The American Rescue Plan, signed into law last month, includes $1.9 trillion in economic stimulus, healthcare, and related funding.  And just last week the Biden administration released an infrastructure proposal, the American Jobs Plan, that includes $2.3 trillion in transportation, connectivity, power, and other critical infrastructure investments.

Contractors are right to view these plans as massive opportunities — but should be cognizant of the regulatory strings that often attach to government spending.  In general, these can include Federal Acquisition Regulation (FAR) and agency-specific FAR supplements for federal procurements, as well as the nonprocurement uniform requirements (2 C.F.R. Part 200) and related agency-specific regulations that attach to Federal grant funds even when disbursed by state or local entities.

Now, some Congressional members are seeking to add new restrictions that would significantly overhaul the existing domestic preference regime for Federal procurements — mere weeks after the promulgation of new Buy American regulations and the release of a new Executive Order to further tighten the application of these rules.

Background

Federal procurements are subject to an array of specialized and often overlapping requirements.  But the provisions of the Buy American Act (BAA) and Trade Agreements Act (TAA) are arguably the two most important sourcing preference regimes.

  • BAA Under the BAA, companies doing business with the U.S. Government must formally certify whether end products they deliver are “domestic end products” within the meaning of the BAA and its implementing regulations. See 41 U.S.C. § 8302 et seq.; see also FAR Subpart 25.1.  In general, a product generally qualifies as a “domestic end product” if it is (1) manufactured in the United States; and (2) the cost of its components mined, produced, or manufactured in the United States exceeds 55% of the cost of all components.  FAR 25.101.  Although this rule is easily stated, there are many exceptions to the BAA, including the TAA exception discussed below.
  • TAA The TAA allows the President to waive laws, regulations, procedures, or practices of Government procurement that would discriminate against eligible products or suppliers from “designated countries” so that the United States may comply with its obligations under various international trade agreements. Under the TAA, the President (through the U.S. Trade Representative (USTR)) has granted a BAA waiver for acquisitions that exceed the thresholds in the relevant trade agreement(s), typically $182,000.  When applicable, the TAA prohibits supplying end products to the U.S. Government from non-designated countries.

Recent Proposal

In the days following the passage of the American Rescue Plan last month, a group of Senators (spearheaded by Senators Tammy Baldwin (D-WI) and Sherrod Brown (D-OH)), petitioned President Biden to “temporarily suspend the trade-pact waivers to Buy American and other domestic procurement preferences that allow foreign firms to bid as American companies.”  The Senators’ letter recommended that President Biden immediately “suspend [the TAA waiver] for all extraordinary COVID-19 relief and recovery-related spending (including recovery-related infrastructure spending)” and tell America’s trade partners that we plan to renegotiate the relevant treaties in the future.

If enacted, the recommendation of Sens. Brown and Baldwin would constitute a significant change to federal domestic preference laws.  For decades, contractors have relied on the well-established TAA waiver of the BAA when planning manufacturing and sourcing processes, and supply chains cannot be reorganized overnight.  While the Senators’ letter notes that “removing [the TAA] waiver would not suspend the other [BAA] exemptions built into our domestic preference laws,” there is no question that many contractors could see their previously TAA-compliant products become subject to significant price evaluation penalties under the BAA.

But while this proposal clearly would alter the existing domestic preference landscape, it is less clear whether it would provide the full “boost [to] domestic industries and unemployed Americans” that the Senators predict.  The Senators’ letter cites a concern that the TAA permits “foreign firms to bid as American companies,” but the TAA actually is concerned with the origin of the products, not the ownership of firms.  Generally speaking, a foreign firm can sell a domestically-produced product to the U.S. Government with no BAA price penalty, and the change envisioned by the Senators would not alter this dynamic.  Additionally, much of the American Rescue Plan spending will be channeled through grants to state, local, and other entities, as opposed to direct federal procurement.  Neither the BAA nor the TAA applies to nonprocurement grants or lower-tier contracts funded by federal grants, and so the Senators’ proposal would not have any direct effect on the presumably significant spending to be supported by federal grants.

Finally, there are questions about the feasibility of the proposal given the United States’ existing treaty obligations to provide even-handed treatment to designated country end products in covered procurements.  A similar proposal last year to carve out certain “essential medicines” and other medical procurement from the World Trade Organization (WTO) Government Procurement Agreement (GPA) prompted at least eight WTO members to invoke the GPA’s arbitration procedures.  Given that the essential medicines withdrawal affects only 0.3% of the approximately $129 billion of America’s covered procurements, it seems likely WTO members would similarly object to the carve-out envisioned by Sens. Baldwin and Brown.

It remains to be seen whether the Senators’ proposal ultimately gains traction, but even if it does not, it still serves as a reminder about the enduring political appeal of domestic preference requirements in federal procurements.  It was not long ago that the American Recovery and Reinvestment Act of 2009 (ARRA) imposed an independent domestic production requirement for iron, steel, and manufactured goods used in ARRA-funded projects.  And with a new infrastructure bill on the horizon, it would not be surprising to see other similar domestic preference requirements layered onto that legislative effort.  Contractors interested in pursuing opportunities under these and other federal programs would be well-advised to continue monitoring the development of these potentially significant changes to domestic preference laws.

