On January 25, 2021, President Biden issued a sweeping Executive Order titled “Ensuring the Future Is Made in All of America by All of America’s Workers” (Order), which is intended to be the first step toward fulfilling his campaign promise to commit to American businesses by strengthening domestic preference rules in government procurement. The Order states the administration’s policy that the US government should “use terms and conditions of Federal financial assistance awards and Federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States.” While this is not a novel policy objective—indeed, the Trump administration articulated similar goals—the Order introduces certain dramatic steps in furtherance of that objective that may ultimately have significant implications for contractors.
These steps include the following:
- Directed revisions to the Federal Acquisition Regulation (FAR) designed to (i) replace the existing “component test” with a “test under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity”; (ii) increase the numerical threshold for domestic content requirements for end products and construction materials; and (iii) increase the price preferences for domestic content requirements for end products and construction materials
- Creation of a “Made in America Office” within the Office of Management and Budget (OMB), which will manage a revamped waiver process intended to increase scrutiny of waiver requests and ultimately reduce the number of waivers granted
- Development of a public website that will include information on all proposed waivers and whether those waivers have been granted
- A requirement that agencies account for sources of cost advantage of foreign-sourced products prior to granting a waiver in the public interest by determining whether a “significant portion” of that cost advantage is due to the use of dumped steel, iron, or manufactured goods
- Increased agency efforts to seek out American sources of supply by requiring them to undertake “supplier scouting” in partnership with the Hollings Manufacturing Extension Partnership
- A critical examination of the exception from Buy American requirements for information technology that is a commercial item
- Increased scrutiny of the list of domestically nonavailable articles at Section 25.104(a) of the FAR
- A requirement that agencies report on their ongoing enforcement of “Made in America Laws,” as well as those agencies’ ongoing use of “longstanding or nationwide” waivers from any Made in America Laws, to aid the Made in America Office in determining whether the agencies are acting in compliance with the policies set forth in the Order
As the Order largely focuses on policy statements and the establishment of administrative infrastructure for implementing those policies, contractors likely will not see immediate impacts from this Order. However, it is clear that significant regulatory developments are on their way.
Waiver from Made in America Laws
The Order first takes the hodgepodge of domestic preference statutes, regulations, and executive actions and combines them under one umbrella definition for purposes of achieving its policy objectives. The Order defines “Made in America Laws” broadly to encompass “all statutes, regulations, rules, and Executive Orders relating to Federal financial assistance awards or Federal procurement, including those that refer to ‘Buy America’ or ‘Buy American,’ that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods offered in the United States.” This omnibus definition is significant in that it encompasses not only the Buy American Act (and the accompanying FAR clauses implementing that statute) but also the Department of Transportation (DOT) “Buy America” statutes and the accompanying regulations implementing the DOT’s domestic preference rules, signaling that the changes to the waiver process apply across agencies that previously operated according to their own idiosyncratic procedures.
Having established the scope of its applicability, the Order sets forth the administration’s goal to “crack down on unnecessary waivers” by consolidating and imposing increased scrutiny on the process to obtain a waiver from the restrictions in the Made in America Laws. The Order centralizes the Made in America waiver process through the creation of a new Made in America Office within the OMB, headed by a new Made in America Director. Per a statement by the Biden administration heralding the Order, the Made in America Office will “oversee the implementation of this Executive Order, make sure the President’s new rules are followed, work with key stakeholders, and carry through the President’s vision in conjunction with their executive agency partners.”
