Procurement Lawyer

Current Challenges Facing Contractors under Recent Changes to Domestic Preference Programs

by Mitchell A. Bashur, George E. Stewart III & Dominick P. Weinkam

Mitchell A. Bashur is an associate in the Tysons, Virginia, office of Holland & Knight LLP and George E. Stewart III and Dominick P. Weinkam are associates in the McLean, Virginia, office of Watt, Tieder, Hoffar & Fitzgerald, L.L.P.

On April 18, 2017, the White House issued an executive order titled “Buy American and Hire American.”1 The executive order directs federal agencies to “scrupulously monitor, enforce, and comply with Buy American Laws, to the extent they apply, and minimize the use of waivers, consistent with applicable law.”2 On April 29, 2017, the White House issued another executive order titled “Addressing Trade Agreement Violations and Abuses,” which directed the Secretary of Commerce and the United States Trade Representative (USTR), in consultation with others, to conduct a comprehensive review of all trade agreements and take actions to address abuses and unfair treatment.3 The White House has promised to make “very big changes” and possibly “get rid of NAFTA [North American Free Trade Agreement] for once and for all,”4 while renegotiating the U.S.-Korea Free Trade Agreement.5

This recent focus on enforcement of federal domestic preference programs and the likelihood of amending or canceling trade agreements present significant challenges to federal contractors. The myriad domestic preference programs, including the Buy American Act, the Trade Agreements Act, and the Buy America Act, already present a difficult maze for contractors to navigate. An increased focus on enforcement of these domestic preference programs combined with a changing trade landscape make this maze even more treacherous. This article presents a background on domestic preference programs, followed by an overview of recent developments, including suggested best practices for navigating the evolving domestic preferences maze.

Buy American Act

The Buy American Act is a domestic preference program passed by Congress in 1933 to encourage the procurement of Americanmade goods by the federal government.6 It is the earliest and best-known domestic preference program,7 although its applicability was limited in 1979 when Congress passed the Trade Agreements Act, which generally waives the Buy American statute when the Trade Agreements Act is applicable.8 When applicable, the Buy American Act provides preferential treatment for domestic sources of supplies, manufactured goods, and construction materials for public use; however, specific exemptions may apply.

The Buy American Act applies to all federal government direct purchases of goods for use within the United States valued over the micro-purchase threshold of $3,000 and where the Trade Agreements Act is not applicable.9 It does not apply to contracts for the purchase of services.10 The Buy American Act is written as a prohibition, providing that “[t]he Buy American statute restricts the purchase of supplies that are not domestic end products.”11 However, it is implemented as a pricing preference.12 As a result, the Buy American Act does not prohibit a federal agency from purchasing a foreign-origin production, but rather requires an adjustment to offerors’ prices.13 If a domestic offer is not the low offer, then the government must increase the low offer’s price by a certain percentage before determining which offer is the lowest price or best value to the government. For civilian agencies, this is a 6 percent price adjustment if the lowest domestic offer is from a large business concern, or a 12 percent adjustment if the lowest domestic offer is from a small business concern.14 For Department of Defense (DoD) acquisitions, the defense agency must use an evaluation factor of 50 percent.15 If, after the application of the price preference, the domestic offer is the lowest offer, the agency must award the contract to the domestic offeror.16 If a foreign offeror still has the lowest price, the agency may then award the contract to the foreign offeror.17

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