New Executive Directives by President Biden Strengthen Existing Buy American Act
Stites & Harbison Client Alert, May 5, 2021
On January 25, 2021, President Biden signed an executive order titled, Ensuring the Future is Made in All of America by All of America’s Workers. This executive order is designed to discourage federal agencies from obtaining waivers to existing Buy American Act (“BAA”)1 requirements and to encourage federal procurement of goods fabricated with American labor.
President Biden hammered this point home in his April 28, 2021 address to Congress by stating:
[A]ll the investments in the American Jobs Plan will be guided by one principle: Buy American. Buy American…American tax dollars are going to be used to buy American products, made in America, to create American jobs. That’s the way it’s supposed to be, and it will be in this administration. And I made it clear to all my cabinet people, their ability to give exemptions has been strenuously limited. It will be American products.
This article describes the Buy American law that has existed for years and takes a first look at how this new executive directive strengthens that law by (1) centralizing the waiver process, (2) increasing transparency in federal procurement, and (3) replacing the component test.
Overview of the BAA
The Buy American Act can be found at 41 U.S.C.S. §§ 10a-10d (“the Act”). The Act was enacted to establish a preference for domestic products in government procurement.2 The Buy American Act was designed by its drafters as a device “to foster and protect American industry, American workers, and American invested capital . . . .”3 Congress was also concerned with taking care of “American industry, the American taxpayers, and American workers as against foreign nations, foreign industries, foreign workers, and foreign taxpayers.”4 Put another way, “[T]he central purpose of the Buy American Act was to protect the American worker.”5 The drafters acknowledged that striking the balance between the necessities of government procurement and the protection of American workers and products would be difficult. They framed a law that amounts to a mandatory preference for domestic end products that had to be calibrated by the responsible federal agencies.
The Act applies to “every contract for the construction, alteration, or repair of any “public building or public work in the United States.”6 It provides that a contractor must use “manufactured articles, materials, and supplies” that have been manufactured in the U.S. “substantially all from articles, materials, or supplies mined, produced, or manufactured” in the U.S.7 The term “substantially” means that the cost of domestic components of manufactured articles exceeds 50% of cost of the end product, pursuant to the standard set forth in federal acquisition regulations.8 Materials will be deemed to be of foreign origin if the cost of the foreign products used in the materials is 50% or more than the cost of all of the products used in the materials.9
The Act applies unless: (1) it is inconsistent with public interest, (2) the cost is unreasonable, (3) the material will be used outside the U.S., (4) the material is insufficient and not reasonably available in the United States in commercial quantities and of a satisfactory quality, or (5) if the contract award value is less than or equal to the micro-purchase price under 41 U.S.C.S. §428.10 A waiver should be applied for before the contract award or before the contract is performed in order to avoid construction costs.11 However, it can be granted via change order.12
A blanket waiver issued by the Secretary of Transportation to a foreign country for certain products can be rescinded if the Secretary of Defense, after consultation with the U.S. Trade Representative, determines that the foreign country discriminated against American products covered by the agreement.13
Additionally, 48 CFR 25.402, provides that:
“trade agreements waive the applicability of the Buy American Act for some foreign supplies and construction materials from certain countries . . . .When the restrictions of the Buy American Act are waived for eligible products, offers of those products (eligible offers) receive equal consideration with domestic offers.”
Also, 48 CFR 25.403 states that the Agreement of Government Procurement of the Trade Agreement Act “waives application of the Buy American Act to the end products and construction materials of designated countries,”14 if “the estimated value of the acquisition [for construction] is $6,481,000 or more”15 and certain other conditions are met. For example, Korea is a designated country (48 CFR 25.003 (definition of “designated country”), thus the Buy American Act provisions would be waived with regard to end products and construction materials from Korea valued at $6,481,000 or more.
January 19, 2021, Regulations
On February 22, 2021, revisions to the BAA enacted under the Trump administration became effective. These changes increase domestic content requirements and price preferences for domestic products.
As it specifically relates to steel and iron products, the domestic content requirement increases to 95% for the cost of all components in the product.16 In determining the content of iron and steel, the following factors are provided:
1. Does the product consist wholly or ‘‘predominantly of iron or steel or a combination of both’’ (as defined in FAR 25.003)?
2. Is any of the iron or steel content not produced in the United States?
3. Is the cost of foreign 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 all foreign iron or steel components (excluding COTS fasteners), less than 5% of the cost of all the components used in the end product (or construction material)? If the product contains multiple components, the cost is to be calculated consistent with the definition of ‘‘cost of components’’ at FAR 25.003.
Using the example of a steel beam, the regulation explains that if the steel beam is rolled from steel bloom, then the steel beam probably contains either all domestic steel, or all foreign steel. However, if the beam is welded or riveted from separate steel plates, then it is conceivable that some of the steel plates could have been formed from steel not produced in the United States. If the cost of all material in the beam, excluding final manufacture, overhead costs, and profit, is $50,and the cost of the foreign steel plates used to make the beam equals or exceeds $2.50 (i.e., 5% of the cost of all the components used in the product), then the entire beam would be considered a foreign construction material.
