Court Affirms Applicability Of Trade Agreements Act Requirements

Bottom Line Up Front

A recent bid protest decision issued by the U.S. Court of Federal Claims (COFC) has affirmed that US federal agencies may not ignore applicable domestic sourcing laws and regulations when evaluating competitive offerors, even if compliance will result in the government paying a significantly higher price for goods or services. Specifically, in Cosette Pharmaceuticals, Inc. v. United States, the COFC held that the U.S. Department of Veterans Affairs (VA) violated the Trade Agreements Act (TAA) of 1979 when it awarded a contract for prasugrel, a blood thinner used to reduce the risk of heart attacks and strokes, to a company that offered "a lower-cost, generic version of the drug because the brand-name version of prasugrel," offered by Cosette Pharmaceuticals, "is significantly more expensive." Importantly, the generic version is manufactured in India, which is not a designated country under the TAA; however, Cosette Pharmaceuticals manufactures its drug in Germany, which is a designated country under the TAA. This decision serves as a reminder that an agency's source selection decision may be overturned if an award is made based upon policy rationales that violate the plain language of existing laws.

Domestic Sourcing Laws and Public Procurement in the US

Domestic sourcing requirements relating to the origin and composition of products or materials used in performance of a federally funded contract are imposed upon federal contractors. All US federal government agencies, as well as some state and local government agencies, are required to comply with applicable domestic sourcing laws when acquiring certain supplies, services, and construction materials. Federal agencies are subject to a number of domestic sourcing laws. Two of the most encountered are the Buy American Act (BAA) of 1933 (41 U.S.C. §§ 8301–8305) and the TAA (19 U.S.C. §§ 2501–2581). The application of these laws to a specific situation is dependent on the funding source, the amount of the procurement, and, in some instances, the acquiring agency's implementing regulations.

The BAA establishes a national purchasing preference for federal government agencies to buy domestic end products when they purchase supplies and construction materials. The BAA uses a two-part test to analyze whether an end product is domestic: (1) Has the article been manufactured in the United States and (2) does the cost of the domestic components exceed the statutorily imposed percentage of the costs of all the components.¹ If the end product is not found to be domestic, the contracting officer will add a price premium for pricing evaluation, which will make the proposal less competitive from a price perspective. There are a number of exceptions applicable to the BAA that would allow a contracting officer to not impose a price premium, including when the procurement of domestic end products would result in unreasonably high costs and when the domestic products are unavailable in sufficient quantity or quality to meet the government's needs.²

The TAA permits the US president to waive domestic content requirements that would discriminate against eligible products or suppliers from designated countries that have active trade agreements with the United States. The TAA allows covered end products and construction materials that are imported from designated countries with active trade agreements to be treated as if they are domestic for purposes of the BAA. The TAA also generally prohibits federal procurement of products from non-designated countries in certain acquisitions covered by the World Trade Organization (WTO) Government Procurement Agreement (GPA).³ This prohibition is intended to encourage countries to join the GPA and provide reciprocal competitive government procurement opportunities to products and suppliers outside of the US, and it applies unless one of two statutory exceptions is satisfied. The first exception occurs when there are no offers of a US-made or -designated product or service, and the second exception occurs when such US offers are insufficient to fulfill the US government's requirements.

The Legal Challenge

The COFC was asked to decide whether the VA had acted improperly when, despite the fact that Cosette Pharmaceuticals submitted the only TAA-compliant offer, it awarded the contract to Golden State Medical Supplies, which manufactures its lower-priced generic drug in India, a non-designated country under the TAA. Both Cosette Pharmaceuticals and the VA agreed that the TAA, its implementing regulations, and the VA's solicitation generally barred "the VA from awarding a contract to a non-TAA-compliant source." However, in defending its actions, the VA justified the award by invoking the TAA's insufficiency exception, contending that Cosette Pharmaceuticals' price was "not fair and reasonable" and "substantially higher" than all the other non-TAA-compliant offers.

The COFC rejected the VA's rationale and held that the TAA does not contain a "high price" exception and does not permit agencies to deem a TAA-compliant offer "insufficient" merely because it is more expensive than noncompliant alternatives. The COFC pointed out that unlike the BAA, the TAA does not contain a price-based exception, which reflects the fact that Congress had affirmatively chosen to prioritize reciprocal trade commitments over higher prices. The COFC further opined that if the VA sought to avoid paying the higher price, its lawful options would have included seeking, pursuant to the statute, an agency-head waiver of the TAA's requirements, properly evaluating the sole TAA-compliant offer for price reasonableness "in a competitive range of one," or canceling the solicitation and procuring the drug through other authorized channels.

Takeaways

US domestic sourcing laws and their associated implementing regulations are complex and evolving; companies contracting with the government must understand these frameworks and how their proposals will be evaluated pursuant to them. A failure to adequately understand them can result in the submission of a noncompliant proposal that is ineligible for award. However, as this COFC case demonstrates, an awarding agency can also make a mistake in complying with these laws and improperly award a contract based on that mistake. Contractors that are impacted by such mistakes should consider protesting the contract award. The COFC, the Government Accountability Office, and the acquiring agency, via its contracting officer, are the only forums in which a protestor may seek relief. Because the timelines for filing are short and strict, it is important for contractors to identify instances of agency noncompliance and error early and file bid protests promptly to preserve their legal rights.

Footnotes

1 At the time of this article's publication, the domestic content component percentage is set to increase over the next several years and will eventually be set at 75% effective in calendar year 2029. ("The Buy American Act and Other Federal Procurement Domestic Content Restrictions," Congressional Research Service, November 2022).

2 The exceptions apply when (1) "the procurement of domestic goods or the use of domestic construction materials would be 'impracticable' or 'inconsistent with the public interest,'" (2) "domestic end products or construction materials are unavailable 'in sufficient and reasonably available commercial quantities and of a satisfactory quality,'" (3) "the contracting officer determines that the cost of domestic end products or construction materials would be 'unreasonable,'" (4) "the goods are acquired specifically for commissary resale," (5) "the agency procures information technology that is a commercial item," (6) "the value of the procurements is at or below the micro-purchase threshold," or (7) "the items are procured for use outside the United States." ("The Buy American Act").

3 "Trade Guide: WTO Government Procurement Agreement," International Trade Administration (accessed January 2026).

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