Overview
On January 25, 2021, President Biden signed Executive Order (“E.O.”) 14005, “Ensuring the Future is Made in All of America by All of America’s Workers.” The E.O. establishes as policy that the US Government “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” and “should, whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.”
Under existing law, federal procurements and financial assistance are subject to an array of domestic preference rules, including the Buy American Act (“BAA”) (concerning government procurements of supplies and construction materials), the Trade Agreements Act (“TAA”) (concerning waivers of BAA requirements in certain circumstances), and the Buy America Act (concerning non-federal transit-related procurements using federal funding).
The Biden E.O. is designed to supplement, review, and strengthen these and other applicable US laws and regulations, consistent with the policy objectives of procuring US goods and services to the maximum extent possible.
Key Provisions of the Executive Order
The E.O. instructs the Executive Branch to implement regulatory changes aimed at directing more federal procurement dollars at US producers – including by tightening the rules that govern what products qualify as US-origin – and restricts the use of existing authority for waivers by centralizing and making more transparent any decision-making to waive domestic content requirements or preferences.
- Transitioning to a Value-Added Domestic Content Test and Increasing Domestic Content Thresholds and Price Preferences: The Federal Acquisition Regulatory Council (“FAR Council”) is directed to consider rulemaking on amendments to the Federal Acquisition Regulation (“FAR”) aimed at ensuring that more government procurement spending is directed at US-made products. Such amendments would include: (i) replacing the BAA’s component test in the FAR with a test under which domestic content is measured by the value that is added to the product through US-based production or US job-supporting economic activity; (ii) increasing the numerical threshold for domestic content requirements for end products and construction materials; and (iii) increasing the price preferences for domestic end products and domestic construction materials.
- Accounting for Sources of Cost Advantage in Considering Waivers: Before an agency grants a waiver in the public interest, the agency must determine “whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods.” The granting agency may consult the US International Trade Commission, if helpful, in reaching this determination.
- Restricting the Made in America Waiver Process: Before an agency grants a waiver, and unless the Office of Management and Budget (“OMB”) Director provides otherwise, agencies must provide the Director of a new Made in America Office within OMB with a description of the proposed waiver and a detailed justification for the use of goods, products, or materials that originate outside the United States (while it is unclear where this new Office will be placed within OMB, it seems noteworthy that the E.O. appears to distinguish the Made in America Director from the Administrator of the Office of Federal Procurement Policy (OFPP)). OMB, through the Made in America Director, will respond within 15 business days by notifying the head of the agency applicant of the results of the review of the proposed waiver or that such review has been waived. As part of the review, the Made in America Director will assess whether issuing the proposed waiver would be “consistent with applicable law or the policy set forth in {the E.O.}.” Information on proposed waivers and whether those waivers have been granted will be published on a public website to be developed by the General Services Administration (“GSA”).
- Trade Agreements Act: The E.O. does not require changes to TAA waivers, which permit products and services from a country with which the United States has a free trade agreement (“designated countries”) to be treated on an equal footing with US-made products. Designated countries include: (i) signatories to the World Trade Organization Government Procurement Agreement; (ii) countries with which the United States has a free trade agreement which provides for reciprocal non-discriminatory treatment for public procurement; and (iii) certain developing and Caribbean Basin countries. The transition to a value-added domestic content test would apply to BAA but not TAA procurements. In practice, because the TAA applies to procurements above a certain dollar threshold, most acquisitions of supplies are subject to the TAA rather than the BAA. In general, where an article consists in whole or in part of materials from more than one country, the TAA employs a “substantial transformation” test for determining the country of origin.
- Recent Changes to the BAA Regulations: On January 21, 2021, the BAA rules in the FAR were modified pursuant to a regulatory process initiated by a 2019 executive order issued by the Trump Administration (Executive Order 13881). The final changes imposed new domestic content requirements for end products and construction materials that consist “wholly or predominantly of iron or steel” (e., where iron or steel constitutes at least 50% of the total cost of all components). For those end products and construction materials to qualify as “domestic” (or US origin), the cost of foreign iron and steel must be less than 5% of the cost of all the components used in the end product, effectively increasing the domestic content requirements for those products and materials from 50% to 95%. For the iron and steel to qualify as US origin, it must be “produced in the United States,” which is defined to mean that “all manufacturing processes of the iron or steel must take place in the United States, from the initial melting stage through the application of coatings, except metallurgical processes involving refinement of steel additives.”
