Companies regularly engage the Whay Law Firm to assist with determining whether its products are compliant with the Buy American Act. A compliance determination is fact specific to each product. In order to provide an opinion regarding compliance, we will need information regarding the product’s manufacturing process, the locations of manufacturing, a list of its components, the country of origin for its components (and sometimes parts), and other requested information. We rely upon agency guidance and applicable case law from a variety of sources (e.g. U.S. Customs) in making a determination of compliance for your products.
Below is a brief overview of the Buy American Act. Although the requirement may at first appear straightforward, it is a complicated and nuanced law that can cause significant financial loss to companies that violate it. Before bidding as a prime contractor or a subcontractor for a U.S. Government contract, please make sure you understand the requirements and make the appropriate representations regarding your compliance.
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The Buy American Act (41 U.S.C. § 10a et seq.) (“BAA”) is depression-era legislation which established a general preference for the acquisition of materials manufactured in the United States when the materials are being procured by the U.S. Government for public use in the United States. The BAA provides several exemptions to its application.
As an example, an exemption to the BAA exists for the World Trade Organization Government Procurement Agreement. The agreement is codified into U.S. law as the Trade Agreements Act (“TAA”) and is implemented at FAR 52.225-5. The TAA allows the President to waive BAA requirements for certain goods from designated countries. To the extent a procurement is subject to the TAA, the BAA is satisfied by providing U.S.-made or designated country products.
Another exemption is price reasonableness. If the U.S. made product is significantly more expensive than the foreign product, the agency may purchase the foreign product. In order to determine price reasonableness, the BAA provides a price preference for U.S. made products. If a procurement is subject to the BAA and the lowest price offeror is offering a foreign made product, for evaluation purposes the contracting officer is required to add 6% or 12% to the price of the foreign product. If the company bidding the U.S. made product is a small business, the contracting officer applies a 12% price evaluation penalty to the foreign product offer, and 6% if the offeror of the U.S. made product is not a small business. Note, for Department of Defense (“DoD”) procurements the price evaluation penalty is 50%, regardless of the size of the company offering the U.S. product.
Besides having a much higher price evaluation penalty, application of the BAA by the DoD is significantly different than by a civilian agency. DoD procurements which are subject to the BAA require that 50% of the component costs of end products be from the United States or a Qualifying Country.
Unless an exception applies, U.S. government agencies are required to purchase U.S. made products if the BAA applies to the procurement. A U.S. made product is (1) an unmanufactured end product mined or produced in the United States; or (2) an end product manufactured in the United States, if the cost of its components mined, produced, or manufactured in the United States exceeds 50 percent of the cost of all its components. For DoD procurements, the requirement in (2) above would include the cost of components from the United States or a Qualifying Country.
The term component is defined as an article, material, or supply incorporated directly into an end product. A component is either entirely foreign or entirely domestic. A component is domestic only if it is manufactured in the United States. A foreign made component may become domestic if it undergoes substantial remanufacturing in the United States. The cost of components includes transportation costs, but do not include packaging costs, the cost of combining the components into the end product, or the cost of testing after manufacturing.
Analyzing a specific product for BAA compliance requires analyzing what constitutes manufacturing for the product, the end product being procured by the Government, what constitutes the components and parts of the end product, the costs of the components and end product, and any applicable exceptions to application of the BAA. Additionally, to avoid confusion or a mistake, it is advisable to identify the relevant FAR clauses included in the prime contract/solicitation (e.g. FAR 52.225-1, FAR 52.225-9). With this information, the Whay Law Firm can analyze your products based upon the numerous court and agency decisions interpreting the BAA and the TAA.