There have been two recent updates to the ‘Buy American, Hire American’ initiative (aka ‘the better enforce our government procurement rules of origin’ initiative) that we believe will have consequences for companies that sell products to the government directly or indirectly.
The first is a recent United States General Accountability Office (GAO) report entitled “Buy American Act: Actions Needed to Improve Exception and Waiver Reporting and Selected Agency Guidance” (December 2018). The GAO looked at how the Buy American Act of 1933 has been implemented in the $500+ billion federal procurement market. In particular, the GAO examined (i) how the federal government procures foreign (non-US) products through Buy American Act waivers and exceptions, and (ii) how 4 selected agencies (DOD, HHS, DHS, and the VA) provide training and guidance to implement the Buy American Act. In short, the GAO concluded that, of the $508 billion the federal government spent in FY2017, approximately $7.8 billion was spent on foreign end products (using waivers, exceptions or concluding that the Buy American Act did not apply). That said, the GAO also found that, due to limitations in how the data is reported/captured, the inconsistent training provided contracting officers across the agencies, and the mistakes uncovered in the sample contracts that were reviewed, this amount could well be higher. In short, federal agencies are not doing as well as they should in applying the Buy American Act provisions to their procurements.
The second is the executive order President Trump signed late last month entitled “Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects” (January 31, 2019). While this order generally restates the principles set forth in the previous order, it extends those principles to the financial assistance federal agencies provide to non-federal recipient organizations (i.e., loans, loan guarantees, grants, etc.). According to the Administration, federal agencies award more than $700 billion a year in financial assistance to such organizations and that, often, the recipients do not include Buy American considerations in their contracts. This executive order requires federal agencies to “encourage recipients of new Federal financial assistance awards . . . to use, to the greatest extent practicable, iron and aluminum as well as steel, cement, and other manufactured products produced in the United States in every contract, subcontract, purchase order, or sub-award that is chargeable against such Federal financial assistance award.” In short, federal agencies that provide financial assistance to non-federal entities (e.g., state or municipalities) for projects need to “encourage” the entities that received federal financial assistance to include Buy American-type provisions in their contracts.
As a result of these developments, we expect that Buy American Act/Trade Agreements Act compliance will become an even bigger enforcement priority. We expect that contracting entities, both at the federal and sub-federal level, will begin scrutinizing certifications as to country of origin/compliance more closely than has generally been done in the past. Accordingly, if you are selling directly or indirectly to the government, we recommend that you review your processes for ensuring that your “Buy America” certifications are accurate and auditable (i.e., make sure you are conducting the right analysis and retaining the right supporting documentation). Companies that are confident in their programs should have a distinct advantage in this space for the foreseeable future.
We hope this is helpful. If you have any questions about these issues, please let us know. [Author: Ted Murphy.]