The FAR’s Buy American Basics

President Biden recently made news by issuing an executive order (which we covered in previous post) asking the FAR Council to consider revising certain regulations under the Buy American Act.

While we don’t know exactly if, or how, the FAR Council will act, we thought this a good time to review the basic contours of the FAR’s Buy American provisions as they stand now.

The applicability of the Buy American provisions

The Buy American provisions generally apply to contracts for the purchase of supplies or construction materials for use in the United States. But they are limited to contracts below the dollar thresholds applicable to certain trade agreements between the U.S. and other countries. (We’ll address these separate provisions in a separate post.)

Importantly, however, the Buy American provisions apply to all contracts set aside for small business—regardless of contract value.

Contractors must provide domestic end products

When applicable, contractors must supply the federal government with domestic end products. The FAR provides a two-part test to ascertain whether (most) supplies are domestic end products; another two-part test applies for supplies made predominantly from iron and steel.

Here’s the generally applicable test for a domestic end product:

• the article is manufactured in the United States; and
• the cost of domestic components exceeds 55% of the cost of all components or the article is a commercially available off-the-shelf (COTS) item.

For supplies made predominantly of iron or steel, here’s the test for a domestic end product:

• the article is manufactured in the United States; and
• the cost of foreign iron and steel is less than 5% of the costs of all the components in the end product or for a fastener, the fastener is a COTS item.

Exceptions to the Buy American provisions’ applicability

The Buy American provision do not apply (and thus, a contractor isn’t required to offer a domestic end product) in the following circumstances:

• An agency head decides that apply the Buy American Act in a certain procurement would not be in the public interest.
• The procured article is not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities.
• There is a class or individual waiver in place.
• The articles are for commissary resale.
• The procurement is for information technology that is a commercial item.
• The cost of domestic end products is unreasonable.

The unreasonable cost exception unpacked

Here’s the really interesting part. Because the Buy American provisions have an unreasonable cost exception, they don’t, in reality, outright prohibit contractors from supplying foreign end products. Instead, contractors offering domestic end products are given a price preference during evaluations.

The applicable price preference depends on the the character of the lowest domestic offeror and the procuring agency.

If the lowest domestic offer (i.e., the offeror with the lowest priced domestic end product) is a large business, then the agency applies a 20% markup on the lower-priced foreign end product.

If the lowest domestic offer comes from a small business, then the agency applies a 30% markup on the lower-priced foreign end product.

If it is a DoD procurement, then the markup on any lower-priced foreign end product is 50%, regardless of whether the lowest domestic offeror is a large or small business. (This 50% price preference is unique to DoD; all other agencies use the 20% and 30% preferences described above.)

If, after the price preference is applied, the lowest domestic offer is still higher priced, then the price is unreasonable. And the agency can then purchase the lower-priced foreign end product.

The key point is this: the Buy American provisions do not absolutely prohibit contractors from offering foreign end products. Instead, the provisions give domestic end products a leg up in the price department. If domestic end products are overly priced, agencies can purchase foreign end products; after all, even Uncle Sam’s tolerance higher-priced domestic products extends only so far.

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That’s a brief run down on the FAR provisions implementing the Buy American Act. If you have any questions about these provisions or other domestic preference statutes, give us a call at 913-354-2230.