The Buy American Act includes a preference for “domestic end products” and “domestic construction materials” on federal projects absent a waiver. Prior to recent revisions, domestic end products and domestic construction materials were those that were: 1) manufactured in the U.S.; and 2) made up of at least 50% domestic components or, alternatively, were Commercially Available Off-The-Shelf (COTS) items.
The FAR Council recently issued a final rule that makes substantial changes to the FAR’s Buy American requirements (FAR 52.225-1, 52.225-3, 52.225-9 and 52.225-11) in accordance with Executive Order 13881, “Maximizing Use of American-Made Goods, Products, and Materials.” The revised FAR clauses became effective January 21, 2021, and are to be inserted in all new contracts beginning February 22, 2021. The final rule made three key changes to the FAR’s Buy American requirements:
- The domestic content requirement was increased from 50% to 55% for most products.
- The FAR will now impose a separate and more strict set of rules for any product that “consists wholly or predominantly” of iron and/or steel. For such products, no COTS exception will apply, and costs for foreign iron and steel must be less than 5% of the total component costs (excluding costs for COTS fasteners).
- The price preferences for domestic products were increased from 6% to 20% for large businesses, and from 12% to 30% for small businesses.
Contractors can use this flowchart to determine whether a product or material is “domestic” under the revised FAR provisions.
Increased Domestic Content Requirements
Under the newly revised FAR clauses, the domestic content requirement, known as the “component test,” was increased from 50% to 55%. In other words, most products and materials must now consist of more than 55% U.S.-origin components (by cost) to be considered domestic for purposes of the Buy American Act.
Separate and Stricter Requirements for Predominantly Iron and/or Steel Products and Materials
The revised FAR provisions include a stricter set of requirements for products and materials that are predominantly comprised of iron and/or steel. Under the new regulations, when assessing whether a product or material is “domestic,” a contractor must first determine whether it “consists wholly or predominantly of iron or steel or a combination of both.”
If iron and steel content makes up 50% or less of the total cost of the components, a product or material is “domestic” if it is: 1) manufactured in the U.S.; and 2) made up of at least 55% domestic components or, alternatively, a COTS product.
But, if iron and steel make up more than 50% of the total cost of the components of a product or material, it is “domestic” if: 1) it is manufactured in the U.S., and 2) less than 5% of the total component costs are for foreign iron and steel (excluding costs for COTS fasteners). In other words, at least 95% of the total component costs must be for components other than foreign iron and steel.
COTS Exception Does Not Apply to Predominantly Iron and/or Steel Products
As noted above, prior to the recent revisions, COTS products were considered “domestic” as long as they were manufactured in the U.S. Following these recent changes, the COTS exception no longer applies to products and materials that are predominantly made of iron and/or steel. Thus, if iron and steel make up more than 50% of the total cost of the components of a COTS product or material, it is “domestic” only if 1) it is manufactured in the U.S., and 2) less than 5% of the total component costs are for foreign iron and steel (excluding costs for COTS fasteners).
Increased Price Preferences for Domestic Products and Materials
Finally, the revised FAR provisions increase the price evaluation preference assigned to offerors of domestic products and materials under the Buy American Act. Prior to these changes, offerors of domestic products and materials received an evaluation preference of 6%, or 12% if the offeror was a small business. Under the revised rules, those price evaluation preferences for domestic construction materials are increased to 20% for large businesses and 30% for small businesses.
These changes are likely to result in confusion in the days ahead as contractors navigate the new Buy American requirements. Compliance will be made all the more difficult by additional changes proposed by the Biden administration. Our Government Contracting Group is available to assist you with questions on these new regulations and any other government contracting matters.