The Buy American Act, as the name implies, establishes a preference for American-made products in federal contracts. Per the current Federal Acquisition Regulation (FAR), an end product is considered to be “American” if it is manufactured in the United States and at least 50% of the costs of its components are mined, produced, or manufactured in the United States. However, President Trump wants the FAR Council to increase the threshold, issuing an executive order on July 15 directing the FAR Council to “consider” the following:
- Increasing the threshold to require 55% of the content to be American and phasing in additional increases until the required American content is 75%
- Establishing a separate threshold of 95% American content for “iron and steel” end products
Though seemingly innocuous, the proposed changes to the threshold have the potential to significantly impact government contractors. Established by President Eisenhower, the 50% threshold has been the standard used by generations of contractors in creating supply chains that are compliant with the Buy American Act. If the FAR Council chooses to comply with the president’s request, all contractors will have to review their purchasing systems and supply chains to ensure compliance with the new thresholds. This could result in higher prices, having to use different vendors, and changes in delivery schedules. It could also affect a contractor’s ability to utilize small business subcontractors.
Supply chains are usually supported by contractual agreements and cannot always be changed quickly. Therefore, contractors should monitor any new rule proposed by the FAR Council and ensure that the rule includes a sufficient phase-in period to allow contractors time to establish supply chains that comply with the new thresholds. If the new thresholds apply to existing contracts, contractors may also have the right to seek an equitable adjustment for any increased costs or schedule delays caused by implementing the new thresholds. Conversely, if the new thresholds only apply to newly awarded contracts, contractors may have to maintain two supply chains, one for their existing contracts and a different one for new contracts.
Please contact Tom Marcinko at 301.231.6237 if you need help with Buy American Act compliance or to learn more about this issue.