On the eve of the inauguration of President Biden, a lingering Trump-era policy finally made its way into the Federal Acquisition Regulation (FAR). On January 19, 2021, the FAR Council issued a final rule implementing changes first revealed in Executive Order 13881 (the E.O.), Maximizing Use of American-Made Goods, Products, and Materials (84 FR 34257, July 18, 2019). As we discussed in an earlier post on this topic, the E.O. mandated significant modifications to FAR clauses implementing the Buy American statute by (1) substantially increasing domestic content requirements and (2) increasing the price preferences for domestic products. On September 14, 2020, the FAR Council issued a proposed rule designed to implement the requirements of the E.O. (85 FR 56558, Sept. 14, 2020). Our post on that development noted that, while the proposed rule incorporated the overarching objectives of the E.O., it also significantly expanded on the E.O. by reintroducing the domestic content test for commercially available off-the-shelf (COTS) items made wholly or predominantly of iron or steel, or a combination of both (with the exception of fasteners).

Summary of Final Rule

While the final rule largely adopts the changes outlined in the proposed rule, it also provides certain clarifying revisions and commentary that will assist contractors’ compliance efforts. Consistent with the proposed rule, the final rule amends the FAR’s existing domestic content cost threshold from 50% to 95% for end products or construction materials that consist wholly or predominantly of iron or steel or a combination of both. The final rule also raises the threshold for “domestic construction material” or a “domestic end product” that does not consist wholly or predominantly of iron or steel or a combination of both from 50% to 55%. The final rule also adopts the domestic pricing preferences for acquisitions of foreign end products or construction material. If the potential awardee is a large business offering domestic end products, the price of an offer consisting of non-domestic end products will now be increased by 20% for evaluation purposes (up from 6%). Small businesses offering domestic end products receive even greater preferential treatment, such that offers including foreign end products would be comparatively increased by 30% (up from 12%).

These changes will appear throughout FAR Part 25, most notably in FAR 25.003, Definitions. The “Buy American” clauses will also reflect these changes, including the commonly used clauses at FAR 52.225-1, Buy American – Supplies; FAR 52.225-3, Buy American – Free Trade Agreements – Israeli Trade Act; FAR 52.225-9, Buy American – Construction Materials; and FAR 52.225-11, Buy American – Construction Materials Under Trade Agreements.

As with the proposed rule, the most significant feature of the final rule is its resurrection of the domestic content test for iron and steel COTS items made wholly or predominantly of iron or steel, or a combination of both —with the notable exception of COTS fasteners. Despite steadfast opposition from industry groups, the final rule preserves the exclusion of COTS fasteners from the domestic content test. The FAR Council “determined that requiring offerors to keep track of the origin of all fasteners could have a significant negative impact by creating an administrative burden on offerors that would outweigh any benefit to the American iron and steel industrial base.” While this exclusion will likely provide some relief to contractors concerned about the administrative burden of compliance with the new rule, the broad exclusion partially defangs the reinstatement of the domestic content test for iron and steel COTS items by excluding U.S. manufacturers of fasteners from the protection that other iron and steel manufacturers will enjoy thanks to these new restrictions.

The final rule also revises certain definitions of terms to be included in the revised FAR sections, providing additional clarity that will help contractors identify whether their products “consist wholly or predominantly of iron or steel or a combination of both” or whether they are instead “other” end products or construction items. This determination will be critical for all contractors to ensure future compliance with the restrictions. In fact, the final rule clarifies the definition of “predominantly of iron or steel or a combination of both” to specify what is meant by the phrase “the cost of iron and steel”:

Predominantly of iron or steel or a combination of both means that the cost of the iron and steel content exceeds 50 percent of the total cost of all its components. The cost of iron and steel is the cost of the iron or steel mill products (such as bar, billet, slab, wire, plate, or sheet), castings, or forgings utilized in the manufacture of the product and a good faith estimate of the cost of iron or steel components excluding COTS fasteners.

While this revision does provide some much-needed clarity, it also introduces ambiguity as to what constitutes a “good faith estimate” of the cost of iron and steel components. Thus, it will be critical for contractors to examine their supply chains and adopt recordkeeping procedures to ensure that “good faith” estimating processes are well documented and supported before bidding for, or entering into, any contracts that contain the new requirements.

The higher domestic content thresholds for iron and steel products will be familiar to those that have experienced the domestic preference requirements governing certain Federal grant programs, notably the Federal Transit Administration’s Buy America regulations. Many other government contractors, however, may find themselves needing to scale a steep learning curve in short order. The final rule took effect yesterday, January 21, 2021, and the new clauses are set to begin appearing in new solicitations and contracts beginning February 22, 2021. This change to the FAR reflects a policy that, in theory, has broad bipartisan support, and we therefore expect these changes to remain.  That said, the Biden Administration instituted a regulatory freeze on January 20, 2020, which requires agencies to “consider” postponing new rules’ effective dates for 60 days “for the purpose of reviewing any questions of fact, law, and policy the rules may raise.”  During this period, agencies are to again consider opening a 30-day comment period to permit a public dialogue “about issues of fact, law, and policy raised by those rules, and consider pending petitions for reconsideration involving such rules.”  Thus, it is possible that the changes will be postponed and potentially modified.  We will provide updates on this blog as new developments arise.  For now, however, contractors should ensure that they have all necessary policies and procedures in place to ensure compliance.