The Buy American Act: Proposed Rules

The Buy American Act: Proposed Rules

INSIGHTi

The Buy American Act: Proposed Rules
September 22, 2021
On July 30, 2021, the Department of Defense, General Services Administration, and National Aeronautics
and Space Administration—which, along with the Administrator of the Office of Federal Procurement
Policy, make up the Federal Acquisition Regulatory Council (FAR Council)—published several proposed
rules regarding the Buy American Act (BAA). The proposed rules, which are contained within one
rulemaking notice, address Section 8 of Executive Order 14005, “Ensuring the Future Is Made in All of
America by All of America’s Workers.” This Insight provides an overview of the four proposed rules,
including one not mentioned specifically in the executive order, and briefly mentions the FAR Council’s
guidance regarding feedback on the proposed rules.
Increase the Domestic Content Threshold
The BAA provides a means for determining whether supplies and construction materials qualify as
domestic end products. This determination relies partly on whether the end product meets the appropriate,
current domestic content threshold: “The cost of [a domestic end product’s] components mined,
produced, or manufactured in the United States [must] exceed[] 55 percent of the cost of all its
components.” This is known as the “component test.” End products consisting “wholly or predominantly
of iron or steel or a combination of both” are treated differently from other manufactured products in
government purchases. They are considered domestic products only if the cost of “foreign iron and steel
constitutes less than 5 percent of the cost of all of the components used in the end product.” The proposed
rule would not change the threshold for iron and steel products.
The proposed rule would initially increase the domestic content threshold from 55% to 60%. The second
increase, to 65%, would apply to items delivered in years 2024-2028, and the final increase, to 75%,
would apply to items delivered beginning in 2029. If a threshold increase occurs during the performance
period of a contract, the contractor would be “required to comply with each increased threshold for the
items in the year of delivery.”
The proposed rule provides a fallback threshold. If implemented as drafted, the rule would allow, “until
one year after the increase of the domestic content threshold to 75 percent, for the acceptance of the
former domestic content threshold in instances where end products or construction materials that meet the
new domestic content threshold are not available or are of unacceptable cost.” The fallback threshold
would not apply to products or construction materials that consist predominantly or wholly of iron or steel
or both metals.
Congressional Research Service
https://crsreports.congress.gov
IN11756
CRS INSIGHT
Prepared for Members and
Committees of Congress

Congressional Research Service
2
Establish a Higher Price Preference for Certain Products and
Components
The BAA does not prohibit federal agencies from purchasing foreign products; rather, it establishes a
price preference for domestic products. Under Federal Acquisition Regulation (FAR) 25.105(b), if a
domestic offer is not the low offer, then the price of the lowest offer is increased by 20% or 30%
depending on whether a large business or a small business, respectively, submitted the lowest domestic
offer. The price of the offer is raised only for the purpose of implementing the BAA. (An agency may
elect to use a different price preference; for example, the Department of Defense uses a price preference
of 50%.)
The proposed rule would establish an “enhanced price preference” for “end products and construction
material deemed to be critical or made up of critical components.” If applicable, this additional price
preference (e.g., 5%) would be added to the applicable price preference (20% or 30%). The definition of
critical would hinge on whether an item or component is “deemed critical to the U.S. supply chain,”
although not all critical products “will necessarily qualify for the preference.” A list of critical items and
components will be developed through a separate rulemaking that also “will determine the enhanced price
preference for each critical item or end product with critical components.” The FAR Council will consider
comments to update or revise the list at least once every four years.
Replace the Component Test
E.O. 14005 directs the FAR Council to consider replacing the component test “with a test under which
domestic content is measured by the value that is added to the product through U.S.-based production or
U.S. job-supporting economic activity.” In lieu of issuing a proposed rule at this time, the council is
seeking information “regarding the strengths and shortcomings” of a value-added test. In its effort to
obtain public input regarding the development of such a test, the FAR Council solicited feedback
regarding the following issues:
(a) how such “value” could be calculated in order to promote U.S.-based production or U.S. job-
supporting economic activity; (b) whether a “value added” calculation would be superior to the
current approach and why or why not; and (c) whether approaches other than a “value added”
calculation should be employed to achieve the goals of [E.O. 14005] (for example, should the
definition of “cost of components” in FAR 25.003 be changed).
Create a Post-Contract Award Domestic Content Reporting Requirement
The FAR Council’s rationale for this proposed requirement, which is not mentioned in E.O. 14005, is it
would assist the federal government in gaining “insight into the actual domestic content of products sold
under contract and thereby support the Administration’s broader supply chain security initiatives.”
Presently, contractors are not required to quantify the specific domestic content for any items they provide
to a federal agency.
The proposed rule would require contractors “to provide the specific [percentage of] domestic content of
critical items, domestic end products containing a critical component, and domestic construction material
containing a critical component, that were awarded under a contract.” The applicable contract clauses
would not take effect until the list of critical items and domestic end products containing one or more
critical components is established in the FAR.

Congressional Research Service
3

FAR Council Solicits Feedback
In addition to soliciting feedback regarding the establishment of a value-based component test, the FAR
Council posed questions on the following topics: increased domestic content thresholds, fallback
thresholds, price preferences, enhanced price preferences, content reporting, and contracting with small
and disadvantaged businesses.

Author Information

L. Elaine Halchin

Specialist in American National Government

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

IN11756 · VERSION 1 · NEW