Key Details: On March 7, the Department of Defense (DoD), General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) issued a final rule to implement Executive Order (EO) 14005. This EO, titled “Ensuring the Future is Made in All of America by All of America’s Workers”, sought to support greater domestic production. As this final rule was effective October 25, 2022, government contractors are encouraged to thoroughly understand the updated domestic content thresholds to remain both compliant and competitive on future contract awards.
EO 14005 launched an initiative to strengthen federal procurement and American manufacturing. The GSA outlined 3 goals of the EO:
The Made in America Office (MIAO) is the responsible office that oversees and administers the domestic preference requirements in federal procurements. Government contractors are encouraged to review the MIAO website as it provides a centralized database of proposed waivers.
The final rule increased the domestic content threshold from 55% to 60%. This is set to increase to 65% in the calendar year 2024, and to 75% in the calendar year 2029. The increase to 75% in the calendar year 2029 aligns with the Infrastructure Investment and Jobs Act (IIJA) which was enacted in November 2021.
Federal contractors should note that they must comply with the domestic content threshold increases if they are awarded a contract with a period of performance that spans the increase. The Government also provided a fallback threshold to aid contractors with the transition. This rule allows, until one year after the increase of the threshold to 75%, the use of the 55% threshold in instances where an agency has determined that there are no end products or construction materials that meet the new threshold requirements. This also applies to products that may come at an unreasonable cost.
This final rule applies to federal contractors who supply end products and construction materials in support of a federal contract. As such, the Buy American Act (BAA) is incorporated in almost all federal contracts over $10,000 where the contractor supplies tangible items. Prime contractors should note that all BAA requirements must be flowed down to subcontractors or suppliers who also provide tangible items. Furthermore, the BAA applies to non-federal contracts where federal money is involved such as state or regional transportation projects or federally funded grant projects.
Businesses are encouraged to perform a thorough review of current and future contracts and to create a contract matrix to visualize which contracts fall under the BAA. Furthermore, businesses are encouraged to perform an internal review and forecast the potential impact of an increase in the domestic content threshold as noncompliance constitutes a breach of contract.
FAR Part 25.101 and 25.201 provides a two-part test to define supplies and domestic construction materials under the Buy American statute.
Part 1: The article must be manufactured in the U.S.
Part 2:
To remain BAA compliant, contractors must provide a domestic end product that is manufactured in the U.S. or is a product of the U.S. Aside from the cost of components test, contractors may also satisfy the BAA through the Commercially-Available-Off-the-Shelf item test.
Contractors providing manufactured items must meet one of the three tests to remain compliant:
Test #1: Businesses aiming to satisfy the cost of components test are encouraged to perform the following steps:
Test #2: Businesses aiming to satisfy the COTS item test are encouraged to perform the following steps to ensure compliance:
Test #3: Businesses aiming to satisfy the wholly or predominantly iron or steel test are encouraged to perform the following steps:
The BAA does not apply to service contracts, contracts that are less than $10,000, or contracts that are performed outside of the U.S. Furthermore, contracting officers may provide a specific exception where a foreign end product may be supplied if:
Businesses aiming to apply these exceptions are encouraged to gather the necessary supporting documentation ahead of contacting a contracting officer.
The increase in the domestic content threshold likely impacts a large portion of contractors. As such, businesses are encouraged to take the following actions to remain compliant:
For further information and expertise, contact Ryan & Wetmore today.
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About Peter Ryan
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Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America.
About Rosie Cheng
Finance Consultant
Rosie Cheng is a Finance Consultant at Ryan & Wetmore. She focuses on government contracting services and produces many of the firm’s government contracting newsletters. Rosie graduated from Georgetown University with a Master of Science in Management and from William and Mary with a Bachelor of Business Administration.