On February 28, 2017, President Donald J. Trump addressed a joint session of Congress for the first time and outlined his plan for a “new chapter of American Greatness.” That plan included continued emphasis on protecting United States labor and manufacturing, and can be summarized in a few words often repeated by President Trump: “Buy American and Hire American.” This rhetoric foreshadows the significant likelihood that enforcement of requirements for domestic sourcing and content, including the Buy American Act, 41 U.S.C. §§ 8301–8305, and the Trade Agreements Act, 19 U.S.C. §§ 2501–2581, will be a priority of the Trump Administration.
Background Regarding Domestic Sourcing Requirements
Originally passed by Congress in 1933 during the Great Depression, the Buy American Act (“BAA”) is designed to support United States labor and manufacturing by providing a preference for “domestic end products” and “domestic construction materials” in federal procurements. At its core, the BAA generally (a) restricts the Government from acquiring an article, material or supply for public use within the United States that is not a “domestic end product,” and (b) permits only “domestic construction materials” to be used in contracts for construction, alteration, or repair of any public building or public work in the United States.
Waivers and exceptions may apply to both categories of restrictions. For example, the Trade Agreements Act (“TAA”) waives the sourcing requirements of the BAA, and permits agencies to procure end products that are manufactured or substantially transformed in certain designated (foreign) countries with which the United States has negotiated a trade agreement where the procurement is valued in excess of a specified dollar threshold. See FAR 25.402. In addition, agencies are permitted to “acquire a foreign end product” or “allow the contractor to acquire foreign construction materials” if certain exceptions apply (e.g., the unreasonable cost exception allows a contracting officer to bypass BAA restrictions if he or she determines that the cost of an end product or the cost of domestic construction material is “unreasonable”). See FAR 25.103(c); 25.202.
Similarly, the Buy America provision of the Surface Transportation Assistance Act of 1982, 23 U.S.C. § 313, states that the Secretary of Transportation “shall not obligate any funds authorized to be appropriated to carry out the Surface Transportation Assistance Act . . . unless steel, iron, and manufactured products used in such project are produced in the United States.”
President Trump Reemphasizes Commitment to U.S. Manufacturing During Address to Congress
In his February 28 speech to Congress, President Trump reemphasized his Administration’s commitment to protecting U.S. manufacturing:
- “To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States — financed through both public and private capital — creating millions of new jobs. This effort will be guided by two core principles: buy American, and hire American.” (Emphases added).
This proclamation echoed statements made in a December 2016 Instagram post by then President-Elect Trump: “My Administration will follow two simple rules: BUY AMERICAN and HIRE AMERICAN!” (Emphasis added).
Consistent with this emphasis on buying American, in January the Trump-Pence Presidential Transition Team announced Rolf Lundberg as the Deputy Director of the National Trade Council for “Buy American, Hire American.” In its press release, the Transition Team noted that “[d]uring the President-elect’s campaign and Presidential Transition, Mr. Lundberg . . . focused his efforts on policies to reverse the economic injustice of offshoring and used his experience and insights to . . . support the President-elect’s ‘Buy American, Hire American’ project.” (Per news sources, Mr. Lundberg ultimately decided not to serve in this position.)
- “We have cleared the way for the construction of the Keystone and Dakota Access Pipelines — thereby creating tens of thousands of jobs. And I’ve issued a new directive that new American pipelines be made with American steel.” (Emphases added).
This statement references President Trump’s January 24, 2017 “Presidential Memorandum Regarding Construction of American Pipelines” which asks the Secretary of Commerce to “develop a plan under which all new pipelines . . . inside the borders of the United States . . . [shall] use materials [like iron and steel produced] and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law.” (Emphasis added).
Pairing these statements with President Trump’s potential desire to withdraw from trade agreements – that currently provide a basis for waiving BAA requirements and permitting federal agencies to acquire end products manufactured in foreign countries – demonstrates the Administration’s push to buy American.
Potential for Increased Enforcement
Compliance with these domestic sourcing requirements has often proved difficult. The complex definitions of what constitutes a “domestic end product” “manufactured in the United States,” or an “eligible product” that has been “substantially transformed” in the United States, coupled with U.S. manufacturers’ ever increasing reliance on foreign components and the difficulty of tracing the origins of those components, have resulted in enforcement actions and compliance issues even for contractors with established compliance programs. The President’s and Administration’s increased focus on domestic content and sourcing restrictions inevitably will invite closer scrutiny of adherence to these requirements by the Government, including from purchasing agencies and enforcement activities, and from whistleblowers seeking to share in the proceeds of a False Claims Act recovery.
Under the circumstances, it is critical that Government contractors take steps now to ensure that responsible contracting and purchasing personnel understand these complex rules, and that the necessary processes and procedures are in place to avoid a compliance failure. The consequences of non-compliance can be severe – including breach of contract claims and contract terminations, civil or criminal False Claims Act violations, and suspension or debarment.
We will continue to monitor developments in this area.