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Whether they needed it or not , the federal contracting community has a month-old Buy American executive order to deal with. With the height of the federal buying season just about here, Federal Drive with Tom Temin got a progress report from Morris, Manning and Martin partner Kelly Kroll.
Tom Temin: this executive order applies to the purchases that the old Buy American orders going back to Eisenhower or something dealt with. Just review for us the thresholds and the types of acquisitions this would apply to in the first place.
Kelly Kroll: So there’s a limited scope of what the Buy American Act applies to. There’s a lot of intricacies to it. But it applies generally to sales that exceed the micro purchase threshold, which is generally $10,000 for most agencies. And then it applies up until the Trade Agreement Act kicks in, which comes in at 180k threshold for supplies and $7 million dollars for construction projects. So there’s a really limited small window, and it’s also only for sales for use in the US, and also to which a waiver doesn’t already apply. So it really is a small window of procured items to which the Buy American Act actually applies.
Tom Temin: Because in the practical sense, any type of supply item that is to say not a small services contract, but a real supply contract, if it’s at that threshold, and it doesn’t have a waiver, there’s almost nothing Made in America that could be bought really in reality. I mean, there’s not a single electronic product.
Kelly Kroll: Well, yeah. And to that end, there’s an IT exceptions for Buy American Act currently in place. What the executive order is implying and didn’t come right out and say was that that waiver for information technology may go away. So when the rules come out, it may be that exception goes away. And so companies like small resellers of IT equipment who have been relying on the waiver for the BAA will no longer be able to rely on that going forward.
Tom Temin: And even the couple of manufacturers that still might assemble PCs in the United States, I’m thinking of Dell, I don’t know who else if anybody, then even so the content is almost all non US except maybe the handles, and not even the handles, maybe the bent metal case in the paint.
Kelly Kroll: Sure. It depends on whether the products made of iron and steel, because that has a higher threshold. Under the Buy American Act, the basic rule is is that a product to be BAA compliant has to be manufactured in the US, and it either has to be a COTS item, which is commercial off the shelf item. Or if it’s not a COTS item, it has to be manufactured in the US and have domestic components that are 55% or more. That’s the new rule, used to be 50%, you mentioned Eisenhower, that’s when it was 50%. Now under regulations promulgated under the Trump administration, it moved up to 55%. Except, and this is a new rule, new wrinkle, except for products that are made primarily of iron and steel, and that has a higher domestic content rule with respect to those products. So it gets a little complicated. You always have to look at each individual sale on its own to assess how it applies and what the rules are for that particular product.
Tom Temin: It sounds like they’re trying to keep Daihatsu out of the US GSA fleet.
Kelly Kroll: Sure, sure. Well, we’ve seen that with other prohibitions against other supply chain manufacturers in the last year, like I’m thinking of the Huawei prohibitions and things like that. But yeah, that’s definitely something that they’re focusing on. And I do expect the IT COTS exception to go away,
Tom Temin: And there was an executive order revoked as part of this too, which I overlooked that one.
Kelly Kroll: Well, there were two executive orders that were actually revoked as part of Biden’s new executive order, right. So Trump had four Buy American-esque, if you will, executive orders that he had issued. Two of them, one had to do with Buy America-Hire America, the other one had to do more with Postal Service, broadening American policies with respect to the Postal Service, those were revoked. In general, those policies to me were just basically broad, sweeping statements of, hey we should look at this further, really wasn’t a hard and fast rule that was revoked as a result of the Biden executive order.
Tom Temin: Now there is a requirement of the Federal Acquisition Regulations to revise rules on this. Can we expect a full blown rulemaking at some point?
Kelly Kroll: Yeah. The FAR Council is going to be the one tasked with setting these new rules for the Buy American Act. Basically, the Biden order said, go back, look at the content rule, perhaps switch it out with what people are calling a value add rule, where you can also, and presumably, I’m guessing here because Biden’s executive order doesn’t spell this out, that you can start counting labor as part of your content or your domestic value of the product. So that’ll be interesting to see what that looks like. They also may do things like just change the current 55% content rule for supplies, they might raise it to 60% this year, or maybe 65% the year after and so forth, who knows? Those kinds of things. But the FAR Council has 180 days from when the order was issued, which was what January 21st, I think, to come out with rules. I don’t think it’s going to come out as an interim rule, meaning interim rules come out and they’re effective immediately while they finalize the rule. I think this will come out as a proposed rule. Public will have opportunity to comment, make their suggestions/recommendation. So it could be a while before these new rules are set in place.
Tom Temin: And putting yourself in the position of, say, a broad line reseller that has federal contracts. From a practical standpoint, what should they be doing now?
Kelly Kroll: They, of course, could get involved in the notice and comment making process. But in my experience, unless you have a really valid point, the FAR Council is pretty much going to toe the line and keep on their course with what their mandate is. So there might be some room there to comment on that. But I would also be more concerned with another part of the Biden executive order, which was the waiver of transparency part of that. They’re going to start scrutinizing waivers that are granted more closely. Right now, the contracting officers can give these waivers, but now they’re going to kind of centralize that and look at waivers on a case by case basis, or maybe even a group basis for certain products. So if you’re relying heavily on a waiver, you need to just keep on top of this and see where this is going. And maybe to the extent you can get involved with the new office that’s going to be set up, you have to start looking for new sources, new US sources. But anyway, they’re setting up the partnership with a third party organization to help connect manufacturers with more domestic sources.
Tom Temin: And that new office will probably have furniture that’s made in China, because that’s where all that has also moved too.
Kelly Kroll: Absolutely.
Tom Temin: Which brings me to my second question, as a contracting officer, I’m looking at this, and I’m probably thinking, what in the heck do I do now?
Kelly Kroll: Yeah, I think it would be, especially for contracting officers that have relied heavily on waivers, it’s going to I would think slowed down the procurement process for sure, with respect to waivers, because they’ll have to go through a new process, and they’re just going to have to apply the law differently. But ultimately, they can still put the Buy American Act in their contracts if it applies, right, if it’s in that sweet spot between the micro purchase threshold, 180k. But ultimately, it’s up to the contractor to comply. They’re the ones that bear the burden of complying.
Tom Temin: Kelly Kroll is a partner at the law firm Morris Manning and Martin. Thank you, I think for clarifying that.
Kelly Kroll: I tried Tom, but really you could talk about Buy American all day long, because the other thing that people don’t really understand too is there’s different flavors of the Buy American. They’re called the Buy America and they apply to like transportation projects and FAA projects where those standards are almost like a 100% standard, especially when it comes down to US iron and steel. So you have to look at every contract on a case by case basis, determine how it applies to you and then apply the law.