. Such revisions to the rules could have far-reaching impacts—resulting in contractors' products failing to qualify as domestic and, thus, experiencing increased price preferences. Such results would force contractors to re-assess their supply chain in an effort to qualify their products. Although one must await the FAR Council's proposed rule, given the new Administration's domestic agenda, it is likely that the proposed rule will reflect tightened Buy American requirements.
Stricter waiver requirements
The Buy American Act contains numerous exceptions to its requirements which may permit contractors to avoid the BAA's price evaluation penalty. Among these exceptions include (1) where the head of the agency determines that domestic preference would be inconsistent with the public interest; (2) when items to be procured are not mined, produced, or manufactured in the US in sufficient and reasonably available commercial quantities of satisfactory quality; and (3) where the Contracting Officer determines that the cost of a domestic end product would be unreasonable. In each instance, a contractor may seek and be granted a waiver by the Agency.
Executive Order 14005 takes aim at this waiver process by vesting authority to grant waivers in senior agency leadership, and requiring a more robust and transparent approach to the waiver process. To accommodate this oversight process, the Executive Order directs the establishment of a Made in America Office (housed within the Office of Management and Budget) led by an appointed Director. In order to obtain a waiver to the Buy American rules, the Agency must submit to the Made in America Director its proposed waiver and a detailed justification for the use of goods, products or materials that are of non-US origin. The Made in America Director must then consider and publish its waiver decisions—subject to national security and confidentiality laws—on a newly established website. Agencies who disagree with the Director's waiver decision are afforded an opportunity to make a written appeal to the Director, with all disagreements between the Agency and Director to be resolved in accordance with procedures set forth in Executive Order 12866 (Regulatory Planning and Review).
Notably, prior to granting a waiver request, the granting agency must consider whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods.
Contractors must plan for the fact that the waiver process will be more time consuming given that the agency must coordinate with OMB and possibly the International Trade Administration ("ITA"). Contractors must also plan to support their request for waivers with a more robust analysis, including an analysis of possible dumping or unfair home country subsidies of the foreign content. We note that the Executive Order does not make clear what the result is if the lower price of the foreign content is due to dumping or foreign subsidies. Typically, the ITA addresses such concerns. However, if the ITA decides not to pursue the matter either for lack of evidence, impact or political reasons, it begs the question whether the agency act on its own by disqualifying the contractor. Given that the waiver process will now require coordination outside of the agency—the agencies will likely require more documentation for the waiver and will be more reluctant to proceed with waivers.
Executive Order 14005 seeks to promote transparency in federal procurement and instructs the Administrator of General Services to establish a public website that shall include information on all proposed waivers, and the decisions on those waivers. The Order instructs that the website shall enable users to easily identify information regarding waivers, as well as contact information for each granting agency. The Order instructs the Made in America Director to promptly report all proposed waivers, along with descriptions, justifications, and decisions, to the Administrator of General Services for publication on said website within 5 days of receipt, taking into account any national security or confidentiality concerns.
Updating list of nonavailable articles
As noted above, although the Buy American Act generally requires that only domestically mined, produced, or manufactured articles be procured for public use in the United States, there is an exception (i.e. waiver) for articles not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality. FAR 25.103(b)(1) provides a determination that articles listed at FAR 25.104(a) meet the conditions of this exception. This determination does not necessarily mean that there is no domestic source for the listed items, but that domestic sources can only meet 50 percent or less of total US government and nongovernment demand. See FAR 25.103(b)(1)(i).
Executive Order 14005 instructs the Director of OMB, through the Administrator of the Office of Federal Procurement Policy, to review any proposed updates to the list of domestically nonavailable articles listed at FAR 25.201(a) with the Secretary of Commerce and the Made in America Director prior to proposing any amendments to the list. The Order emphasis consideration of market research and analysis to determine whether a reasonable basis exists to conclude the article, material, or supply is not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality
New reporting requirements
Executive Order 14005 instructs the head of each agency to submit to the Made in America Director, within 180 days of the date of the Order, a report on:
(a) the agency's implementation of, and compliance with, Made in America Laws;
(b) the agency's ongoing use of any longstanding or nationwide waivers of any Made in America Laws, with a written description of the consistency of such waivers with policy goals of Executive Order 14005; and
(c) recommendations for how to further effectuate policy goals of Executive Order 14005.
In addition, following submission of the aforementioned report, the head of each agency shall submit a report to the Made in America Director, on a bi-annual basis, addressing much of the same types of information, including the agency's implantation and compliance with the laws, analysis of goods, products, materials, and services not subject to the laws or where waivers have been granted, analysis of spending as a result of waivers used under the Trade Agreements Act of 1970, and recommendations for how to further effectuate the policy goals of Executive Order 14005.
The immediate takeaway for contractors is that the waiver process will now be more detailed and extensive. And as a result, agencies may be discouraged from approving waivers.
The more important takeaway, although not immediate, relates to the changes to the existing laws that the FAR Council may issue. Given the tenor of Executive Order 14005, we might expect the FAR Council to both tighten the existing rules regarding what qualifies as a domestic end product and to increase the preference for domestic end products. If so, contractors will need to re-assess their supply chain in any effort to qualify their products as domestic.
A takeaway not referenced in Executive Order 14005 involves what might be considered to be due diligence in assessing the supply chain. For instance, to what extent can a contractor rely on its subcontractor's representations regarding country of origin, and how far down the supply chain is a contractor expected to go to ensure compliance. As the FAR Council considers all of the points raised in the Executive Order, one might hope that any proposed revisions to the rule will provide guidance on what constitutes acceptable due diligence.
A final takeaway—contractors are likely to see a heightened scrutiny of Buy American representations by Agencies, as well as a greater likelihood in Agency pursuit of false representations. Contractors should ensure their compliance programs are up to date to account for these issues.
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