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April 26, 2017

Trump Executive Order on Buy American and Hire American Could Have Major Impact on Federal Contractors and Grantees


The United States has long offered its domestic industrial base preferential treatment in the Federal government marketplace through laws and regulations requiring agencies to prefer purchase of American-made products and contracts with American companies, and only resort to other sources in circumstances of genuine need. On April 18, 2017, President Trump issued an Executive Order (Order) intended to emphasize and potentially strengthen these policies. The Order, entitled "Buy American and Hire American," 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 good, products, or materials produced in the United States, including iron, steel, and manufactured goods." The Order directs that it shall be the policy of the executive branch to maximize the use of goods, products, and materials produced in the United States, and to rigorously enforce and administer the laws governing entry into the United States of workers from aboard. The "Hire American" portion of the Order proposes reform to the H-1B visa program. The Order reflects multiple public statements by President Trump stating that "Buy American" is a core policy of his administration. However, until the assessments and recommendations required by the Order are actually made, Federal contractors are left without concrete direction as to what effect, if any, the Order will ultimately have. While it is not immediately clear if anything will change, there are a number of potential affected areas that contractors should consider. And, given the administration's promise of heightened enforcement, prudence dictates that contractors and grantees assess their existing Buy American and Buy America compliance policies, procedures and practices, and the potential implications of restrictions on foreign sources to their supply-claims material, component and sub-component suppliers.

The timeline mandated by the Order is that within 60 days of the Order (June 17, 2017), the Secretary of Commerce and the OMB Director will issue guidance for agencies on how to develop and propose policies in alignment with the Order. Next, agencies must make assessments regarding Buy American laws within 150 days (September 15, 2017). Also within 150 days, the Secretary of Commerce and United States Trade Representative must assess the impacts of US free trade agreements and the World Trade Organization Agreement on Government Procurement on Buy American laws, including their impacts on domestic procurement preferences. Finally, within 220 days (November 24, 2017), the Secretary of Commerce must submit to the president a report on Buy American laws incorporating all of these findings, with recommendations to strengthen implementation of current laws. Given that each agency is responsible for making its own assessments, it is possible that in September there could be an extremely wide range of actions (or inaction) given the current lack of straightforward targets or metrics.

The Buy American Act (BAA) (41 U.S.C. §§ 8301–8305) states that only products manufactured in the United States "shall be acquired for public use unless the head of the Department or independent establishment determines their acquisition to be inconsistent with the public interest or their cost to be unreasonable." The BAA restricts US agencies from purchasing products manufactured outside the US, unless an exception exists. Not to be confused with BAA, Buy America refers to domestic content restrictions that attach to US Department of Transportation grants to state and local government agencies. These requirements are administered by agencies including the Federal Aviation Administration (FAA), Federal Railroad Administration (FRA), the Federal Transit Administration (FTA), and the Federal Highway Administration (FHWA).

The BAA contains a number of exceptions that could be eliminated by the "assessments" and "guidance" required by the Executive Order. For example, the BAA allows for non-availability determination where an agency may acquire a foreign product if the product is not "manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality." There is also a broad exception for the purchase of commercial information technology and a partial exception for commercial off-the-shelf products. It is possible that agencies will recommend elimination of these exceptions.

The Trade Agreements Act (TAA) (19 U.S.C. §§ 2501–2581) applies to agency acquisitions over a certain threshold, currently $191,000. It provides that for products manufactured in TAA "designated countries" that fall above the threshold, the TAA waives BAA purchasing restrictions. The TAA also restricts the Federal government from acquiring products manufactured in countries that are not TAA-designated countries (such as China and India), subject to certain exceptions. In turn, the US government gains equivalent access to the markets of the designated countries. It is possible that the Order could presage an attempt to roll back the TAA and rescind all or part of these reciprocal arrangements. This could mean that only domestic contractors would be eligible to participate in the US Federal contracting market in a more absolute sense than now. However, it could also cause reciprocal retaliatory measures by signatory countries, which would curtail opportunities for US contractors overseas.

The Order could also attempt to disaggregate Federal Supply Schedule (FSS) contracts so that individual orders would simply fall under the TAA threshold and become subject to the Buy American Act. The FSS standard solicitation incorporates 48 C.F.R. § 52.225-5 Trade Agreements, which allows aggregation of sales on FSS contracts so they can exceed the TAA threshold. Agencies could eliminate that regulation and cause individual orders under FSS contracts to become subject to the BAA.

Similarly, for Federal grantees, Buy America requirements for federally assisted awards, specifically for the FHWA, allow State Transportation Agencies to request waiver of such requirements where: (1) following the requirements is inconsistent with the public interest; or (2) insufficient quantities of satisfactory quality steel and iron products/materials are produced in the US because the Order directs agencies to "minimize the use of waivers"—this is the type of provision that could be restricted or eliminated going forward.

Federal contractors and grantees should keep abreast of developments resulting from the Order and monitor the results of the agency assessments and recommendations in the coming months, particularly the guidance from Commerce and OMB on June 17, and plan for fewer waivers and reduced accessibility to foreign materials and goods going forward. No matter the specific modifications to correct laws and regulations that may be implemented following the Order, contractors and grantees are likely to see heightened enforcement in this area.