The Federal Acquisition Regulatory Council (FAR Council) published a final rule on March 7 that bolsters domestic sourcing requirements in federal procurement under the Buy American Act (BAA). This rule makes several significant changes to limit government contractors’ reliance on foreign products and component parts. Even though the final rule does not take effect until October 25, 2022, government contractors should be preparing for it now. PilieroMazza will discuss the new rule in a webinar on the BAA on April 27.
Soon after taking office, President Biden issued an Executive Order on January 25, 2021, titled “Ensuring the Future Is Made in All of America by All of America’s Workers” (Executive Order). As PilieroMazza previously explained, the Executive Order directed several actions to further the Biden administration’s overarching policy to maximize the procurement of goods, products, and materials from sources that will help American businesses compete in strategic industries and help American workers thrive. Biden directed the FAR Council to consider regulatory revisions to strengthen the impact of the BAA.
On July 30, 2021, the FAR Council issue a proposed rule to implement this order. Click here to read PilieroMazza’s analysis of the proposed rule’s key provisions.
The final rule increases the domestic content threshold in three stages over the next seven years, provides for a fallback threshold that allows products with a lower domestic content threshold to qualify as domestic products under specific circumstances, and establishes a price preference framework for domestic products that are critical items or consist of critical components. The final rule provides a 6-month grace period, with the new domestic content threshold taking effect October 25, 2022. The lead time is intended to give industry time to plan for the new threshold and to provide the acquisition workforce training on the new fallback threshold.
The final rule omits language from the proposed rule that would have required post-award reporting on the specific amount of domestic content in critical end products, construction material, or components receiving the enhanced price preference. Instead, post-award reporting requirements will be handled in a future rulemaking that establishes the definitive list of critical items and critical components. The goal is to give contractors sufficient time to understand and comment on the scope of reporting before the requirement is finalized.
Under the proposed rule, a contract with a performance period that occurs during increases in the domestic content threshold would have had to comply with the threshold in effect at the time the product is delivered to the government. The final rule adds a process so an agency can permit a contractor to use the domestic content threshold in effect at the time the contract is awarded through the contract’s entire performance period. This should ease the burden on contractors so they would not be subject to changing thresholds on a single contract.
(1) The Domestic Content Threshold and Alternate Domestic Content Test Will Increase.
Under the final rule, the domestic content threshold will increase in stages—first from 55 percent to 60 percent, then to 65 percent in 2024, and then to 75 percent in 2029. The year of delivery will determine the threshold for items supplied by a contractor. For contracts where complying with changing domestic content thresholds is not feasible, the rule allows a senior procurement official, after consulting with the Office of Management and Budget’s Made in America Office, to use an alternate domestic content test when defining “domestic end product” or “domestic construction material.” When the alternate domestic content test is used, the domestic content threshold that applies at the time of contract award will be the applicable standard for the contract’s entire performance period.
(2) There Will Be a Fallback Threshold for Cases Where Products Don’t Meet the New Threshold or Cost Too Much.
The final rule provides for a fallback threshold that will allow agencies to use the existing 55 percent domestic content threshold in specified circumstances if the agency determines that no products meet the new threshold or that such products have an unreasonable cost. The fallback threshold will expire in 2030, one year after the domestic content threshold increases to 75 percent.
(3) Critical Products and Components Will Have Enhanced Price Preferences and Likely Will Require Post-Award Reporting.
The final rule establishes a framework through which end products and construction material considered to be critical or consisting of critical components will have higher price preferences. There will be another rulemaking to establish the list of critical items and critical components, along with their enhanced price preferences. The proposed rule required companies supplying critical items to report on the amount of domestic content actually supplied in those products post-award. The final rule eliminates this requirement for now but anticipates its inclusion in the future rulemaking addressing critical supplies.
Impact of the Rule on Federal Contractors
The final rule affects companies performing federal contracts subject to the BAA, as well as the supply chains for those companies. Contractors should make sure they understand the changes taking effect this year and for years down the road to ensure they can comply with the heightened domestic sourcing restrictions.
If you have questions about the proposed rule and how it may affect your business, please contact Jackie Unger, the author of this client alert, or another member of PilieroMazza’s Government Contracts Group. Jackie Unger will present a webinar on this topic on April 27.