January 25, 2021, Executive Order
On January 25, 2021, President Biden signed an executive order titled, Ensuring the Future is Made in All of America by All of America’s Workers. As stated, the policy is that “the United States Government 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.” Changes will focus on (1) centralizing the waiver process, (2) increasing transparency in federal procurement, and (3) replacing the component test.
Centralizing the Waiver Process
The executive order directs the creation of the Made in America Office and the new position of the Made in America Director, to be appointed by the Office of Management and Budget. Before any agency is permitted to grant a waiver, the Made in America Director must be provided with a description of the proposed waiver and justification for the waiver. The Made in America Director will then determine whether the requested waiver is consistent with applicable law or policy set out in the executive order. This provision provides broad authority to grant or deny a waiver. It may also lead to delays in seeking a waiver.
The Executive Order directs the creation of a website to publish all non-confidential information regarding requested waivers and their status. Not later than five days after receiving this information, the Administrator of General Services shall, to the extent permitted by law and consistent with national security and executive branch confidentiality interests, make this information available to the public.
Additionally, the head of each agency is required to submit to the Made in America Director bi-annual reports regarding the agency’s implementation of and compliance with Made in America Laws; 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; the agency’s analysis of spending as a result of waivers issued pursuant to the Trade Agreements Act of 1979, as amended, 19 U.S.C. 2511, separated by country of origin; and recommendations for how to further effectuate the policy set forth in section 1 of this order.
Replacing the Components Test
Currently, under the BAA, to qualify as a domestic end product or domestic construction material, the manufactured end product or construction material (1) must be manufactured in the U.S. and (2) the cost of its components mined, produced, or manufactured in the U.S. must exceed 55% of the cost of all of its components and 95% if the product is made wholly or predominantly of iron and steel. The second prong of this domestic content requirement is commonly referred to as the “component test”, which works against American companies that fabricate construction components using imported raw materials. Under the components test, the focus is on the cost of the components themselves and not the cost of manufacturing (cutting, drilling, applying clips, coping, notching, welding, and priming) the components.17
Fabrication of structural steel involving cutting, drilling, shaping, and welding structural pieces from foreign steel plates and beams did not substantially change the metallurgical properties of the material, and, therefore, cannot be considered in the cost.18 Additionally, “operations done on the foreign steel, such as drilling and cutting, do not result in its being combined with domestic materials and are not considered to alter the imported component percentage." Also, "labor costs and transportation to the job site are not within this definition and, therefore, should not be considered in calculating percentages of foreign and domestic costs under construction contracts." This is because components are articles, materials, or supplies, and labor and transportation is not deemed articles, materials, or supplies.19
The Executive Order states that the component test should be replaced 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. Although undefined, this seems to indicate that the costs of manufacturing a component, previously excluded from the test would not be considered. Further rule making will be necessary to determine how this test will be defined and applied. However, the elimination of the component test should benefit companies that fabricate construction materials in the U.S. using foreign sourced raw materials, like steel fabricators that import the mill steel they use to fabricate structural steel members.
The Executive Order should reduce the number of federal construction projects that obtain waivers from the BAA and it should expand the federal construction market for materials produced in the United States with American labor.
1This article focuses on the Buy American Act provisions, however, the January 25, 2021 executive order proposes modifications to both the Buy America Act and the Buy American Act.
2Charleston Marine Containers, Inc., (11/8/99) Comp. Gen. Dec. No. B-283393, 1999 US Comp Gen LEXIS 192
376 Cong. Rec. 1896 (1933) (remarks of Rep. Eaton), cited in Textron, Inc., Bell Helicopter Textron Division v. Adams, 493 F. Supp. 824, at 830 (D. D. C. 1980)
476 Cong. Rec. 1895 (1933) (remarks of Rep. Schafer), cited, 493 F. Supp. At 830-831 n. 8.
5Allis-Chalmers Corp., Hydro-Turbine Division v. Friedkin, 635 F.2d 248, 257 (3d Civ. 1980):
641 U.S.C.S. §10b(a)
741 U.S.C. §10a
8U.S. ex rel. Made in the USA Foundation v. Billington, 985 F. Supp. 604 (D. Md. 1997)
9Executive Order No. 10582 §2(a).
1041 U.S.C. §10a(a).
11C. Sanchez and Son, Inc. v. U.S., 6 F.3d 1539 (1993 CA FC).
12Blinderman Const. Co., Inc. v. U.S., 15 Ct. Cl. 121 (1988).
1341 U.S.C.S §10b-2(a)(1).
16For all other products the component requirement increases from 50 percent to 55 percent.
17Glazer Construction Co., Inc., et al. v. US, 50 F. Supp. 2d 85 (D. Mass. 1999).
18Appeals of Wright Contracting, Inc., 1990 WL 264583 (ASBCA December 17, 1990).
19S.J. Amoroso Const. Co., Inc. v. U.S., 12 F.3d 1072, (Fed. Cir. 1993).