On July 15, 2019, President Trump signed an Executive Order on Maximizing Use of American-Made Goods, Products, and Materials (the Executive Order) that directs the Federal Acquisition Regulatory (FAR) Council to consider amending the FAR provisions that implement the Buy American Act by adopting new thresholds for determining whether manufactured products constitute domestic end products for federal procurement purposes. The Executive Order is aimed at requiring federal agencies to purchase manufactured products that use more materials and components produced in the United States and follows the President's January 2019 Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects.

The Buy American Act and its implementing regulations require federal agencies to give preference to domestic end products during the procurement process. Currently, the FAR defines a domestic end product as: (1) an unmanufactured end product mined or produced in the United States; or (2) an end product manufactured in the United States wherein the cost of domestic components produced or manufactured in the United States exceeds 50% of the total costs of all components. FAR 25.003. Domestic end products also include commercially-available-off-the-shelf (COTS) items that are manufactured in the United States, without regard to the underlying cost of components. Id.

The Executive Order directs the FAR Council to consider proposing for notice and comment an amendment to the FAR that establishes a domestic content requirement for iron and steel end products—something the current version of the FAR does not do—and increases the domestic content requirement for all other manufactured end products. According to the Executive Order, for iron and steel end products to constitute domestic end products, the cost of domestic iron and steel must exceed 95% of the total costs of all iron and steel used to manufacture the end product. For all other manufactured end products, the cost of the domestic components must exceed 55% of the total cost of all components, with consideration for eventually raising the threshold to 75%. Notably, the Executive Order does address COTS items.

The Executive Order also directs the FAR Council to consider proposing an amendment to the FAR that would dramatically increase the price evaluation preference for domestic end products. Currently, the FAR provides that, where a domestic offer is not the low offer and the Buy American Act restrictions apply, the contracting officer must determine the reasonableness of the cost of the domestic offer by adding 6% to the price of the low (foreign) offer, if the lowest domestic offer is from a large business, or 12%, if the lowest domestic offer is from a small business. FAR 25.105(b). The price of the domestic offer is considered reasonable if it does not exceed the evaluated or adjusted price of the low (foreign) offer. The Executive Order would increase these evaluation preferences to 20 and 30%, respectively, thereby tilting the playing field heavily in favor of domestic offers.

The potential new thresholds likely will make it more difficult and expensive for contractors to comply with the FAR's Buy American Act requirements and may require contractors to reevaluate their manufacturing processes and supply chains, while the new price evaluation factors may significantly affect contractors' competitive pricing strategies. Contractors, therefore, should assess the potential impact of these changes on their businesses.

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