A recent joint memorandum by the US Commerce secretary and the director of the Office of Management and Budget specifies steps that agencies must take in submitting Buy American reports and undertaking related analyses required by the Trump “Buy American and Hire American” executive order.
As we previously reported, on April 18, US President Donald Trump signed the Presidential Executive Order on Buy American and Hire American. Although it imposes few immediate changes to federal procurement practices, the executive order (EO) establishes an express policy of the maximum acquisition of US-produced goods and materials. The EO also specifically directs all executive agencies to assess their compliance with Buy American Laws, as defined in the EO, including their use of waivers; develop policies to maximize US-produced materials; and report to the secretary of Commerce and the director of the Office of Management and Budget (OMB) on their findings.
To guide the agencies as they take the steps required by the EO, on June 30, 2017, Secretary of Commerce Wilbur Ross and OMB Director Mick Mulvaney issued the Buy American Memo (or Memo) to federal agencies regarding the “assessment and enforcement of domestic preferences in accordance with Buy American Laws.” To meet the requirements in the EO, the Buy American Memo directs agencies to “conduct an analysis and prepare a report” containing the elements specified in the Memo.
Required Elements in Agency Reports and Analyses
The Buy American Memo directs agencies to evaluate and report on their oversight of Buy American Laws in part by providing copies of any internal agency guidance, describing agency compliance reviews, discussing agency outreach to contractors, and describing training tools. It also requires that agencies review their use of exemptions and waivers by level of spending and product type. The Memo further requires agencies to “develop and propose policies . . . to ensure that Federal procurements maximize the use of materials produced in the United States, consistent with law.” Lastly, agencies must provide ideas for “strengthening Buy American [L]aws,” even where agency suggestions may require “statutory, executive, regulatory, or administrative action across the government.”
Agencies must submit their reports to the Commerce Department and OMB by September 15, 2017. In turn, the EO requires that by November 2017 the Commerce Department and OMB use the information provided to create specific recommendations to President Trump for strengthening the implementation of Buy American Laws.
The focus of the Buy American Memo and its specific directions to agencies provide several key insights:
- Enhanced Scrutiny of BAA Exceptions and Waivers. Both the EO and the Buy American Memo require that agencies carefully monitor and limit their use of exceptions and waivers, suggesting that contractors that currently benefit from these may face heightened agency scrutiny going forward. Notably, the Department of Defense (DoD) has historically used a broad public interest waiver to allow DoD purchasing of certain articles without any domestic preference. It is unclear at this point what, if any, impact the EO will have on this waiver. Going forward, agencies, including DoD, likely will focus their resources to a greater degree on ensuring contractor compliance with Buy American Laws. Relatedly, contracts that primarily offer domestic end products may benefit from the increased focus on compliance in this area.
- Importance of Contractual Compliance with Country of Origin Requirements. The Buy American Memo specifically instructs agencies to address compliance with the Trade Agreements Act (TAA), 19 U.S.C. §§ 2501–2581, which waives the Buy American Act of 1933 (BAA) for the products of certain designated countries. The TAA is implemented through contract clauses that, in the absence of a waiver, require government contractors to deliver only US-made or designated country end products and to certify compliance. Given continued and heightened scrutiny of country of origin in government procurements, contractors are wise to pay particular attention to the adequacy of internal policies and procedures for establishing country of origin, ensuring that relevant country of origin data is maintained and kept up to date, and that company personnel responsible for selling products to government end users are trained regarding country of origin requirements and instructed on proper administration of the relevant contract provisions. Contractors also should continue to assess the adequacy of internal audit practices for evaluating compliance with these requirements.
- Larger Contracts Singled Out. The Buy American Memo notes that OMB has identified the 25 largest contracts under each BAA exception as well as the spending that is subject to waivers in accordance with the TAA. Further, it directs that those agencies that are parties to the contracts review their files and provide additional information. This focus on larger contracts may cast an unwanted spotlight on agency decisions to grant these particular waivers, as well as limit the use of waivers for larger contracts going forward.
- Call for Agency Advice May Lead to Reshaping Buy American Landscape. Notably, the Buy American Memo directs agencies to provide ideas for strengthening Buy American Laws, not merely within their own agencies, but rather on a government-wide basis even where “statutory, executive, regulatory, or administrative action” would be required to effect the suggested change. This call for agency comments is unusually broad, which may reflect a desire on the part of Secretary Ross and Director Mulvaney to present aggressive recommendations to President Trump for changes to Buy American Laws.
- Potential Focus on Buy American Policies in NAFTA Renegotiation. The North American Free Trade Agreement’s (NAFTA’s) nondiscrimination provisions currently limit the full application of Buy American Laws, in that NAFTA requires that federal procurements consider bids from Canada and Mexico. The Buy American Memo was issued soon after a letter was sent from a bipartisan group of US senators to President Trump urging him to close this and other Buy American “loopholes” created by NAFTA. To accomplish this, the letter recommends “removing the government procurement chapter from NAFTA.” Recently scheduled NAFTA renegotiation talks between the United States, Canada, and Mexico are set to take place August 16–20 in Washington, DC. There, newly confirmed US Trade Representative Robert Lighthizer will represent the United States. Mr. Lighthizer has frequently criticized what he views as a widely held “blind faith” in the virtues of free trade, and has joined President Trump in calling NAFTA a “disaster.”
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Sheila A. Armstrong
Michael A. Cumming
Katelyn M. Hilferty