While domestic preference requirements in federal procurements, namely the Buy America and Buy American Acts, are not new their increased emphasis are.  As has been well publicized, a central focus of the Trump Administration has been to encourage and increase the use of domestically sourced products and materials in connection with federal procurements.  While this policy objective is relatively straightforward, the intersection and resulting nuances, between these Acts, their regulations and related trade statutes, agreements or exceptions generally are anything but.  On Jan. 31, 2019, the President added to the mix by signing an executive order to further the administration’s Buy American push.  The Jan. 31, 2019 Executive Order, “Strengthening Buy American Preferences for Infrastructure Projects,” expands on the President’s April 18, 2017, Executive Order 13788 and instructs federal agencies to develop plans and rules to encourage contractors to adhere to domestic preference requirements to the maximum extent practicable in all projects that receive indirect federal government assistance by way of loans, loan guarantees, or grants and other cooperative agreements.  The Jan. 31, 2019 Executive Order has significant, potential implications for the contractor community because prior to the Executive Order the Buy American Act only applied in cases of federal procurements directly issued by the government.  With the new Executive Order, however, the Buy American Act now potentially applies to any project that receives financial assistance from the federal government even if the project is not a procurement that was solicited by the federal government.

So what is covered now?  The Executive Order directs federal agencies to “maximize, consistent with law, the use of goods, products, and materials produced in the United States . . . [including] through the terms and conditions of Federal financial assistance awards.”  In this regard, the Executive Order directs agencies “[w]ithin 90 days . . . [to] encourage recipients of new Federal financial assistance awards pursuant to a covered program to use, to the greatest extent practicable, iron and aluminum as well as steel, cement, and other manufactured products produced in the United States in every contract, subcontract, purchase order or sub-award that is chargeable against such Federal financial assistance award.”  The scope of the Executive Order, in terms of the materials, projects, and the types of work that are covered, is very broad.  For example, “manufactured products” broadly covers any “items and construction materials composed in whole or in part of non-ferrous metals such as aluminum; plastics and polymer-based products such as polyvinyl chloride pipe; aggregates such as concrete; glass, including optical fiber; and lumber.” This term also encompasses iron, aluminum, steel and even cement. 
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Howard Roth authored an article on Buy America and Buy American for the Seattle Daily Journal of Commerce.

Below, learn about the differences between the two acts and why they matter to contractors.

In this first year of Donald Trump’s administration, American sourcing requirements are receiving heightened focus that impacts business by providing opportunities and threats.

For instance, President Trump’s “Buy American HireAmerican” executive order restates the policy of the government to buy American. Federal agencies are required to make an assessment of what the executive order calls the “Buy American Laws” aimed at maximum use of United States materials. The executive order is now on the road to changing the landscape of preferences for American products by the end of the year.
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Oles Morrison attorney Howard W. Roth commented to the L.A. Times on proposed “Buy American” provisions in NAFTA. Howard explained that while proponents for “Buy American” cite a Government Accountability Office review stating that the U.S. has available twice as much government procurement to foreign companies, a lot of other countries just do not have

With every new administration, there is both great uncertainty and opportunity in federal government contracting. To help you navigate the rough seas of doing business with the federal government in this new administration, we have assembled nationally recognized practitioners who will cover topics relevant to government contractors large and small, novice and seasoned. Session topics

14567606128_ee826cf9bd_kFollowing Executive Order 13788 issued April 18, 2017, “Buy American and Hire American,” contractors and subcontractors should prepare for increased enforcement of the Buy American Act (BAA), Buy America legislation, the “Little Buy American Acts,” and related civil or criminal prosecution under the False Claims Acts (FCA).

In recent years, the Department of Justice has increased efforts to prosecute FCA violations in concert with BAA or Buy American violations. In 2016 alone the Department of Justice obtained more than $4.7 billion in settlements and judgments from civil cases under the FCA, its third highest recovery.

Every contractor or subcontractor on a federally funded project supplying construction materials must certify that the materials used are in compliance with the BAA.  Construction work for the DOT, DoD, and other federal agencies may trigger compliance requirements under both with the BAA and Little Buy American Acts. Certificates of compliance, however, can be fruitful grounds for federal prosecutors looking for FCA violations

When a certificate of compliance does not accurately reflect the origin of the materials used under the BAA or Little Buy American Acts, there is a high likelihood that FCA liability may follow. Executive Order 13788 is likely to bring additional attention to the dual enforcement of buying American under the FCA.

