For decades, we have recognized the national security implications of our reliance on overseas raw materials and supplies. These implications have prompted a growing recognition that our nation needs a strong industrial base. The pandemic and its aftermath only further exposed the fragility of our supply chains in all parts of the economy.
Two prominent procurement laws address supply chains and the industrial base: the Buy American Act (BAA) and the Trade Agreements Act (TAA). As the names imply, the BAA favors domestic end products using a certain percentage of domestic components, and the TAA allows products made in allied countries to compete with domestic supplies. Although the BAA sounds like the best, most patriotic choice from the standpoint of assuring economic, strategic and national security stability in our supply chain, the TAA, in its implementation, may provide the best overall results.
Certainly, there are supplies that we want sourced in the United States. Achieving that end via the BAA, however, may prove to be difficult. The BAA is a price evaluation preference tool that does not prohibit the purchase of foreign products. Rather, it places a price premium on foreign end products of 20% if the lowest domestic offer is from a large business and 30% if the lowest domestic offer is from a small business. Thus, the government may end up buying products from China or other non-aligned countries if the domestic price is low enough after adding the premium to the low foreign offer. On the other hand, the TAA ensures that products will be purchased from domestic sources or from allies with which we have a trade agreement. The reciprocity of TAA also ensures that American-made products are treated fairly under foreign government procurements. Consequently, accounting for the totality of our nation’s supply chain policy interests, leveraging the TAA results in the most efficient price, excluding prices and products that might be offered from non-aligned countries, such as China, while strengthening the security and stability of the industrial base, and increasing its reliability, especially in times of need.
In the context of small business, the application of these two laws is especially confounding. Generally, for a small business or socioeconomic set-aside for supplies, an offeror seeking to qualify as a small business must supply the product of a small business made in the United States. If no small domestic manufacturers exist, the Small Business Administration (SBA) can issue a waiver of the nonmanufacturer (NMR) rule, which waives this requirement. Under these circumstances, the small business offeror can offer the product of a large business or a product made outside of the United States on a small business or socioeconomic set-aside supply contract. Although the TAA allows the President to waive BAA for countries with a trade agreement with the United States, the act restricts the President from waiving any small business or minority preference in government procurement.
The implications of the foregoing are significant. Clearly, the TAA should not apply if SBA has not waived the NMR because, in that case, an offeror on a set-aside contract must supply the product of a small business made in the United States. If, however, SBA has issued a waiver of the NMR because no small business manufacturers exist, then the BAA must apply to the set-aside, notwithstanding the fact that, but for the purchase being made from a small business under a set-aside, the law and policy interests underlying the TAA would control. The government, then, could find itself required to purchase a product from a non-designated country, and, in so doing, potentially introduce risk into the supply chain and otherwise harm other-than-small domestic manufacturers.
This anomaly arising from the interplay between these laws needs to be addressed. Some believe a clarification may be affected via legislation. Others see a remedy in amending FAR Subpart 25.4 to provide the TAA does apply to supply acquisitions set aside for small business or socioeconomic categories if SBA has issued a waiver of the NMR. Given the significant implications for our supply chain and national security, policymakers need to decide on an approach and act. In the meantime, it should make sure its requirements are fashioned to mitigate the deleterious effects identified here.