Notably, the Made in America Director is tasked with the review and approval of waivers from the Made in America Laws. Previously, waivers were handled inconsistently, depending on the underlying domestic preference statute and the agency from which a waiver was sought. One of the first acts of the Made in America Director will be to create the Director’s own waiver review procedures—within 45 days of the date of the Order, the Made in America Director is to (i) publish a list of the information that granting agencies shall include when submitting descriptions of proposed waivers and justifications to the Made in America Director; and (ii) publish a deadline, not to exceed 15 business days, by which the Made in America Director will notify the head of the agency that the Made in America Director has either waived the review or will notify the agency in writing of the result of the review. The Order is not clear on when the waiver review itself will be “waived” by the Made in America Director, but the Order does appear to recognize that in some cases, the review will not be possible or practicable. In fact, the Order acknowledges that in certain situations, an agency may be “obligated by law to act more quickly than the review procedures established in [the Order] allow[.]” In such situations, the head of the agency is required to “notify the Made in America Director as soon as possible” and comply with the waiver review requirements “to the extent practicable.”
Pursuant to the process established by the Order, to be formalized in the coming weeks by the Made in America Director, before an agency grants a waiver (which is broadly defined by the Order as “an exception from or waiver of Made in America Laws, or the procedures and conditions used by an agency in granting an exception from or waiver of Made in America Laws”) from the requirements of any of the Made in America Laws, the agency must now first “provide the Made in America Director with a description of its proposed waiver and a detailed justification for the use of goods, products, or materials that have not been mined, produced, or manufactured in the United States.” The Order does not state whether this process applies only to individual waivers or to statutory and regulatory waivers that already exist, but the broad definition of “waiver” in the Order suggests that the administration may intend for the use of all waivers—whether long-standing or individually considered—to be examined. We expect the upcoming procedures to be published by the Made in America Director will clarify the types of waivers that will trigger the review. The Made in America Director will then determine whether the proposed waiver is consistent with the policy set forth in the Order, and will inform the agency of the Made in America Director’s determination within the timeline to be established (but not to exceed 15 business days). Waivers that are not found to be consistent with the policy in the Order will be returned to agencies for “further consideration,” and the Order sets forth a dispute resolution process by which agencies and the Made in America Director are to resolve disagreements regarding the Made in America Director’s determination.
The Order also intends to “[promote] transparency in Federal procurement” by requiring the General Services Administration (GSA) to develop a public website that will include information on all proposed waivers and whether those waivers have been granted. Upon receiving a request for waiver, the Made in America Director will “promptly” report the proposed waiver to GSA, along with the associated descriptions and justifications for the waiver, and whether the waiver has been granted. Under the Order, GSA is then required to post that information within five days of receipt. This GSA website will also include publicly available contact information for each granting agency—increasing the opportunity for manufacturers and other stakeholders to track and voice their opinions on the proposed waivers.
Accounting for Sources of Cost Advantage
The Order also takes aim at the use of “dumped” or “injuriously subsidized” steel, iron, or manufactured goods. “Dumping”—where foreign producers flood foreign markets with cheap, subsidized products—results in a situation where inexpensive foreign-made steel, iron, and manufactured products are preferred by suppliers over American-made products due to the cost advantage associated with those products. The Order requires agencies to take dumping into account before granting a public interest waiver and assess whether a “significant portion” of the cost advantage of a foreign-sourced product is a result of the use of dumped or injuriously subsidized steel, iron, or manufactured goods. Agencies will then be required to integrate any findings from the assessment into their waiver determinations as appropriate—suggesting that the Made in America Office will take a particular interest in an agency’s determination that applying domestic preference is “inconsistent with the public interest” where that determination is based on the lower cost of imported “dumped” products.
The Order imposes a requirement that agencies must increase their due diligence in seeking American sources of supply. Agencies are required to partner with the Hollings Manufacturing Extension Partnership to conduct supplier scouting in order to identify American companies that are able to produce goods, products, and materials in the United States that meet federal procurement needs. It is not clear from the Order when, how, or to what extent agencies are to undertake this review. However, at a minimum, this requirement will force agencies to undergo an additional step in their procurement process to identify American sources of supply, which is designed to further the administration’s policy to procure goods from American businesses “whenever possible.”
