Earlier this month, the Federal Acquisition Regulation Council, the FAR Council, finalized new, more stringent rules for U.S. content in what agencies buy.
Earlier this month, the Federal Acquisition Regulation Council, the FAR Council, finalized new, more stringent rules for U.S. content in what agencies buy. But the whole regime is not quite as strict as it might seem at first glance. For what it does mean to contracting officers and to contractors, the Federal Drive with Tom Temin turned to a partner and the head of the contracts group at the law firm Miller and Chevalier, Jason Workmaster.
Tom Temin: Mr. Workmaster, good to have you back.
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Jason Workmaster: Oh, it’s a pleasure to be here, Tom, thanks so much for having me back.
Tom Temin: And you have written extensively about this. What do we take away from all of this because things are either made in the United States or they’re not. And it’s not as if the United States has been buying all of its shells from China, that they fire at the Russians or something, but tell us what this all means.
Jason Workmaster: All of this domestic preference stuff goes way back, back even to the 1930s. There’s always been, this strain within government procurement, that we want to buy stuff that’s made America to the greatest extent possible. And these various rules and regulations have been around for a while to codify that concept. But one thing that’s important, right off the bat to note, with all this stuff – I’ll talk some more about the specifics of the various statutes that are out there. But just to set the stage here, the Buy America stuff is only one piece of the puzzle. We have a lot of trade agreements with a lot of countries around the world, where the basic premise of those is, those other countries that we have trade agreements with, they get to participate in the government procurement market, just like an American company. And so, the Trade Agreements Act is another statute that’s out there. And that regime where American companies and American goods are basically on par with goods that are made overseas, that regime governs the vast majority of procurements by the federal government. Again, they’re subject to treaties, treaties are on the same par as like a Constitution itself. So it’s important to remember that. There’s been a lot of talk about Buy America. But it’s important to note, if you’re a federal contractor out there, by and large, if you’re in a procurement, that’s $170,000, $180,000 or more, you’re not going to be dealing with Buy America, you’re going to be on the same playing field as all of our trading partners. Now, it’s important to note, one of those trading partners that we’re signed up to is not China, it’s not India. So those goods are not subjects you’re not competing on the same playing field.
Tom Temin: What about Japan?
Jason Workmaster: Japan is, Japan and the U.K. And you think of Western Europe, Australia, there’s lots of countries that are on there called designated countries, lots of countries on the designated countries list that you’re on par with, under our trade agreements. That’s kind of setting the stage. All that said, there has been a lot of focus on Buy American, which is Buy “Ameri-can,” that goes back to the ’30s. And another thing that’s important to note here, when Buy American, which applies to federal procurements, or Buy “Ameri-ca” – so it’s gets very confusing quickly – Buy America applies to highways, Department of Transportation, where the money is federal money. So you think about the recent infrastructure bill, that money is going to go down to the states, and the states are actually going to use that money to conduct the procurements. Now it’s going to come with federal strings attached to it. And one of those is going to be Buy America. But in both that world, and in federal procurement, when you’re under that $180,000 bucks, and you’re subject to Buy American, it’s only a price preference. It doesn’t prohibit the government from buying. This is another thing that gets kind of lost when you hear people talk about this, it doesn’t actually prohibit the government from buying non-American stuff. What it does is it establishes it when the government goes to evaluate price, it gives the American-made product a price preference. And so when the government’s of making making its evaluation decision, the American-made good is going to have a 20, 30 if it’s a small business, it’s gonna have a price preference when the government’s doing its evaluation. But it is not a strict prohibition.
Tom Temin: So this is all a balancing among then, first, the size of the contract and what laws actually apply, then this pricing belay, and then you have to avoid certain countries, period, because they’re evil countries or –
Jason Workmaster: Right, right.
Tom Temin: All right. Well, that’s good groundwork. We’re speaking with Jason Workmaster. He’s a partner and the head of the contracts group at the law firm Miller and Chevalier. So does this practically change anything? Well, let me ask you about this, let me ask you specific: in the infrastructure bill, states will be building, they say, bridges and so forth. A lot of infrastructure is built with not only steel structures, but premade steel construction elements, like when they built the ballpark. They built whole stands preassembled, came on a ship already bolted together from Korea. What does the infrastructure bill have to do now, if people are buying components that are semi finished out of, say, steel I beams for some piece of infrastructure?
Jason Workmaster: So for the infrastructure work again, you’re going to be dealing with a lot of money there, that’s going to be given to the states to grants from the Department of Transportation. So that in general means you’re going to be dealing with the Buy America regime. And in general, that regime requires the recipients’ federal money from DOT to purchase U.S.-produced steel, iron, and Tom, to your point, manufactured products. And now the specific list of what that’s going to be, that’s going to be tied to exactly what grant, and who’s administering the money. I mean, it’s gonna get more complicated than that. But as a general proposition, the price preference here is going to apply to manufactured products, the kind you were just mentioning, in addition to like raw materials, like iron and steel.
Tom Temin: Right, because someone could buy half of a bridge pre-made and buy the two halves and just weld them together on site, as opposed to building it like an erector set where you buy all the little slice. And then there’s the labor and union requirement, but that’s another story.
