The New Executive Order for Buy America Act – What Does It Mean for Your Business?

The Biden Administration is proposing a renewed focus on an enhanced Buy America Act (BAA) to promote federal/government procurement of more US-based products and components, and more enforcement. The benefits for the US-based companies and their subcontractors, and impacts on free market economy, competitiveness and export opportunities for US companies, are up for debate. In this blog, we would like to discuss the background and what this would mean for your business and what potential scenarios can emerge.

The Executive Order (EO) issued on January 25th 2021, defines: “Made in America Laws” as all statutes, regulations, rules, and Executive Orders relating to Federal financial assistance awards or Federal procurement, including those that refer to “Buy America” or “Buy American,” that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods offered in the United States.”

There seems to be three key aspects to this: (i) Having more US-made content for goods procured by the federal government in an attempt to help American businesses compete in strategic industries, (ii) more stringent guidance on waivers and compliance and (iii) a centralized review and approval process. Per Bloomberg Opinion, as things stand, suppliers can be granted waivers based on a lack of reasonably priced domestic alternatives and other factors. Biden’s order says these exemptions should be harder to obtain. 

For example, the EO mentions assessing whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods.

Business Impact: Regulations & Trade incl.import tariffs and counter tariffs

Increased Compliance: Federal Acquisition Regulatory Council (FAR Council) will consider proposing for notice and public comment, amendments including replacing the ‘component test’ that is used to identify domestic end products and domestic construction materials with a test under which domestic content is measured by the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity. 
Impact on Trade Agreement Act (TAA) waivers and trading partners are still being considered. But, we can anticipate retaliatory tariffs if imports are restricted.

Impact to your organization:

Given today’s complex supply chains and access to advanced technologies, chances are that your company is manufacturing products which are relying on key components from suppliers either based in foreign countries or from US suppliers depending on suppliers or raw materials which are sourced outside of the US borders.

Examples of companies or industries most likely to be impacted include those industries like importing castings for engine parts from India, photovoltaic components from China, or those who made investments in manufacturing plants in Asia or Latin America to produce labor intensive components. For example, a simple declaration from the company was enough to certify its products met the Buy American Act, often with no third party certification required, for housing or construction projects.  With stricter regulations, some of these products may no longer qualify and future contracts may have to be handed over to more expensive, less competitive, alternatives who may not have the production capacity set-up to meet short-term the demand. 

According to  a recent article by Morgan Lewis in jdsupra, actions triggered by the EO could have significant consequences for many companies contracting with or supplying products or services to the federal government:  meeting new, stringent requirements; increased scrutiny of the BAA and TAA certifications; and potential changes to the regulations and rules, which could impact downstream or sourcing procedures. Companies will need to evaluate their procurement and supply chain processes and ensure legal compliance, or face penalties/liability with potential False Claims Act (FCA) or, as an extreme, contract termination.

Is your company prepared to identify which products would no longer qualify to bid for government contracts and others? If some products that may have been acceptable until now need to have more domestic content, does your company have the time and the means to identify and certify new suppliers and partners? Are these suppliers reliable and offer the same quality you have been expecting for your production? Is there a capacity issue in the market that will inevitably increase the cost and/or the delivery lead time?  

Companies will also need an internal system to track the country of origin for the products they sell to the federal government.  Company compliance department will need to track the new regulations not only from the enterprise point of view, but for suppliers as well.

Summary

Depending on your industry, company, specific product involved, market, client and enforcement agencies, these scenarios can emerge as the impact of this new EO:

1. Preparation for more regulation and certification (more man hours) requirements to prove compliance if you already meet the requirements
2. Potential loss of opportunities to bid on government projects and revenue loss if you can no longer meet the requirements or until you can make needed changes to your supply chain
3. Need for new reliable suppliers in the short term to limit the impact from further loss of business – Increased cost and complexity to certify and assess these suppliers
4. Development of new opportunities to bid on government contracts as a tier 1 or tier 2 supplier if you already meet the requirement and can now take advantage of the new EO requirements
5. No or limited impact in the event the enforcement does not meet the announcement expectations, as new exceptions and application delays may still arise to satisfy some situations

If this looks like you might be impacted or would welcome a discussion on the potential impact to your company, Vertaeon’s risk data analytics and monitoring tool can quickly become a critical Key Success Factor to your on-going operations. We can support you in collaborating with multiple business units to identify product impact, assess existing suppliers, evaluate alternate sources or partners, monitor non-compliance in the value chain, map country of origin and provide the results via a user-friendly cloud platform.  Find us here www.vertaeon.com/contact 

By: D. Chouvelon, R. Menon-Varma, Vertaeon LLC