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Proposed DFARS Rule Catches Up To Trump Admin “Buy American” Executive Order

September 17, 2021
PROPOSED DFARS RULE CATCHES UP TO TRUMP ADMIN "BUY AMERICAN" EXECUTIVE ORDER

As we wrote about in a prior Bulletin (here), in January 2021, the U.S. Department of Defense (DoD), General Services Administration, and National Aeronautics and Space Administration issued a final rule amending the “Buy American” regulations under the Federal Acquisition Regulations (FAR) to increase the “domestic content” requirement under the regulations to 55 percent for items not wholly or predominantly iron or steel and to increase the price preference for domestic products.  These changes to FAR were intended to implement Executive Order 13881, Maximizing Use of American-Made Goods, Products, and Materials, issued under the Trump administration.  However, as we explained in another Bulletin (here), more recently, proposed changes to FAR that were announced in August 2021 after the Biden administration issued Executive Order 14005, Ensuring the Future is Made in All of America by All of America’s Workers, would gradually increase the domestic content threshold for items not wholly or predominantly made of iron or steel further to 75 percent and would provide a framework through which higher price preferences are applied to end products and construction materials that are critical or that are made up of critical components and/or critical items.

As for DFARS, a recently proposed rule by DoD amends the "Buy American" rules in DFARS Part 225 to make changes that conform to E.O. 13881 but stops short of meeting the higher domestic content thresholds required by E.O. 14005.  Specifically, under the proposed DFARS rule, the definitions of “domestic end product” and “domestic construction material” are separated in order to differentiate between end products and construction material that consist of iron, steel, or a combination of both and those that do not.  Under the revised definition of “domestic end product,” an end product that consists wholly or predominantly of iron or steel, or a combination of both, is considered a domestic end product if the end product is manufactured in the U.S., and the cost of iron and steel not produced in the U.S., or a qualifying country, constitutes less than 5 percent of the cost of all the materials used in the end product.  For “domestic construction material,” other than fasteners, if the construction material consists wholly or predominantly of iron or steel, or a combination of both, then the cost of iron or steel not produced in the U.S. must constitute less than 5 percent of the cost of all the components used in the construction material.

Also under the proposed DFARS rule, the definition of a “domestic end product" is revised to provide that if an end product does not consist wholly or predominantly of iron or steel, or a combination of both, then it is only considered a domestic end product if the end product is manufactured in the U.S. and the cost of its qualifying country components that are mined, produced or manufactured in the U.S. exceeds 55 percent of the cost of all of its components.  This threshold has been raised from 50 percent.  Likewise, for “domestic construction material” that is not wholly or predominantly iron or steel, or a combination of both, the cost of its components that are mined, produced or manufactured in the U.S. must exceed 55 percent (also an increase from 50 percent) of the cost of all of its components.  In all cases, any components that are of unknown origin are treated as foreign.

Government contractors that produce items to the federal government should be mindful of the FAR “Buy American” requirements revised in January, as well as the proposed FAR and DFARS rule changes.  They may also anticipate that, at some point in the future, DoD may propose changes to DFARS that step up the domestic content thresholds even higher to meet the thresholds under E.O. 14005 that are reflected in the proposed FAR rule issued in August 2021.  

To read the proposed DFARS Rule go here

To read other articles from The GovCon Bulletin™ go here.

Long-Awaited Revisions to FAR Rule on Subcontracting Limitations Set To Take Effect

September 10, 2021
LONG-AWAITED REVISIONS TO FAR RULE ON SUBCONTRACTING LIMITATIONS SET TO TAKE EFFECT

At long last, revisions to the Federal Acquisition Regulation (FAR) rules on limitations on subcontracting by small businesses, including the nonmanufacture rule, are set to take effect today, September 10, 2021.  These revisions are part of a final rule under FAR issued on August 11, 2021 by the U.S. Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration.

The FAR revisions implement changes that the U.S. Small Business Administration made in 2016 to its own regulations that were aimed at eliminating inconsistencies in how the limitations on subcontracting and nonmanufacture rule were applied across the SBA’s different small business programs.  For example, under some small business programs, a prime contractor was required to perform a certain percentage of work itself, whereas under other programs, a prime contractor could include subcontracts to “similarly situated entities” in the percentage of work it performed.  In addition, the method for calculating compliance with the limitations on subcontracting also varied across small business programs.

