Elected officials in Washington, DC appear to have identified one topic that both parties can agree on—strengthening domestic content requirements on federal projects. In February 2021, we alerted contractors not only to Buy American Act changes previously implemented by the Trump administration but also to the potential changes addressed in a Biden administration executive order. Holding true to its word, the Biden administration recently issued a proposed rule that would make additional changes to an already complicated legal framework. Below are the key takeaways for contractors.
The proposed rule calls for increases to domestic content requirements (known as the component test). The Trump administration increased the requirement from 50% to 55%, and Biden’s proposed changes would eventually increase the requirement to as high as 75%. The increases would be imposed on a phased basis, raising immediately to 60%, then to 65% in 2024, and to 75% in 2029.
President Biden’s draft rule calls for a temporary waiver of the increased requirements when compliant materials are either unavailable or unacceptably expensive. Thus, until 2030, if materials meeting the increased domestic content requirements (whether 60%, 65%, or 75%) are unavailable or too expensive, a contractor will be permitted to use products that meet the current 55% threshold.
The proposed rule calls for higher price preferences for materials deemed to be critical or made up of critical components. However, the list of critical materials and the price preferences that apply to each material will be determined at a future date through a separate rule. Contractors should also note that under new FAR clauses (currently identified as 52.225-XX and 52.225-YY), awardees will be required to report the exact domestic content of critical materials and materials that contain critical components.
Finally, contractors should take note of what remains the same. Most notably, the proposed rule does not call for changes to the treatment of products that are the subject of trade agreements. Products from Canada, Japan, Germany, and other foreign countries will still be compliant in many cases. In addition, there is no change in the treatment of products that consist wholly of iron or steel, which will still be subject to a requirement that less than 5% of the cost of components come from foreign iron or steel.
While these changes are still merely proposed rules, there is likely to be confusion in the days ahead as contractors navigate an ever-changing set of requirements. Our Government Contracting Group is available to assist you with questions on these new regulations and any other government contracting matters.