President Trump’s first executive order that directly affects government contractors was signed on Tuesday, April 18, 2017. Federal law and the associated Federal Acquisition Regulation (FAR) have long established a preference for the procurement of goods manufactured or produced in the United States. The most well-known domestic preference requirements are the Buy American Act (BAA) and the Trade Agreements Act (TAA), which are applied to government contractors via FAR 52.225-1 and FAR 52.225-5, respectively.
While both Acts establish a preference for domestic end products, they also include exceptions to the preference. For instance, the Buy American Act requirements can be waived due to non-availability of the product in the U.S. In fact, FAR Part 25.104 currently lists approximately 100 items that are unavailable in the U.S. including bamboo shoots, bananas, and vanilla beans. The BAA can also be waived if the Head of the Agency determines that a domestic preference is inconsistent with the national interest for that specific contract, or if the Contracting Officer believes the cost of the domestic item is unreasonable compared to a foreign source. The BAA also does not apply to IT products that meet the FAR definition of a commercial item. The TAA requirements can be met by acquiring goods from the U.S. or a “designated end country.” Designated end countries are countries the U.S. has a trade agreement with. FAR 52.225-5 currently lists approximately 130 designated end countries including Burkina Faso, Djibouti, and Eritrea.
According to administration officials, President Trump thinks government agencies are taking advantage of the waivers and loopholes to circumvent the BAA and TAA. Apparently the administration is particularly concerned the public interest exception is being abused. The administration is also concerned about “predatory pricing” where foreign sourced items are subsidized or “dumped” for the purpose of pushing out U.S. based suppliers.
The executive order requires each agency to conduct a comprehensive “Buy American” performance review. The performance review must include an assessment of the propriety of the agency’s waivers and exceptions, and recommendations for how to strengthen the Buy American requirements. The Secretary of Commerce is tasked with reviewing the agency reports and submitting a final report to the President with recommendations for improvement. The final report is due in 220 days. The Department of Commerce is also tasked with reviewing U.S. trade agreements for unfair practices.
Though it will have less of an impact to government contractors, the Executive Order also addressed “Hire American,” specifically targeting the H-1B visa program that allows U.S. technology companies to hire a limited number of foreign workers because the U.S. does not produce enough highly-skilled technology workers to satisfy the demand. President Trump believes the program is being used by industry to suppress wages and lower paid foreign workers are getting jobs that Americans could perform. The executive order looks to eliminate any fraud and abuse that have infiltrated the H-1B visa program, as well as revise the current lottery system used to allocate H-1B visas to industry.