Trump’s ‘Buy American’ will tighten the law on government contracts

President Trump’s “Buy American” executive order is bold in theory and short on details, and specific future changes, if any, to the existing law, are unclear. The executive order signals an effort to strengthen and fine tune the law, and it may have a significant impact on those bidding for federal contracts, both positively and negatively.

While the executive order does not change the Buy American Act of 1933, it does require the federal government and its procuring agencies to reexamine the law, insure it is being applied properly, and consider ways to improve it. Ultimately, the president will receive a report with specific recommendations and changes may result.

{mosads}For the past 84 years, the Buy American Act has given preference to U.S.-made goods in federal procurements, which most Americans would probably support. But, the law contains many exemptions, and is affected by the 1979 Trade Agreements Act, which basically treats goods from about 60 specified foreign countries, typically via trade agreements and free- trade deals, on equal footing with U.S. made products in federal procurement evaluations.

While uncertain, any changes will likely focus on the preferences given to those foreign made goods and modifying the exemptions. The goal of many of the existing trade agreements is for U.S. companies to obtain as much business from foreign governments as foreign companies would from the U.S. government. The White House wants to investigate whether the U.S. is typically the “net loser” in those types of arrangements. If so, those preferences may be revoked or the agreements could be renegotiated.

There are a few significant ways the executive order may impact federal contractors. First, the executive order requires procuring agencies to maximize the use of goods, products or materials produced in the U.S. While a strict definition of that is unclear, it evokes one criticism of the Buy American Act: its enforcement. For example, last year the Inspector General for the Department of Defense determined that the Air Force failed to properly apply the Buy American Act in numerous procurements that were reviewed. Other agencies have faced similar criticism. If the law is more broadly implemented, its effect on bidders will be broader.

This leads to the second impact, the potential for increased bid protests. Compliance with the Buy American Act is complicated. A commercial off-the-shelf product must be made in the U.S. without concern for its components. But, if the procurement is for a “domestic end product,” the place it is manufactured is only part of the analysis. If the cost of the product’s foreign components is more than half of the cost of all components, then the product will be deemed a foreign product — only if the component falls within the law’s definition of component, which excludes things like components of components, labor, and transportation costs.

Further, the numerous exemptions in the Buy American Act through the Trade Agreements Act may be challenged more by disappointed bidders. For example, the Buy American Act does not apply where the federal government will use the products outside of the U.S., where the use of U.S. made or produced materials is inconsistent with the public interest, where the cost of the domestic materials is unreasonable, or where the materials are not produced in the U.S. in sufficient quantities. Determinations as to whether exemptions apply can be left to contracting officers or the heads of the procuring agencies.

Since implementation of the Buy American Act generally falls on the contracting officer, who may not have the requisite expertise or experience in enforcing it, challenges to its enforcement may be on the rise. The improper or unfair application of the Buy American Act, or failure to apply it, will likely become a more popular avenue for relief for bid protesters. With today’s global economy, bidders may now need to more closely examine not only where their products come from, but also how they are put together, whether exemptions apply, and how all of the above pertains to their procurement competitors.

False Claims Act actions may also increase, which could lead to civil penalties for contractors that falsely certify domestic goods when they are in fact foreign goods. With penalties for violations in construction contracts being more severe, this could result in multi-year bans from federal contract bidding.

Although the Buy American Act has long been a factor in federal government contracting, the executive order should result in greater or stricter implementation of it. In the short term, bidders in federal procurements will need a greater awareness of the law’s requirements and exemptions, and to be more prepared to challenge or defend contract awards based on the implementation of the law.

Mark J. Stempler is a Florida shareholder with the law firm Becker & Poliakoff, where he focuses his practice in the areas of government procurement law and civil litigation. In the government arena, he primarily represents private companies doing business with government agencies during procurement bidding, negotiation, and protest processes, and ordinance and regulatory promulgation.

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