Enforcement of the Buy American Act
The Order also promotes more stringent enforcement of the Buy American Act, requiring the FAR Council to “consider” amendments to the FAR within the next 180 days that would:
- Replace the “component test” in Part 25 of the FAR with a test “under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity”
- Increase the numerical threshold for domestic content requirements for end products and construction materials
- Increase the price preferences for domestic end products and domestic construction materials
In remarks made at the signing of the Order, President Biden took aim at the existing component test, explaining that because of “loopholes that have been expanded over time,” offerors are able to “count the least valuable possible parts as part of that 50 percent to say ‘Made in America,’ while the most valuable parts—the engines, the steel, the glass…—are manufactured abroad.” Combined with the increased scrutiny on dumping, the replacement of the component test appears to be calculated to address this loophole by imposing a value-added test. However, the Order provides no clues as to the mechanics of this new process. If and when this change is implemented, it will undoubtedly have a dramatic impact on the way contractors do business—however, in the short term, it represents only a vague idea that will need to be fully realized by the regulators tasked with translating the Order’s vision into reality.
If the last two proposed amendments sound familiar, it is because they parallel the two significant changes to the Buy American rules proposed by the Trump administration and implemented in a Final Rule issued on January 19, 2021. The Order does not specify what it would like to see in terms of an “increased” numerical threshold for domestic content requirements for end products and construction materials and “increased” price preferences for domestic end products and domestic construction materials—that will, apparently, be left open to interpretation by regulators. We assume, however, that it will represent a larger increase than that proposed by the Trump administration—the Final Rule issued by the Trump administration on January 19, 2021, (i) increased the domestic content requirements from 50 percent to 95 percent for end products or construction materials that consist wholly or predominantly of iron or steel or a combination of both, and from 50 percent to 55 percent for other end products or construction materials; and (ii) increased the domestic price preference from 6 percent to 20 percent for large businesses, and from 12 percent to 30 percent for small businesses. As we noted in our previous post, a regulatory freeze is in effect that may yet nullify the previous administration’s proposed changes. The Order is silent on whether the Final Rule will stand; however, the Order specifically declines to revoke Executive Order 13881, the Trump Executive Order underlying the Final Rule, though noting that it is “superseded to the extent…inconsistent with this order.” Based on President Biden’s remarks that the “content threshold of 50 percent [isn’t] high enough,” we assume the administration will conclude that the Final Rule represents a step in the right direction, and thus we would not be surprised if the Biden administration leaves the Final Rule alone while the actions outlined by the Order unfold. However, contractors should not get too comfortable with the revisions implemented by the Final Rule—it may well be that the increased thresholds and price preferences left over from the Trump administration are merely a stepping-stone to more robust domestic preference restrictions signaled by the Order.
Note, however, that not all Trump-era domestic preference Executive Orders survived the new Order. The Order specifically revokes (i) Executive Order 13788 of April 18, 2017 (Buy American and Hire American), which articulated the Trump administration’s version of domestic preference goals; (ii) Section 5 of Executive Order 13858 of January 31, 2019 (Strengthening Buy-American Preferences for Infrastructure Projects), which provided a revision to Executive Order 13788; and (iii) Executive Order 13975 of January 14, 2021 (Encouraging Buy American Policies for the United States Postal Service), which “strongly encourages” the US Postal Service to “consider” changes to its Buy American domestic procurement preferences in line with those changes made by Executive Order 13381. The Order gives no explanation for the revocation of these Trump Executive Orders, but as the revoked actions did not result in any real change to agencies’ processes or regulations, the revocation appears to be simply the replacement of one administration’s policy statement for another.