As we wrote extensively about in a prior Bulletin (here), under the SBA’s 2016 changes to its regulations, for purposes of procurements under the SBA’s small business programs, compliance with subcontract limitations is determined by measuring the amount of a contract award that is spent by a prime contractor on its subcontractors rather than by measuring the percentage of work that is performed by the prime contractor.  The SBA’s 2016 changes also excluded from the subcontracting limitation any payments made by a prime contractor to similarly situated entities and applied its new methodology for determining compliance with subcontract limitations to all of its small business programs.  As amended, the SBA’s regulations defined a “similarly situated entity” as a subcontractor that is small under the NAICS code assigned to the subcontract by the prime contractor and with the same small business status as the prime contractor (e.g., HUBZone small business, 8(a) small business, WOSB, SDVOSB). 

The changes that the SBA made to its regulations in 2016, however, did not make it into either FAR or, perhaps more importantly, the FAR clause on subcontracting limitations - FAR 52.219-14 - that is inserted into small business government contracts.  Thus, FAR 52.219-14 persisted in requiring, for non-construction contracts, that at least half of the cost of work performed and at least half of manufacturing costs be expended in-house by the small business prime contractor.

Now, under the revisions set to take effect as of September 10, 2021, FAR Part 19 and FAR 52.219-14 largely mirror the SBA’s regulations.  In addition, the FAR revisions clarify that the subcontracting limitations and nonmanufacturer rule apply to set-asides and sole source awards made under FAR subparts 19.8, 19.13, 19.14, and 19.15, as well as to awards using the HUBZone price evaluation preference pursuant to FAR subpart 19.13, regardless of dollar value. 

The final FAR Rule set to take effect today should spur small business contractors to seek out other small business teaming partners with complementing capabilities, as it provides long-awaited assurance that these collaborations will not cause small business prime contractors to exceed subcontracting limitations.

To read the final FAR Rule containing the revisions go here

To read other articles from The GovCon Bulletin™ go here.

New FAR Rule Provides Examples of Good Faith Effort to Meet Subcontracting Plan

August 12, 2021
NEW FAR RULE PROVIDES EXAMPLES OF GOOD FAITH EFFORT TO MEET SUBCONTRACTING PLAN

On August 11, 2021, the U.S. Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration issued a final rule (FAR Final Rule) implementing requirements under the National Defense Authorization Act for Fiscal Year 2017 (NDAA 2017) mandating that the Federal Acquisition Regulation (FAR) include examples of a failure to make a good faith effort to comply with a small business subcontracting plan. 

FAR Part 19 requires large business prime contractors to submit small business subcontracting plans with their bids for negotiated contracts over $750,000 ($1.5 million for construction contracts) that have subcontracting possibilities.  Absent some indication or demonstration by contractors that they made good-faith efforts to meet their subcontracting plan goals, contractors that do not comply with their plans face paying liquidated damages equal to their subcontracting goal short-falls.

NDAA 2017 required the U.S. Small Business Administration (SBA) to amend its regulations in order to include examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan.  Consequently, in November 2019, the SBA issued a final rule that provided guidance for evaluating whether a prime contractor has made a good faith effort to comply with its small business subcontracting plan and that listed examples of activities reflecting a failure to make a good faith effort.  The SBA’s final rule also required prime contractors with commercial subcontracting plans to include indirect costs in their subcontracting goals. 

The changes made by the SBA to its regulations are now implemented in FAR by the FAR Final Rule.  Specifically, as revised by the Final FAR Rule, FAR Part 19 now requires the subcontracting goal for a commercial plan to include all indirect costs, with certain exceptions that include depreciation, interest, income and property taxes, and bank fees.  As revised, FAR Part 19 now also states that a contracting officer may consider any of the following, though not inclusive, to be indicators of a good faith effort:

(i) Breaking out work to be subcontracted into economically feasible units, as appropriate, to facilitate small business participation.
(ii) Conducting market research to identify potential small business subcontractors through all reasonable means, such as searching SAM, posting notices or solicitations on SBA's SUBNet, participating in business matchmaking events, and attending preproposal conferences.
(iii) Soliciting small business concerns as early in the acquisition process as practicable to allow them sufficient time to submit a timely offer for the subcontract.
(iv) Providing interested small businesses with adequate and timely information about plans, specifications, and requirements for performance of the prime contract to assist them in submitting a timely offer for the subcontract.
(v) Negotiating in good faith with interested small businesses.
(vi) Directing small businesses that need additional assistance to SBA.
(vii) Assisting interested small businesses in obtaining bonding, lines of credit, required insurance, necessary equipment, supplies, materials, or services.
(viii) Utilizing the available services of small business associations; local, state, and Federal small business assistance offices; and other organizations.
(ix) Participating in a formal mentor-protégé program with one or more small business protégés that results in developmental assistance to the protégés.
(x) Although failing to meet the subcontracting goal in one socioeconomic category, exceeding the goal by an equal or greater amount in one or more of the other categories.
(xi) Fulfilling all of the requirements of the subcontracting plan.