For other end products (i.e., not predominantly composed of iron or steel), the new regulations increase the domestic content requirement for components by 5%. Specifically, the cost of the end product’s domestic components must exceed 55% for the end product to qualify as US origin (in addition to meeting the domestic manufacture prong of the test).
It is currently unclear whether the E.O.’s proposed increase to the numerical threshold for domestic content requirements for end products and construction materials will be on top of these recently-imposed thresholds or their predecessors.
However, there is at least some reason to believe that the E.O.’s proposed increases will be in addition to the recently-increased thresholds. This is because of a correction notice published in the Federal Register on February 5, 2021 that modified the effective date of the FAR changes from January 21, 2021 to January 19, 2021. The likely result of this correction is the removal of the final rule from the scope of the Biden Administration’s January 20, 2021 regulatory freeze memorandum, which directs federal agencies to postpone the effective date for rules not yet in effect by 60 days or longer “for the purpose of reviewing any questions of act, law, and policy the rules may raise.” Because the changes to the FAR do not appear to be subject to this regulatory freeze and will thus likely go into effect without further impediment, it is reasonable to suspect that increases to the numerical threshold for domestic content requirements will be on top of the recently-imposed thresholds in the FAR.
Next Steps and Things to Watch Although the E.O. has little in the way of immediate effect, companies that are involved in federal procurement should note the following next steps laid out in the E.O. and monitor these and other developments closely.- OMB: Within 45 days of the date of appointment of a Made in America Director, OMB is to publish: (i) a list of the information that granting agencies are to include when submitting proposed waivers and justifications; and (ii) a deadline (not to exceed 15 business days) by which OMB will notify agencies of decisions on proposed waivers.
- GSA: The GSA is to develop a public website featuring information on all proposed waivers and whether such waivers have been granted. Additionally, by July 24, 2021, GSA will submit to the Made in America Director recommendations for ensuring that products offered to the general public on federal property are procured in accordance with the policy established by the E.O.
- FAR Council: By July 24, 2021, the FAR Council will “consider proposing” action through notice and comment rulemaking to transition to a value-added domestic content test and increase domestic content thresholds and price preferences. The public will have an opportunity to submit comments on any proposed changes. It bears noting, however, that the E.O. provides flexibility to the FAR Council with respect to certain other aspects of the rulemaking – the phrasing of the E.O. appears to create a soft deadline just for considering whether to issue an NPRM and does not require issuance of a final rule unless “appropriate and consistent with applicable law and the national security interests of the United States.” The E.O. also directs the FAR Council to revisit a current exemption to the BAA for information technology that is a commercial item. In the early 2000s, annual defense appropriations acts had established this exemption to promote the Defense Department’s access to cutting-edge commercial information technology for defense-related information systems. Per this direction, the FAR Council will “promptly” review any existing constraints on scaling back this exemption and develop recommendations for extending the requirements of Made in America Laws (e.g., the BAA) to federal procurements of such “commercial item” information technology.
- All Federal Agencies: By July 24, 2021, the head of each agency will submit to the Made in America Director a report on: (i) the agency’s implementation of, and compliance with Made in America Laws; (ii) the agency’s 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 of the E.O.; and (iii) recommendations for how to further effectuate the policy announced in the E.O. Additionally, on a bi-annual basis, the head of each agency will submit to the Made in America Director a report on: (i) the agency’s ongoing implementation of, and compliance with Made in America Laws; (ii) the agency’s 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; (iii) the agency’s analysis of spending as a result of waivers issued pursuant to the Trade Agreements Act of 1979, broken out by countries of origin; and (iv) recommendations for how to further effectuate the policy announced in the E.O.