Jason Workmaster: Right, that’s right. Exactly.
Tom Temin: And what about electronics? Because the government buys so much electronics and that’s always been a question, well, can I buy a Toshiba laptop? Because it’s Toshiba, but it might be assembled in China, where most of them are. So how does that all change if it does?
Jason Workmaster: Yeah, so IT procurements are not subject to this. Any of this stuff we’re talking about with Buy America, IT is not subject to these rules. Now, it is going to be subject, I talked about before trade agreements. And when you look across the past 20, 30 years, where the government has purchased, of course, a lot of IT, where folks get tripped up in that space. Again, I’m representing contractors, and there’s been actually a lot of litigation over the past few decades, a lot of IT is purchased through something called the GSA Schedules Program.
Tom Temin: Oh, yes.
Jason Workmaster: And that program is subject to the Trade Agreements Act requirements, which means you cannot sell from non-designated countries, one of which is the People’s Republic of China. And so, there that has generated a lot of litigation and investigations and that kind of stuff over the course of time, because, allegedly, Chinese-made goods have, snuck through the schedules, madke their way into the hands of government agencies. And so that is a problem. It’s not a Buy America problem, it’s a trade agreement set.
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Tom Temin: Because you do see products from time to time that you would assume, are made in China, and are surprised sometimes to see they’re made in America. Pencils, for example, are made in the United States, I guess the government still buys a lot of pencils, whenever a pencil commodity costs?
Jason Workmaster: Right, well and that’s a good example. Pencils are something – when the threshold’s $170,000, $180,000 your pencil procurements are gonna be underneath that. I think it would be an unusual procurement where the government’s buying $250,000 worth of pencils. Those will be smaller purchases, and so the smaller purchases are going to be subject to Buy America. So it’s interesting what you’re just saying, Tom, I mean, where you see the supply chain of all these various products, it very much does kind of tie to, okay, is the procurement going to be under the threshold or over the threshold, because if it’s under the threshold, you are going to see more of a domestic industrial base.
Tom Temin: And when you get out of the office, though, of federal agencies and say get into the fleets where you might have a fleet of 100 cars or 500 cars or someday 200,000 electric postal vehicles and they all need new batteries, that’s going to be a multimillion-dollar purchase.
Jason Workmaster: That will, yes. Yeah then you’re going to be out of Buy America. You’re going to be in Trade Agreements Act land.
Tom Temin: Right. So it’s worthwhile for every nation that wants to sell the United States, the good guys that is, the Australias, that may be get into that business so they can sell brake pads and batteries to U.S. government fleets?
Jason Workmaster: Yes.
Tom Temin: So what advice are you giving contractors then?
Jason Workmaster: It is, and again, I mean, we put out advisories on it, all the government contracts shops have put out advisories. As you mentioned, the FAR Council put out a final rule just earlier this month, that is on the universe of procurements to which Buy American applies. It is going to make it more difficult to demonstrate that what you’re selling is made in America. So what it’s going to do is it’s going to increase – so the Buy American test, there’s a two part test. You have to demonstrate, the thing was “mined or manufactured” in the United States, and then you have to look at the cost of the components of the finished product. And currently, you have to demonstrate that 55% is domestic U.S. content. That is going to increase in October to 60%. So that domestic content requirement is going to go up. And then under this final rule, it’s going to keep going up to 65% by 2024, and then to 75% by 2029.
And so if you’re selling again, if my advice to contractors, look at your track record of the size [of] the procurements that you’re competing for, and if you’re competing for procurements that are, and it’s going to be easy to tell, if you’re subject to the Buy American requirements, you’re going to look at your solicitations, you’re going to see the Buy American clauses in your solicitation. So it shouldn’t be difficult to figure out if you’re playing in this world. And one other thing that’s important to note here, Tom, kind of, regardless, this is one thing, where there is for all the very many differences between the previous administration and this administration, this is one thing they actually agree on. Under the Trump administration, President Trump had taken a lot of steps towards increasing the requirements on Buy American. And that just continued under the Biden administration, it’s really been just very similar approach to this.
So kind of regardless of what happens in 2020, for next presidential election, or whatever, regardless of that, we don’t see this kind of stuff change, which actually makes things a little bit easier for contractors to deal with. Because unlike things like, we’ve done a lot of work on the vaccine mandates. That kind of stuff, it does make a huge difference who’s in the White House. This stuff it doesn’t. So it makes things a little bit easier for contractors to kind of have some predictability. And so on this one, again, unless something strange happens, we are going to see these increases. And so for contractors who are selling in that market, they need to be assessing now, if they haven’t already been. I mean, going back again, to the previous administration, we were telling folks even then you need this, this is coming, you need to be preparing for it. And so you need to be looking at where you’re sourcing your content from that goes into your finished product to make sure that you’re going to meet these ever increasing thresholds.
Tom Temin: Attorney Jason Workmaster heads the federal contracts group at Miller and Chevalier. Thanks so much for joining me.
Jason Workmaster: Pleasure to be here.
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