A notice of proposed rulemaking was issued in the Federal Register last week that would make significant changes to Buy American provisions in U.S. regulations. Buy American provisions apply to direct federal procurement above the micro-purchase threshold of $10,000 and below any government procurement thresholds as outlined in a number of trade agreements. For countries participating in the WTO’s Government Procurement Agreement (GPA), that threshold is at $182,000 for supply contracts and $7,008,000 for construction contracts. For contracts on which Buy American provisions do apply, under current law, goods primarily made of steel or iron must have more than 95% domestic content and all other products the domestic content must exceed 55% to be considered a domestic product.
Domestic products are given preferential treatment in government procurement bids compared to products determined to be non-domestic. If a company bidding on a domestic product is classified as a small business, the contracting officer applies a 30% price evaluation penalty to a lower foreign product offer, and 20% if the offeror of the U.S. made product is not a small business. Ultimately, a non-domestic offer could win the contract if it continues to be the lower offer after taking into consideration the price preferences. Buy American provisions can be waived if they are deemed to be inconsistent with public interest, a product is not available in sufficient quantity or quality, or the purchase of a domestic product would provide an unreasonable cost increase.
The Notice of Proposed Rulemaking would make alterations to domestic content thresholds, lay a marker for increasing price preference percentages, and add additional reporting requirements for contractors. Specifically, the domestic content threshold would increase from 55% to 60% upon implementation of the final rule. Two years later, the threshold would increase to 65% and would increase again in 2029 to 75%. Suppliers holding federal contracts during these periods would be required to comply with the increased domestic content requirements. In order to provide some flexibility, the rule does allow for the acceptance of a contract at the former threshold for one additional year if a domestic product at the new threshold is unavailable or would be unacceptably costly. The rule also announces a future rulemaking that will provide additional price preferences for products that include critical components and certain items identified through the quadrennial critical supply chain review. Finally, the rule establishes new requirements for contractors to report specific domestic content details on critical products included in a contract.
AEM recognizes this new rulemaking could have a significant impact on our member companies who currently contract with the federal government or would like to continue to do so in the future. We have an opportunity to submit comments in response to the Notice of Proposed Rulemaking by Sept. 28, 2021, but we need to hear from our member companies on the impact this will have on their operations. We are looking for information about total federal awards, domestic content and foreign content of equipment, and additional information about the impact of the threshold increases.
Please contact AEM’s Megan Evans at mevans@aem.org to share information or for any questions you may have.
For more AEM news and updates, subscribe to the AEM Industry Advisor.
