By Scott P. Fitzsimmons, Senior Partner, Washington, DC
On October 21, the Biden administration proposed implementing significant reforms to the Buy American Act (BAA), asserting a commitment to boost American manufacturing and reduce reliance on foreign goods in federal procurement. The proposed rule, initially introduced by the FAR Council in May 2020, but not yet implemented, marks one of the most substantial revisions to the BAA framework in recent years. These changes, documented under FAR Case 2020-009, aim to strengthen compliance with the BAA, 41 U.S.C. §§ 8301-8305, while tightening the exception and waiver process under 48 C.F.R. Part 25, which governs foreign acquisition.
The administration seeks to make these changes final, and contractors should be aware of their potential impact. While the updated rule may foster a more competitive domestic market, government contractors, particularly those in the construction industry, must grapple with new challenges, including potentially rising costs, stricter compliance obligations, and potentially greater risks for non-compliance.
Key Changes in the Proposed Rule
- Shortened List of Nonavailable Articles
The BAA generally requires that goods and materials used in federal procurement be mined, produced, or manufactured in the United States. Under FAR 25.103(b)(1), however, federal agencies may waive BAA requirements for certain products deemed “nonavailable,” which is defined as unavailable in the United States “in sufficient and reasonably available commercial quantities and of a satisfactory quality.” The FAR identifies materials which are already deemed to be unavailable, and ranges in items from technical publications, microprocessor chips, and graphite. See FAR 25.104(a).
The new regulation would reduce the current list of nonavailable items from 109 items to about 39. Some of the most notable removals include:
- Petroleum products (including crude oil and unfinished oils)
- Microprocessor chips used in construction site systems
- Nickel and talc
By removing these items from the FAR 25.104(a) nonavailability list, the rule signals that agencies must engage in more rigorous market research to locate domestic sources before seeking a waiver. This shift also reflects the broader policy goals of Executive Order 14005, which directs federal agencies to maximize reliance on domestic suppliers.
2. Stricter Waiver Requirements and Centralized Review
The proposed changes also revise the agency waiver process outlined in FAR 25.103(b)(2). Historically, agencies could issue waivers with limited transparency. The new rule mandates a more stringent process:
- All waivers must now be submitted to the Made in America Office (MIAO) within the OMB for review.
- Waiver justifications must be posted publicly on MadeinAmerica.gov to promote transparency and allow potential domestic suppliers to respond to unmet needs.
- Agencies are now required to document market research efforts to prove that they have exhausted all reasonable efforts to find U.S. suppliers .
This reform is an attempt to align acquisitions with the BAA, which authorizes exemptions only if the goods are unavailable in sufficient quantities. The new rule also reflects an attempt to tighten exemptions and encourage multi-procurement waivers only where absolutely necessary.
The heightened scrutiny introduced by OMB Memorandum M-21-26 back in June 2021, and now reflected in the proposed new rule, underscores the government’s attempt to reduce waivers over time. Contractors must adjust accordingly, ensuring their procurement personnel are familiar with the new prohibitions to align with the new waiver procedures to avoid project delays and reputational risks.
Impact on Government and Construction Contractors
1. Potentially Rising Material Costs for Construction Projects
One of the most pressing concerns for contractors is the likely increase in material costs. Previously, contractors relied on waivers for foreign-sourced items, such as electronic components and petroleum-based products. With the potential end of these waivers, contractors must shift to potentially more expensive domestic alternatives.
For example, the removal of microchips from the nonavailability list may impact construction firms. Microchips are essential in smart building systems, such as HVAC controls and security networks. If contractors cannot obtain a waiver, they must source chips domestically at potentially higher prices, which could inflate project costs.
Similarly, the construction industry’s reliance on petroleum products – now to be potentially subject to stricter domestic sourcing – could further increase costs. As contractors face supply chain disruptions and fluctuating prices, they may need to recalculate project bids to account for these added costs. Failure to do so could result in reduced profit margins or delayed project timelines.
2. Compliance Challenges and Legal Risks
The proposed changes are not yet implemented, and the administration only recently proposed implementing a final rule. Nevertheless, with potentially stricter waiver rules under FAR 25.103, contractors must be prepared to implement compliance procedures to remain eligible for federal contracts. The shift from regulatory waivers to individualized waivers will place greater responsibility on contractors to track and report the origin of materials used in their projects.
Compliance obligations will include:
- Documenting the sourcing process: Contractors must demonstrate that they conducted thorough market research and pursued all reasonable domestic options. This documentation may be subject to audits and public review via MadeinAmerica.gov.
- Monitoring subcontractor compliance: Construction contractors must ensure that all tiers of suppliers adhere to BAA requirements. Any violations, even by subcontractors, could jeopardize the entire contract.
Egregious failures to comply with BAA regulations carry severe penalties, including:
- Contract termination for default under FAR 49.402-3
- Suspension or debarment from future government contracts under FAR Subpart 9.4
- Financial damages and loss of eligibility for future waivers
These compliance challenges are particularly daunting for small and mid-sized contractors who may lack the administrative infrastructure to track every procurement detail. Larger firms with dedicated compliance teams may find it easier to adapt, further widening the competitive gap in federal contracting.
3. Opportunities for Growth Through Domestic Partnerships
While the proposed changes introduce challenges, they also create strategic opportunities for contractors willing to align with the government’s vision. The new emphasis on domestic sourcing offers the chance to develop long-term partnerships with domestic manufacturers, stabilizing supply chains and reducing the risks associated with international shipping and tariffs.
Additionally, the requirement for public posting of waivers on MadeinAmerica.gov offers small businesses a unique advantage. By monitoring waiver requests, smaller firms can identify market gaps and position themselves as domestic suppliers. This transparency encourages a more diverse supplier base and promotes innovation in construction methods and materials.
The focus on reducing foreign dependence also aligns with the goals of Executive Order 14017, which prioritizes securing critical supply chains for national security. Contractors who embrace these changes will gain a competitive edge as federal agencies increasingly favor compliant and proactive partners.
Conclusion
The Biden administration’s proposed revision to the Buy American Act represents a shift in federal procurement policy. By reducing the nonavailability list, tightening waiver processes, and enhancing transparency, the new rule seeks to build a more resilient and competitive domestic industrial base.
These changes, however, come with significant challenges for government contractors, particularly those in the construction sector. Contractors must prepare for rising material costs, expanded compliance obligations, and risk of non-compliance. Success in this new environment requires proactive engagement with domestic suppliers, strategic adjustments to bidding processes, and the development of robust compliance systems.
Ultimately, those contractors who align their practices with the pending new regulations will be better positioned to thrive in an evolving landscape.