Earlier this week, on January 19, 2021, the U.S. Department of Defense, General Services Administration, and National Aeronautics and Space Administration issued a final rule that amends “Buy American” regulations under the Federal Acquisition Regulations (FAR). The final rule makes two significant changes – first, it increases the “domestic content” requirement under the regulations; second, it increases the price preference for domestic products.
As reflected in FAR, “Buy American” restrictions generally are not a flat-out ban on the acquisition of foreign products. Rather, when applicable to a procurement, the Buy American restrictions impose a pricing penalty to foreign products when a contracting officer evaluates prices from bidders and offerors. Thus, “domestic” items in comparison are given a pricing preference.
Prior to the final rule, under FAR, a manufactured item was “domestic” if the item met two requirements – a manufacture requirement and a component/content requirement. More specifically, a product was “domestic” if it was manufactured in the U.S. and if more than 50 percent of its component parts (determined by cost of the components) was also mined, produced or manufactured in the U.S.
Bids for items that did not meet these requirements – i.e., bids of “foreign” items – were subject to a price penalty or increase (for evaluation purposes only). If the lowest domestic offer was from a large business, the evaluation price of a competing foreign item was increased by 6 percent. If the lowest domestic offer was from a small business, the evaluation price of a competing foreign item was increased by 12 percent.
Now, as amended by the final rule, the U.S. domestic content threshold for determining if an item is foreign or domestic is raised from 50 percent to 55 percent if the item is not wholly or predominantly iron or steel. For items that are wholly or predominantly steel, iron or a combination of both, the threshold is raised to 95 percent – i.e., the cost of the iron or steel not produced in the U.S. must constitute less than 5 percent of the cost of all of the components.
Also under the final rule, the pricing penalty or enhancement for foreign items has been raised significantly. If the lowest domestic offer is a large business, the evaluation pricing of a foreign item is increased now by 20 percent; if the lowest domestic offer is from a small business, foreign item evaluation pricing is increased by 30 percent.
Lastly, under the final rule, commercially available-off-the-shelf (COTS) products, other than products consisting wholly or predominantly of iron, steel or both, remain exempt from the domestic content requirement. However, iron and steel COTS products, other than iron and steel fasteners, are now subject to the 95 percent domestic content requirement.
Although the final rule is effective as of January 21, 2021, it will not be implemented into new solicitations until February 22, 2021.
To read or obtain a copy of the final rule go here.
To read other articles from The GovCon Bulletin™ go here.