What is the Buy American Act?
The Buy American Act (BAA) of 1933 provides preference for goods and materials produced in the United States over products sourced from outside the country. (Generally, services are not subject to the BAA.) The BAA prioritizes domestic products in federal projects or federally-funded projects, but does not necessarily prohibit the purchase of non-domestic goods.
The Buy American Act basically sets a price preference, where the federal government will pay a higher price for domestic products. i.e. if there are two products of equal price, and one is domestic and the other considered foreign, the federal agency must award the contract to the domestic offer. But what if a foreign product is cheaper or a better value than the domestic product being offered? The government adds a “price penalty” to the lowest non-domestic offer to evaluate it against the second lowest domestic offer. This penalty is a percentage that can range anywhere from 6 to 50 percent of the price of the product, depending on the size of the business. Once the percentage has been added, then the federal agency will use the adjusted prices to determine which offer is the lowest and best value.
What does it mean to “buy American”? Vendors are asked to certify that their products are “domestic end products.” That means the end product must be manufactured in the U.S. and more than 50 percent of the cost of all the parts must also be manufactured in the U.S. However, it can be tough to determine the origin of all the parts of your product.
So, what’s the big deal?
The BAA allows the use of waivers and exceptions to requirements that allow for the purchase of foreign goods. This is the case when foreign-made goods are more cost-effective or under a certain price threshold (typically $3,500 – the micro-purchase threshold) than domestic products. Additionally, the Trade Agreements Act allows for the purchase of foreign products in certain situations. Some contracts are subject to different rules than others; some federal agencies may have additional or fewer restrictions or contract stipulations. Also, if a commercial off-the-shelf product is being purchased, it is not subject to BAA laws (commercial items are generally exempt from complying).
Clearly, there are plenty of gaps in the BAA that cause confusion, and could undermine its purpose and effectiveness. In an attempt to provide some clarity for an ambiguous, broad and occasionally contradictory law, the President signed Executive Order 13788.
What is Executive Order 13788?
On April 18, 2017, President Trump signed Executive Order 13788, also known as “Buy American and Hire American.” Per the title, the EO consists of two policy position parts: buying American goods and hiring American workers. While not a new law or regulation, the EO seeks to review and better implement the BAA requirements.
The argument is that Buy American requirements will promote economic growth and create well-paying jobs for Americans. These requirements could make waivers harder to get a hold of. It also examines if current trade agreements are fair, or whether foreign countries that offer cheaper-priced goods can take advantage of our trade practices.
The Hire American stipulations refer to the laws that govern nonimmigrant and immigrant visa and guest worker programs; it seems to specifically target the H-1B program, which allows businesses to hire high-skilled workers from outside the U.S. The EO does encourage reforming laws so only the most qualified individuals are awarded visas for employment. If using labor from abroad is a threat to American workers, the intent of the enforcement is to protect the interests of U.S. workers by creating higher employment and wage rates for Americans.
What are the implications of Buy American Hire American on government contracting?
The EO did not provide specifics on what the end goal was or provide a roadmap or timeline to get there. Legally, nothing has changed and any changes would require Congressional action, which could take a while. That also means no money is being appropriated from the U.S. Treasury to fund it. So in this initial stage, Buy American Hire American primarily affects federal agencies. The EO calls out the heads of federal agencies to evaluate the enforcement and implementation of BAA laws. The Department of Homeland Security State, and Labor departments were specifically asked to propose improvements where the previous version of the BAA has fallen short.
Contracting officers are largely responsible for application of the law. They manage federal solicitations and should make determinations as to how the BAA and/or its exceptions apply to contracts, so they may face some compliance challenges in the future.
With the task to tighten rules and reduce loopholes, Buy American Hire American certainly takes an aggressive stance on procurement and immigration in regards to federal contracting. This seems like the first step in a crackdown on violators of BAA regulations, and an attempt to reinforce laws that have either been diluted over time or are unenforced. Federal contractors will have to keep up-to-date on changing requirements, and ensure they have the appropriate BAA certifications on hand when replying to government solicitations.
This body of regulations is visibly complicated, with a capital C. And some are skeptical whether these efforts will benefit American workers and businesses as touted. Hopefully, this newfound awareness will provide more transparency and ease the burden of compliance for contractors and the government.