Under the Final FAR Rule, FAR states, conversely, that a contracting officer may consider any of the following, although not all inclusive, as indicators of a failure to make a good faith effort:

(i) Failure to attempt through market research to identify, contact, solicit, or consider for contract award small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, or women-owned small business concerns, through all reasonable means including outreach, industry days, or the use of Federal systems such as SBA's Dynamic Small Business Search or SUBNet systems.
(ii) Failure to designate and maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan.
(iii) Failure to submit an acceptable ISR, or the SSR, using the eSRS, or as provided in agency regulations, by the report due dates specified in 52.219-9, Small Business Subcontracting Plan.
(iv) Failure to maintain records or otherwise demonstrate procedures adopted to comply with the plan including subcontracting flowdown requirements.
(v) Adoption of company policies or documented procedures that have as their objectives the frustration of the objectives of the plan.
(vi) Failure to pay small business subcontractors in accordance with the terms of the contract with the prime contractor.
(vii) Failure to correct substantiated findings from Federal subcontracting compliance reviews or participate in subcontracting plan management training offered by the Government.
(viii) Failure to provide the contracting officer with a written explanation if the contractor fails to acquire articles, equipment, supplies, services, or materials or obtain the performance of construction work as described in FAR 19.704(a)(12).
(ix) Falsifying records of subcontract awards to small business concerns.

The requirements under the Final FAR Rule do not apply to contracts at or below the simplified acquisition threshold, but do apply to commercial contracts, including contracts for commercially-available off-the-shelf items.  Prime contractors that have submitted subcontracting plans with their bids should take care to implement the new guidance under the Final FAR Rule in their contract administration policies and procedures.

The Final FAR Rule becomes effective September 10, 2021.  To read the Final FAR Rule go here

To read other articles from The GovCon Bulletin™ go here.

Proposed FAR Rule Implements New Buy American Requirements

August 6, 2021
PROPOSED FAR RULE IMPLEMENTS NEW BUY AMERICAN REQUIREMENTS

Last week, on July 28, 2021, the Biden Administration announced (here) that it would increase American-made content in federal procurement purchases and that it would bolster support for domestic production of products and services that are critical to national and economic security.  Quickly thereafter, on July 30, 2021, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA), issued a proposed rule under the Federal Acquisition Regulation (FAR) intended to strengthen certain aspects of the Buy American Act.

The Buy American Act encourages acquisitions of domestic products and materials not by prohibiting foreign purchases, but instead by requiring agencies to implement a price preference when evaluating bids from offerors that use domestic end products and construction materials.  The Buy American Act is implemented in FAR, which gives large businesses that use domestic supplies a 20 percent price preference and small businesses that use domestic supplies a 30 percent price preference.  As for when supplies are considered domestic, FAR currently applies a two-part test.  First, an end product or construction material must be manufactured in the U.S.  Second, a certain percentage of all of the component parts must be mined, produced, or manufactured in the U.S.  For an end product that does not consist wholly or predominantly of iron or steel or a combination of both, the cost of domestic components must exceed 55 percent of the cost of all components; the test is waived for acquisitions of commercially available off-the-shelf items.  For an end product that consists wholly or predominantly of iron or steel or a combination of both, the cost of foreign iron and steel must constitute less than 5 percent of the cost of all the components.

Under the recently proposed rule, the domestic component threshold described above increases initially from 55% to 60%, then to 65% in two years, and then, five years later, to 75%.  Suppliers should note that if they perform under a contract that spans the threshold increases, under the proposed rule, they will be required to increase the domestic content of their deliverables to meet any increased thresholds that apply in the years of delivery. 

The proposed rule also provides for a “fallback threshold” until one year after the increase of the domestic content to 75%.  During that initial time period, a former domestic content threshold may be accepted if end products or construction materials meeting a new threshold are not available or are of unacceptable cost.

As for pricing preferences, the proposed rule offers a framework through which higher price preferences are applied for end products and construction materials that are critical or that are made up of critical components and/or critical items, as identified in FAR in a newly added list of critical items and components.

Lastly, the proposed rule includes a new post-award reporting requirement mandating that contractors provide the specific domestic content of critical items, domestic end products containing a critical component, and domestic construction material containing a critical component.

Comments to the proposed rule are due by September 28, 2021.  To read or obtain a copy of the proposed rule go here.

To read other articles from The GovCon Bulletin™ go here.