Other Changes to FAR Part 25
Information Technology that Is a Commercial Item
The Order also implies that commercial item information technology products may soon be subject to Buy American requirements. In this respect, the Order requires the FAR Council to “promptly review” constraints on the extension of the requirements of Made in America Laws to commercial information technology and “develop recommendations for lifting these constraints” to further promote the policy set forth in the Order. While this sounds like good news for domestic producers of information technology, the history of the exception may limit the administration’s ability to make real changes on this front without congressional action. The information technology exception was initially recognized in the Consolidated Appropriations Act of 2004, and was permanently incorporated into the FAR by a Final Rule in 2006 when it “became clear that [the exception] was not just for one year.” In that Final Rule, the FAR Council stated that it “expect[ed] this exception to continue to appear in future appropriations acts.” If the exception did not appear in a future appropriations act, the Council stated that it would “promptly change the FAR to limit applicability of the exception to the fiscal years to which it applies.” As predicted, the information technology exception continues to appear in appropriations acts, most recently in the Consolidated Appropriations Act for FY 2021. The administration’s actual ability to limit the information technology exception will therefore be limited unless Congress removes the exception from future appropriations acts.
Class determinations of “nonavailability” made under FAR 25.103(b) and listed at FAR 25.104, Nonavailable Articles, will also be subject to heightened scrutiny. Pursuant to FAR 25.103(b)(1), a nonavailability 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. The Order requires that before the FAR Council proposes any amendment to the FAR to update the list of domestically “nonavailable” articles at FAR 25.104, the director of OMB (through the Office of Federal Procurement Policy) must review the amendment in consultation with the Secretary of Commerce and the Made in America Director. This review will include economic analyses of relevant markets and available market research, with the goal of determining whether there is a “reasonable basis” to conclude that the item in question is truly unavailable in the United States. The added surveillance of the list of nonavailable articles—which includes items from bananas and thyme oil to certain microprocessor chips and spare and replacement parts for equipment of foreign manufacture—underscores the Biden administration’s position that no waiver is too peculiar to escape its notice. However, FAR 25.104 has not been updated since 2010, so the practical impact of this additional scrutiny may be limited.
Made in America Accountability—Reporting and the Trade Agreements Act
The Order also dictates initial and biannual reporting to the Made in America Director regarding agencies’ implementation of, and compliance with, the Made in America Laws. The initial report, due 180 days following the date of the Order, must also include an accounting of agencies’ “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 the policy set forth in [the] order,” as well as recommendations for how to further the policy goals of the Order. The biannual reports must also include recommendations for how to further the policy goals of the Order, as well as an accounting of agencies’ “analysis of goods, products, materials, and services not subject to Made in America Laws or where requirements of the Made in America Laws have been waived,” as well as an “analysis of spending as a result of waivers issued pursuant to the Trade Agreements Act of 1979,” separated by country of origin.
This last item, while framed as a reporting requirement, portends potentially significant changes to the way in which agencies and their contractors use the Trade Agreements Act, which currently allows contractors to sidestep Buy American Act restrictions as long as they supply goods and services from designated countries. While the Order makes no pronouncements regarding how the applicability of the Trade Agreements Act may change as a result of the administration’s policy, this is an issue that we will carefully track as it may have seismic implications for contractors’ supply chain management.
The Order articulates broad policy goals and sets in motion several processes that may ultimately reshape the rules applicable to the government’s domestic procurement landscape. While the Trump administration issued several Executive Orders over the course of the past four years proclaiming its commitment to American manufacturing, the actual regulatory output of those Orders was generally limited to the Final Rule issued on the last full day of Trump’s presidency. While it remains to be seen whether the Biden administration will make good on the promises of its campaign and this Executive Order, it is increasingly evident that a renewed commitment to American suppliers is a bipartisan issue that is likely to result in real change. Accordingly, in the short term, contractors should take this opportunity to examine their supply chains to determine the extent to which they can make changes to increase the domestic content of the end products or construction materials supplied to the government. In the long term, however, contractors should take note that the replacement of the components test with a vaguely described “value added” test is likely to dramatically change the way contractors have been doing business for years. We will be carefully following the rule-making process that attends this Order and will keep you updated as events evolve.