This article provides an overview of federal procurement laws and how the Federal Acquisition Regulations (FAR) implement some of those commitments in government contracts. The FAR, found under 48 C.F.R. Part 25, comprises the list of rules governing procurement of products and materials by federal agencies for public use. The FAR incorporate the rules prescribed in the Buy American Act (BAA) of 1933, the Trade Agreements Act (TAA), the WTO GPA (Agreement on Government Procurement), and the Buy American Act, as well as numerous executive actions. The FAR also includes official examples of how and when the BAA, TAA, and other rules apply.
The Buy American Act and the FAR
The Buy American Act (BAA) was enacted during the Depression in 1933 to encourage the federal government to buy from American companies. The BAA requires the federal government to purchase, with certain exceptions, only "domestic end products" from U.S. companies. The domestic content preferences do not apply to professional or personal services. Congress has since modified the law, adding numerous exemptions and trade agreements that permit the federal government to purchase foreign products from other countries. The BAA should not be confused with the Build America, Buy America provisions of the Infrastructure Investment and Jobs Act of 2021, which was a recent overhaul to federal procurement rules for infrastructure projects, or the Buy American Act, found in Section 165 of the Surface Transportation Assistance Act of 1982, which was a transportation funding and policy act created under the Reagan administration to address concerns about mass transportation.
The BAA rules require that the U.S. government must have a domestic preference when procuring products. Therefore, the genesis of determining the government's purchasing restrictions in a given contract is contingent on the definition of a "manufactured product." For manufactured products, the BAA preferences, as codified under 41 U.S.C. § 8302(a)(1), provide in relevant part that:
"[O]nly manufactured articles, materials, and supplies that have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured in the United States, shall be acquired for public use unless the head of the department ... determines ... their cost to be unreasonable."
The FAR under 48 CFR 25.003 define a "U.S.-made end product" as follows:
". . . an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed."
Further, under the same regulation, an "end product" is defined as:
". . . the supplies delivered under a line item of a government contract, while a "component" is any item supplied to the Government as part of an end item or of another component."
Under 48 CFR 25.101, the Buy American statute restricts the government purchase of supplies that are not domestic end products. To qualify as a "domestic end product," the manufactured product must meet two requirements (or prongs); first, the end product must be "manufactured" in the United States, and second, the end product must be made of "substantially all" U.S.-sourced components.
Prong One – Manufactured in the United States
The first requirement to meet the domestic preference under BAA is that the manufactured end product must be manufactured in the United States. The term "manufactured" is not defined by either the BAA, executive orders, or the FAR. It is a fact-specific question. Courts and agencies have applied varying standards to determine whether an end product is manufactured in the United States, including:
(a) whether the product underwent substantial changes in physical character in the United States;
(b) whether the product's ingredients were measured, weighed, mixed, and compounded in the United States; or
(c) whether the product was completed in the form required for use by the government in the United States.1
The Comptroller General ("CG") of the U.S. Government Accountability Office ("GAO") publishes legal decisions and opinions regarding bid protests under 4 CFR 21 and other matters involving the use of, and accountability for, public funds that turn to whether certain government procurements are BAA-complaint. Based on the CG, the term "manufacture" means the completion of an article in the form required for use by the government. Manufacturing may include a mechanical operation performed on a foreign product or assembly of separate items, whereby the identity and character of the end item is established and fixed as to its current and future use. The key in determining whether a process constitutes manufacturing for BAA purposes is not necessarily whether a foreign product has been significantly altered, but whether the item being purchased by the government is made suitable for its intended use. Manufacturing specifically does not include sterilization, inspection, packaging, testing or evaluation operations.
For example, in the case of A&D Machinery Company, B-242546 (dated 1991), the CG held that a milling machine made from an imported base frame domestically assembled with other domestic components was "manufactured" in the U.S. for BAA purposes. The milling machine in question was assembled in the U.S. from an imported base frame and domestic components that included electric motors, controls, coolant systems, and other "major" components. The CG reasoned that "without the substantial additional process undertaken by [company in the U.S.], item imported would neither function as a milling machine nor even come close to meeting the requirements" of the government contract.
In another example, in the case of DynAmerica, Inc., B248237 (dated 1992), the CG held that metallic ammunition links were manufactured in the United States, and the preparing of the ammunition into carton sleeves in Mexico constituted mere packaging. The original government solicitation in this case was for the manufacture of ammunition links, which are metal parts into which a cartridge of a specific size is inserted and connected in a series to form ammunition belts. The solicitation included packaging requirements, which included the requirement that the ammunition links be packed 20 links per cart, even though they could be bulk shipped instead. The CG explained that the end products in question were the ammunition links that were "fully useable prior to being placed in the feeder sleeve," not the feeder sleeve packaging itself. Further, the CG explained that "the fact that a certain type of packaging makes the use of the end product easier does not make the packaging part of the end product."
Whether an end product is manufactured in the United States is fact intensive and is a definition that is applied differently for each varying product and manufacturing process. Whether domestic efforts reach the threshold definition of "manufactured" in the United States will require an analysis of an end product's components and manufacturing processes both in the United States and abroad.
Prong Two – Made of Substantially All U.S. Components
In addition to being manufactured in the United States, the "end product" must also be made of "substantially all" U.S.-sourced components, which means the cost of the components mined, produced, or manufactured in the United States exceeds 60% of the cost of all components. This percentage threshold will increase to 65% at the beginning of the calendar year of 2024, and again to 75% at the beginning of the calendar year of 2029.2 Contractors should be aware of these threshold changes. Determining whether there is an acceptable percentage of U.S. components by cost will require a review of the end product's bill of materials, as well as the bill of materials for its subassemblies. Additionally, certain costs, such as overhead, may be included if the contractor is the domestic manufacturer, though this does not extend to contractors who are merely the purchaser and reseller.
There is, however, an exception to the 60% cost of components requirements. If the end product is a commercially available off-the-shelf (COTS) item, then the end product does not need to be sourced from U.S. components to any degree. Congress has exempted COTS products from the "substantially all" requirement (See 41 USC 1907), so a COTS product manufactured in the United States is BAA-compliant even if it is manufactured predominantly from foreign components (See 48 CFR 25.101(a)(2)). There are limited exceptions for items such as iron and steel products. Under 48 CFR 25.003, a COTS item is any item of supply that is: (1) a commercial item, (2) sold in substantial quantities in the commercial marketplace, and, (3) offered to the government without modification in the same form in which they are sold in the commercial marketplace. Under 48 CFR 2.2101, commercial items are items of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes that have been sold, leased, or licensed to the general public, or offered for sale, lease, or license to the general public. "Substantial quantities in the commercial marketplace" is not defined by the BAA or FAR.
The FAR provide rules and guidelines for domestic preference requirements for U.S. government contracts. Private companies, such as contractors or subcontractors, that are supplying products to the government should be aware of these requirements. While there are some exceptions, the Buy American domestic content preferences require an immersive review of an end product's materials, components, and manufacturing processes compared to the regulations. Such a review should not be conducted lightly, and companies supplying the government with complex products with foreign materials should have the assistance of outside counsel with experience and knowledge of the FAR and the Buy American requirements.
1. See The Buy American Act and Other Federal Procurement Domestic Content Restrictions, Congressional Research Service (Updated November 8, 2022).
2. See Federal Acquisition Regulation: Amendments to the FAR Buy American Act Requirements, 87 FR 12780 (March 7, 2022).
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