A few recent cases illustrate the FCA risks arising from BAA and related laws that require compliance certifications:

  • In 2016, Wisconsin-based architectural firm Novum Structures LLC entered a guilty plea and agreed to pay $3 million to resolve its criminal and civil liability under the False Claims Act 18 U.S.C. § 1001 arising from its concealment of the use of foreign materials on construction projects involving federal funds. Novum has also agreed not to contest its debarment from federal funded projects.

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On April 18, 2017, President Trump signed the “Buy American Hire American” Executive Order (“EO”).  The EO restates the policy of the government to buy American.  Federal agencies are required to make an assessment of what the EO calls the “Buy American Laws” aimed at maximum use of United States materials. The EO states that “it shall be the policy of the executive branch to maximize, consistent with law . . . the use of goods, products, and materials produced in the United States,” however, no measurable definition of “maximize” was provided in the EO.  The EO also requires the Secretary of Commerce and the United States Trade Representative “to assess the impacts of all United States free trade agreements and the World Trade Organization Agreement on Government Procurement on the operation of Buy American Laws, including their impacts on the implementation of domestic procurement preferences.”  These reviews are designed to ensure that American companies are treated equitably by assessing the impact of these agreements on the Buy American Laws.

Importantly, the EO reaffirms that in order for iron and steel products to be considered “Produced in the United States,” all manufacturing processes must take place in the United States.  The reaffirmation of Buy American Laws will undoubtedly assist U.S. manufacturing, especially if the review of trade agreements results in any curtailment of foreign manufactures’ ability to be exempt from the Buy American Act.  The EO also has the potential to limit companies who previously benefited from U.S. Government procurements and grants through waivers and exemptions to Buy American requirements.  The EO sets up the following timeline from the date of the EO:
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4635056311_30c140df8f_oIn these early days of Donald Trump’s administration, domestic sourcing requirements are receiving heightened focus.  President Trump’s Jan. 24, 2017, “Presidential Memorandum Regarding Construction of American Pipelines” asks the Secretary of Commerce to “develop a plan under which all new pipelines . . . inside the borders of the United States . . . use materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law.”  Yet, when a company is asked to certify to its customer that its products comply with domestic content law, the answer is rarely straightforward.  Contractors should therefore be proactive and review the Buy America and the Buy American Acts.  The penalties for non-compliance are serious and include civil or criminal False Claims Act violations, suspension or debarment, contract terminations and other claims against a contractor by the Government.

Buy America Act

The Buy America Act is the popular name for a group of domestic content restrictions that attach to specific funds administered by the Department of Transportation (DOT).  The Buy America provision of the Surface Transportation Assistance Act of 1982, 23 U.S.C. § 313, state that the Secretary of Transportation “shall not obligate any funds authorized to be appropriated to carry out the Surface Transportation Assistance Act . . . unless steel, iron, and manufactured products used in such project are produced in the United States.”  These funds are used to make grants to states and other non-federal government entities for various transportation purposes. 
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It comes as a surprise to no one that Congress has wide-ranging ability to place conditions on the federal government’s ability to spend federal dollars. What may surprise some contractors is the effect that Congress’s power via “domestic preference acts” has to limit how the contractor builds a project and what materials it procures to do so.

What do we mean when we say “domestic preference acts”? These refer to the Acts that establish the long-standing inclination of the United States government to ensure federal dollars are spent on domestic products. For example:

  • Buy American Act of 1933 (41 U.S.C. §10a-d)
  • Trade Agreements Act (19 U.S.C. §§ 2511-2518, implements WTO GPA)
  • Berry Amendment (applicable to DoD)
  • Surface Transportation Assistance Act of 1982 (“Buy America” – which notably is not exactly the same as “Buy American”)

The BAA requires “substantially all” of an acquisition be attributable to American-made components. This has come to mean that at least 50 percent of the costs must be attributable American content. The BAA applies to “construction materials” and “end products,” depending on whether a supply contract or construction contract is involved. A two-part test has developed to determine whether the BAA applies and the GAO applies a case-by-case standard to determine applicability of whether something is “manufactured” in the United States sufficient to meet the requirements of BAA.
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