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Photo of Robert Huffman Robert Huffman

Bob Huffman counsels government contractors on emerging technology issues, including artificial intelligence (AI), cybersecurity, and software supply chain security, that are currently affecting federal and state procurement. His areas of expertise include the Department of Defense (DOD) and other agency acquisition regulations governing…

Bob Huffman counsels government contractors on emerging technology issues, including artificial intelligence (AI), cybersecurity, and software supply chain security, that are currently affecting federal and state procurement. His areas of expertise include the Department of Defense (DOD) and other agency acquisition regulations governing information security and the reporting of cyber incidents, the proposed Cybersecurity Maturity Model Certification (CMMC) program, the requirements for secure software development self-attestations and bills of materials (SBOMs) emanating from the May 2021 Executive Order on Cybersecurity, and the various requirements for responsible AI procurement, safety, and testing currently being implemented under the October 2023 AI Executive Order. 

Bob also represents contractors in False Claims Act (FCA) litigation and investigations involving cybersecurity and other technology compliance issues, as well more traditional government contracting costs, quality, and regulatory compliance issues. These investigations include significant parallel civil/criminal proceedings growing out of the Department of Justice’s Cyber Fraud Initiative. They also include investigations resulting from False Claims Act qui tam lawsuits and other enforcement proceedings. Bob has represented clients in over a dozen FCA qui tam suits.

Bob also regularly counsels clients on government contracting supply chain compliance issues, including those arising under the Buy American Act/Trade Agreements Act and Section 889 of the FY2019 National Defense Authorization Act. In addition, Bob advises government contractors on rules relating to IP, including government patent rights, technical data rights, rights in computer software, and the rules applicable to IP in the acquisition of commercial products, services, and software. He focuses this aspect of his practice on the overlap of these traditional government contracts IP rules with the IP issues associated with the acquisition of AI services and the data needed to train the large learning models on which those services are based. 

Bob writes extensively in the areas of procurement-related AI, cybersecurity, software security, and supply chain regulation. He also teaches a course at Georgetown Law School that focuses on the technology, supply chain, and national security issues associated with energy and climate change.

Photo of Jennifer Plitsch Jennifer Plitsch

Jennifer Plitsch leads the firm’s Government Contracts Practice Group, where she works with clients on a broad range of issues arising from both defense and civilian contracts including contract proposal, performance, and compliance questions as well as litigation, transactional, and legislative issues.

She…

Jennifer Plitsch leads the firm’s Government Contracts Practice Group, where she works with clients on a broad range of issues arising from both defense and civilian contracts including contract proposal, performance, and compliance questions as well as litigation, transactional, and legislative issues.

She has particular expertise in advising clients on intellectual property and data rights issues under the Federal Acquisition Regulations (FAR) and obligations imposed by the Bayh-Dole Act, including march-in and substantial domestic manufacturing. Jen also has significant experience in negotiation and compliance under non-traditional government agreements including Other Transaction Authority agreements (OTAs), Cooperative Research and Development Agreements (CRADAs), Cooperative Agreements, Grants, and Small Business Innovation Research agreements.

For over 20 years, Jen’s practice has focused on advising clients in the pharmaceutical, biologics and medical device industry on all aspects of both commercial and non-commercial agreements with various government agencies including:

  • the Department of Veterans Affairs (VA);
  • the Department of Health and Human Services (HHS), including the Biomedical Advanced Research and Development Authority (BARDA), the National Institutes of Health (NIH), and the Centers for Disease Control (CDC);
  • the Department of Defense (DoD), including the Defense Threat Reduction Agency (DTRA), the Defense Advanced Research Projects Agency (DARPA), and the Joint Program Executive Office for Chemical Biological Defense (JPEO-CBRN); and
    the U.S. Agency for International Development (USAID).

She regularly advises on the development, production, and supply to the government of vaccines and other medical countermeasures addressing threats such as COVID-19, Ebola, Zika, MERS-CoV, Smallpox, seasonal and pandemic influenza, tropical diseases, botulinum toxin, nerve agents, and radiation events. In addition, for commercial drugs, biologics, and medical devices, Jen advises on Federal Supply Schedule contracts, including the complex pricing requirements imposed on products under the Veterans Health Care Act, as well as on the obligations imposed by participation in the 340B Drug Pricing program.

Jen also has significant experience in domestic sourcing compliance under the Buy American Act (BAA) and the Trade Agreements Act (TAA), including regulatory analysis and comments, certifications, investigations, and disclosures (including under the Acetris decision and Biden Administration Executive Orders). She also advises on prevailing wage requirements, including those imposed through the Davis-Bacon Act and the Service Contract Labor Standards.

Photo of Sarah Schuler Sarah Schuler

Sarah Schuler is an associate in the firm’s Washington, DC office. She is a member of the Government Contracts Practice Group, advising clients across a broad range of government contracting issues. She also maintains an active pro bono practice.

Photo of Michael Wagner Michael Wagner

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government…

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government investigations, including False Claims Act cases. He has particular expertise representing individuals and companies in suspension and debarment proceedings, and he has successfully resolved numerous such matters at both the agency and district court level. He also routinely conducts internal investigations of potential compliance issues and advises clients on voluntary and mandatory disclosures to federal agencies.

In his contract disputes and advisory work, Mr. Wagner helps government contractors resolve complex issues arising at all stages of the public procurement process. As lead counsel, he has successfully litigated disputes at the Armed Services Board of Contract Appeals, and he regularly assists contractors in preparing and pursuing contract claims. In his counseling practice, Mr. Wagner advises clients on best practices for managing a host of compliance obligations, including domestic sourcing requirements under the Buy American Act and Trade Agreements Act, safeguarding and reporting requirements under cybersecurity regulations, and pricing obligations under the GSA Schedules program. And he routinely assists contractors in navigating issues and disputes that arise during negotiations over teaming agreements and subcontracts.