On April 18th, President Trump issued an Executive Order (“EO” or “Order”) focused on the Buy American laws and regulations. See Buy American EO. This EO directs federal government entities to review their procurement rules so that, to the extent legally permitted, preference is given to American made goods. Section 2 specifically states: “[i]t shall be the policy of the executive branch to buy American and hire American”. At the same time, the EO confirms: “[n]othing in this order shall be construed to impair or otherwise affect … existing rights or obligations under international agreements”. So, what does this EO mean to the private sector when it comes to government contracting?
First, it is important to keep in mind the review triggered by this Order applies only to federal procurement. States and other governmental entities have their own rules. They cannot contradict the federal rules, but they can be different.
Next, nothing in this Order has any impact on privately funded projects. The typical example given in the general press is the Keystone Pipeline. Nonetheless, the point is you are only impacted if you are providing or intend to provide goods to a U.S. government entity.
The EO goes on to provide a handful of noteworthy definitions:
“Buy American Laws” means all statutes, regulations, rules, and Executive Orders relating to Federal procurement or Federal grants including those that refer to “Buy America” or “Buy American” that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods.
“Produced in the United States” means, for iron and steel products, that all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.
“Waivers” means exemptions from or waivers of Buy American Laws, or the procedures and conditions used by an executive department or agency (agency) in granting exemptions from or waivers of Buy American Laws.
“Buy American Laws.” In order to promote economic and national security and to help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases, it shall be the policy of the executive branch to maximize, consistent with law, through terms and conditions of Federal financial assistance awards and Federal procurements, the use of goods, products, and materials produced in the United States.
The meat of the Order is: “Every agency shall scrupulously monitor, enforce, and comply with Buy American Laws, to the extent they apply, and minimize the use of waivers, consistent with applicable law”. To carry out this goal, a timeline is set out:
1) By September 15th, agency heads are to evaluate each agency’s use of Buy America, including waivers, and propose policies that maximize “the use of materials produced in the United States, including manufactured products; components of manufactured products; and materials such as steel, iron, aluminum, and cement” and report their findings.
2) By June 17th, the Secretary of Commerce and the Director of the Office of Management and Budget (“OMB”) are to consult with the Secretaries of State and Labor, plus the U.S. Trade Rep. and the Federal Acquisition Council and provide guidance to the agencies about how to carry out their assessments and develop the requested policies.
3) By September 15th, the Secretary of Commerce and Director of OMB are to assess the impact of free trade agreements and the World Trade Organization’s Agreement on Government Procurement on the operation of Buy American Laws, “including their impacts on the implementation of domestic procurement preferences”.
4) By November 24th, the Secretary of Commerce, after consulting with the Secretary of State, OMB Director and U.S. Trade Rep., is to report his findings. The report is to include recommendations to strengthen implementation of the Buy American Laws. Subsequent reports are to be issued on November 15, 2018, 2019 and 2020. Thereafter, the frequency of the reports is determined by the Commerce Secretary and OMB Director. The Commerce Secretary is to annually report to the President starting on January 15, 2019.
5) Waivers are to be used judiciously and should be decided by the agency head, if possible. Before being granted, account should be taken of whether a “significant” portion of any cost advantage is the result of the “use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured good”, and any such findings should be integrated into the waiver determination.
Buy American is obviously intended to provide a preference to U.S. made products. The rules can be found in the Federal Acquisition Regulations and the Defense Federal Acquisition Regulations. While the goal may be attaining a high percentage of American-made content for the goods procured, in fact, the definition of what qualifies may turn, in some circumstances, on whether simply more than 50% American content is attained. These regulations also provide for situations where outright foreign-made products are permitted if they meet the commercial off-the-shelf definition. Qualification under Buy American may also be obtained in the right circumstances if the origin of the good comes from a country which is a signatory to the World Trade Organization Agreement on Government Procedure. Qualification may also be obtained through the Trade Agreements Act.
In the short term, this Order means agencies may be more reluctant to award contracts without first seeking additional supporting documents. It may also mean that recertification of compliance may be demanded more frequently, or at least more regularly. Of course, it likely also means more audits or at least more attention being paid to Buy American qualification or compliance than has occurred in the past. Companies that are part of the federal procurement supply chain should make sure they have all the right documents in hand. All too often, sourcing changes are made without first considering the overall impact on government procurement and/or free trade agreement qualification.
Admittedly, this EO also mandates a review regarding the H1-B visa and generally talks about tightening U.S. immigration laws, but there is nothing actionable for the private sector in this Order and so we will not comment further on that topic at this time.
Here are some tips for compliance regarding government procurement:
1) Have a full and complete bill of materials for each product you are selling to any government entity;
2) Your government procurement team should include at least one person familiar with international trade policies and regulations;
3) Read the bid and make sure exactly what requirements are imposed for product qualification and those requirements are fully understood;
4) Qualification of each product offered in response to a procurement proposal is regularly confirmed and is reconfirmed prior to the next bid being submitted;
5) Your internal procedures permit regular verification that sourcing and other conditions have not changed;
6) Your supplier purchase agreements include provisions for those suppliers to provide you with any needed documentation to satisfy all inquiries or requests from any federal agency, and those documents are to be produced in a matter of days;
7) Your final closing action regarding any procurement contract (federal or otherwise) includes a review to make sure no errors were made, including how any foreign input was qualified. If an error is found, elevate it to the team that decides next steps.
8) Your internal procedures require that if/when errors are discovered , they are reported; you don’t want your contractor integrity score to be damaged unnecessarily, so make sure that corrective action, including any disclosure filing, is implemented promptly.