On April 18, 2017, President Donald Trump issued an Executive Order (the "Order") entitled "Buy American and Hire American,"1 intended to, among other things, strengthen public procurement policies promoting domestic preferences for construction materials used on public projects.
Technically, the Order does not make or change any existing law. Rather, it establishes "the policy of the executive branch to maximize, consistent with the law . . . the use of goods, products and materials produced in the United States."
By issuing the Order, President Trump has sent a clear message that his administration will seek broader enforcement of federal procurement laws, like the Buy America Act and Buy American Act, and minimize the use of exceptions and waivers to these Acts, all of which could have repercussions on contractors working on state and federally funded projects.
The Order defines "Buy American Laws" as "all statutes, regulations, rules and Executive Orders relating to Federal procurement or Federal grants including those that refer to "Buy America" or "Buy American" that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods."
Many people affected by these laws do not realize that there are several different Buy American Laws that could potentially apply to a publicly funded project.2 Part of this confusion is likely due to similar names for the Buy America Act and Buy American Act, which are perhaps the two most important procurement laws for contractors to understand.
The Buy America Act requires that 100% of the "iron, steel, and manufactured products used in the project" on federally funded Department of Transportation procurement projects valued at over $100,000, must be produced in the United States. When contracting on such a project, for example, steel pipe and all fittings must be manufactured in the United States and produced from steel that is made and smelted in the United States.
The Buy American Act, on the other hand, applies to all federal government agency purchases of goods with a value that exceeds the micro-purchase threshold (generally $3,500). The Buy American Act establishes a price preference, so that when a low offer is not domestic, the procuring agency adds a certain percentage of the offer's price (anywhere from 6 to 50 percent) before determining which offer is the best value.
At the beginning of a project governed by Buy American Laws, general contractors and their subcontractors and suppliers are normally required to sign and submit certification forms with their bids. These forms certify that the contractor can and will comply with the Buy American Laws governing the project. Bidders are bound by their certification and cannot seek a waiver of the requirements of Buy American Laws after bids are open.
Contractors should certify compliance only when they can actually comply with Buy American Laws because the penalties for failing to comply with these laws can be severe and costly — including an order to remove and replace non-conforming material, contract termination for default, and suspension and debarment of the contractor.
The Order establishes two deadlines for providing more concrete direction as to what effect the Order will have on future application and enforcement of Buy American Laws. First, the Order mandated that the Secretary of Commerce and the Office of Management and Budget (OMB) Director submit guidance for agencies on how to develop and propose policies to comply with the Order by June 2017.
The second deadline, which occurred on September 15, 2017, required governing agencies to assess their compliance with Buy American Laws and provide recommendations for procedural changes that would increase agency ability to buy more American products and hire more American workers.
On June 30, 2017, Secretary of Commerce Wilbur Ross and OMB Director Mick Mulvaney published the Buy American Memo ("Memo") to federal agencies.3 Although the Memo was intended to produce guidance that would assist agencies in implementing the Order, the Memo focuses more on the topics agencies should address in their reports due in September.
Specifically, the Memo directs agencies to (1) evaluate and report on their oversight of Buy American Laws by listing current oversight procedures and the results of internal reviews to ensure compliance; (2) review status of current enforcement and frequency of use of exemptions and waivers; and (3) propose policies to ensure procurements maximize the use of materials produced in the United States.
Read together, the Order and Memo suggest that exceptions and waivers to the Buy American Laws are less likely to be granted in the future. The Memo states that "[a]quisitions . . . pursuant to . . . exceptions and waivers, which annually result in billions of Federal taxpayer dollars being spent for foreign-made products, must be carefully monitored."
The types of exceptions that could be reduced or ultimately eliminated include the non-availability exception, which allows an agency to use a foreign product if it determines that the product is not "manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality," the exception for purchases for use outside of the United States, and the exception for purchases that fall under the micro-purchase threshold.
The Order could also ultimately lead to a critical examination of the Trade Agreements Act (TAA), which waives the Buy American Act on acquisitions over certain dollar thresholds when products are manufactured in TAA designated countries.
Following the agency reports, the Order requires that by November 2017 the Commerce Department and OMB use the information provided to create specific recommendations to President Trump for strengthening the implementation of Buy American Laws.
At present, it is not entirely clear what, if anything, the Order will change. Contractors should stay informed of the developments resulting from the Order, and contact the Trump administration to weigh-in on the application of these laws. In addition, the Order signals that now would be a good time for contractors to review their existing compliance policies with Buy American Laws because stricter enforcement of these laws could affect their business.
1 Readers may download the Executive Order by going to https://www.whitehouse.gov/the-press-office/2017/04/18/presidential-executive-order-buy-american-and-hire-american (last visited August 28, 2017).
2 For example, the Buy American Act, Buy America Act, Trade Agreement Act, and Berry Amendment all relate to preferences for domestic goods on federally funded projects. It is also important to remember that laws relating to domestic preferences may apply when the project is administered by a state government, and many localities have their own "Buy American" or buy local requirements. Generally speaking, states are permitted to either adopt the Buy American Laws or adopt more stringent requirements.
3 A copy of the Memo can be located at: https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2017/M-17-27_assessment_enforcement_domestic_preference_buy_american_laws.pdf (last visited August 28, 2017).
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