How does Buy American impact my contracts with the U.S. DoW?

What is the Buy American Act?

The Buy American Act (BAA) (41 U.S.C. §§ 8301–8305), as implemented in Federal Acquisition Regulation (FAR) Part 25, has existed since the 1930s. It requires the U.S. government to preferentially purchase goods and services made in the United States.

The policy applies to a wide range of purchases of more than the micro-purchase threshold of $15,000 USD made by federal agencies for construction projects, infrastructure investments, and goods and services.

Under FAR 25.003, for products that are not iron and steel products, a product qualifies as a domestic end product if the item is manufactured in the U.S. and more than 65 percent of the cost of all the component parts is also mined, produced, or manufactured in the U.S.

Buy American Act requirements

The Department of Defense, General Services Administration (GSA), and National Aeronautics and Space Administration issued a final rule that significantly changed the domestic preference requirements in Federal Acquisition Regulation (FAR) Part 25. These amendments came into effect on October 25, 2022, and they impact Buy American Act provisions.

Threshold exemptions for U.S. DoW purchases

Currently, the US government waives Buy American requirements for long-standing U.S. Department of War (U.S. DoW) bilateral reciprocal defence procurement agreements, such as the Canada-U.S. Defence Production Sharing Agreement (DPSA). DFARS 225.872-1, which supports U.S. DoW’s ability to purchase products, services and solutions from Canada, states explicitly that:

As a result of memoranda of understanding and other international agreements, U.S. DoW has determined that it is inconsistent with the public interest to apply the restrictions of the Buy American statute to acquisitions from qualifying countries, Canada being one of those countries.

Essentially, the increases in domestic content thresholds do not affect U.S. DoW contracts for Canadian businesses since they are exempt from Buy American regulations.

Increased thresholds

The new rule increased this domestic content threshold to 65 percent of content value in calendar year 2024 and 75 percent of content value in calendar year 2029.

For iron and steel products, the applicable percentage of content value is 95 percent. The FAR provides a similar standard for domestic construction materials.

Multi-year contracts

The domestic content threshold will be required to comply with the applicable increased threshold for the items delivered each year. For example, for deliverables between 2026 and 2029, they must supply products with 65 percent domestic content until 2029 and then supply products with 75% domestic content thereafter.

Alternate Domestic Content Test

Senior procurement executives can allow for the application of an alternate domestic content test to enable some U.S. DoW contractors to lock in an applicable threshold at the time of contract award for the contract’s entire period of performance. This is intended for circumstances when it is not feasible for a U.S. DoD contractor to meet changing content threshold(s) during the contract’s entire performance period.

Fallback threshold

Until 2030, a procuring agency can determine that no end products or construction materials meet the new domestic content threshold or that such products can be obtained only at an unreasonable cost. In that case, the original 55 percent domestic content threshold can be used.

This fallback never applies to products wholly or predominantly of iron, steel, or a combination of both and that not a commercial off-the-shelf item.

Price preferences

For offers of domestic end products and construction materials subject to the BAA, an evaluation factor (price preference) is applied. The preference is 50 percent in procurements conducted by the Department of Defense. Regulatory changes that will take effect at a future date will authorize agencies to apply an enhanced price preference to domestic end products, and construction material considered a critical item or made up of critical components.

Enhanced price preference for critical products and critical components

The rule provides a framework through which higher price preferences will be applied for end products and construction materials deemed to be critical or made up of critical components. This means that American-made products will have an even greater preference over foreign products in these areas.

The proposed rule places the onus on offerors to identify that their domestic end products contain a critical component, so that contracting officers can apply the higher price preferences when appropriate. Separate rulemaking will identify and add critical products and components to the FAR and establish associated preferences.

Exemptions due to Trade Organization Agreement

Buy American requirements also do not apply to Canada for U.S. federal purchases covered by the revised World Trade Organization Agreement on Government Procurement (WTO GPA),  which Canada, the U.S. and 46 other countries are Parties. Canadian suppliers benefit from the same treatment as American suppliers when bidding on U.S. federal procurements covered by these agreements.

The Buy American Act also provides exceptions for the acquisition of commercially available off-the-shelf (COTS) items.

Other exemptions

Waivers are also granted for the public interest or if the cost of U.S. products is unreasonable compared to equivalent foreign products:

• 20 percent more than the import ordinarily or 30 percent more if offered by a domestic small business;
• 50 percent more if the acquisition is made by U.S. DoW for both large and small businesses.
• Exemptions may also be granted if products are not produced in the U.S. in sufficient and reasonably available commercial quantities of satisfactory quality.

Other basic exemptions include:

• if it is in the “public interest” to procure from another country;
• if the procurement is for commercial information technology equipment
• if a domestic product is for use outside of the United States; or
• if the goods purchased are specifically for commissary resale.