New Executive Order to Strengthen Buy-American Preferences

The President signed out a new Executive Order (EO 13858) late last month designed to strengthen buy-American preferences for infrastructure projects. The policy, simply stated, is to maximize the use of goods, products, and materials produced in the US, in Federal procurements and through the terms and conditions of Federal financial assistance awards.

This EO extends the essential requirements of the Buy American Act to the alteration, construction, conversion, demolition, extension, improvement, maintenance, reconstruction, rehabilitation, or repair of infrastructure projects in the United States.

Infrastructure projects are projects in the following sectors: surface transportation, including roadways, bridges, railroads, and transit,; aviation; ports, including navigational channels; water resources projects; energy production, generation, and storage, including from fossil-fuels, renewable, nuclear, and hydroelectric sources; electricity transmission; gas, oil and propane storage and transmission; electric, oil, natural gas, and propane distribution systems; broadband internet; pipelines; storm-water and sewer infrastructure; drinking water infrastructure; cybersecurity; and any other sector designated later.

Agencies administering covered programs have been instructed to "encourage" contractors to use, to the greatest extent practicable, iron and aluminum as well as steel, cement, and other manufactured products produced in the US in every contract, subcontract, purchase order, or sub-award that is chargeable to the Government. Agencies have also been tasked to report to the President any tools, techniques, terms or conditions that have been used or could be used to maximize the used of domestic sources.

It will be interesting to see whether "cost" is a factor when considering foreign vs domestic sources. What if domestically produced iron and aluminum were double the cost of foreign imports? Could the term "to the maximum extent practical" be used to justify the procurement of imports in such cases?

Buy American - Hire American

Yesterday, the President issued an Executive Order stating that "It shall be the policy of the executive branch to buy American and hire American". The focus of this EO is on the American steel industry and the H1-B visa program.

Buy American Laws. In order to promote economic and national security and to help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases, it shall be the policy of the executive branch to maximize ... the use of goods, products, and materials produced in the United States.

Hire American. In order to create higher wages and employment rates for workers in the United States, and to protect their economic interests, it shall be the policy of the executive branch to rigorously enforce and administer the laws governing entry into the United States of workers from abroad.

 The EO requires that every executive agency "scrupulously monitor, enforce, and comply with Buy American Laws" and minimize the use of waivers. The EO includes requirements for goals, studies and related deadlines designed to show how well executive agencies are meeting the Buy American laws. It also tightens up the approval process for granting waivers to the Buy American Act.

Concerning the "Hire American" features, the EO requires the Secretary of State, the Attorney General, the Secretary of Labor, and the Secretary of Homeland Security to develop new guidance related to administering the immigration system, including methods to prevent fraud and abuse. The H-1B visa program was specifically called out for reform. The Administration desires to ensure that H-1B visas are awarded to the most skilled or highest-paid petition beneficiaries.

So what does this new EO mean for Government contractors and Government contracting, in particular. Perhaps not much in the near term. There have been many expressed concerns that the EO will make infrastructure more expensive. Some believe that it will be more difficult for federal contractors to use cheaper imported products - notably steel - when building infrastructure projects. Limiting competition, they contend, will result in increased costs.

The corruption associated with the H1-B program is well documented. Many related to fake letters promising jobs, a necessary prerequisite to obtaining the visa. And there is a perception that many foreigners coming into the U.S. under the H1-B program do not have the skills (e.g. hi-tech) envisioned by the program. Perhaps new policies for administering the program will reduce fraud in the system. However, no one really knows the extent to which foreigners on H1-B visas are working under contracts with the U.S. Government or whether they are taking away jobs from highly qualified Americans.

Buy American Act and Berry Amendment Act Violations

The Buy American Act is a law requiring the Federal Government to buy domestic articles, materials and supplies, primarily to protect American labor. The Berry Amendment prohibits the Defense Department from spending its funds on clothing, fabrics, fibers and yarns that are not grown, reprocessed, reused or produced in the United States. The purpose of the Berry Amendment is to protect the viability of the textile and clothing production base in the United States. The Buy American Act is included in contracts by FAR Clauses 52.225-10, -11, and -12 as applicable. If you have a DoD contract, the Berry Amendment is incorporated as DFARS (DoD FAR Supplement) 252-225-7012.

Unlike many contract clauses that are seemingly for "show", the Government takes these two prohibitions and restrictions very seriously, as one, Mr Burnett can now attest to.You see, Mr. Burnett was awarded contracts to supply the Army Recruiting Command to supply hundreds of thousands of baseball caps and backpacks for promotional items to be given to recruits. Between 2005 and 2009, Mr Burnett received three contracts worth $6.2 million. Not only were the Buy American Act and Berry Amendment Act clauses in Mr. Burnett's contracts but they also included the phrase, in capital letters, that the "Product must be 100% U.S. Made."

Once Mr. Burnett had his contracts, instead of providing American-made products, he negotiated and contracted directly with suppliers from China and with American companies who he knew were procuring the products from China. He used Chinese-made products to fill orders under all three contracts. Here's how he hid the fact that the baseball caps and backpacks were produced in China. He hired workers on a cash basis to remove all the Chinese labels and repackage the items that he sent to the Army recruiting command.

After the award of the second baseball cap contractor, a competitor protested the bid, claiming Burnett could only bid so low if he were using foreign suppliers. When the Government looked in to the matter, Burnett submitted documentation - fraudulent documentation - that he was using only American-made products and that he would comply with all aspects of the Buy American Act and the Berry Amendment.

Mr. Berry has now been indicted by a Grand Jury and the indictment seeks to have Burnett forfeit all $6.2 million the Government paid him as proceeds from illegal sales. He also faces a maximum penalty of 20 years in prison and a $250 thousand fine.

The Department of Justice press release on this matter can be read here. It does not mention how the    suspected fraud came to the Government's attention.

The "Buy American Act" - Briefly

Nearly every Government contract that exceeds the micro-purchase threshold (currently set at $3,000) contains the "Buy American Act" clause (FAR 52.225-1). The Act restricts the purchase of supplies, that are not domestic end products, for use within the United States. A foreign end product may be purchased if the contracting officer determines that the price of the lowest domestic offer is unreasonable or if another exception applies. A listing of these exemptions is found in FAR 25.1. The Act also requires the use of only domestic construction materials in contracts for construction in the United States. Here again, there are a few exceptions.

The Buy American Act uses a two-part test to define a domestic end product.

1. The article must be manufactured in the United States; and
2. The cost of domestic components must exceed 50 percent of the cost of all the components.

The Act applies to all contractors including small business set-asides.

FAR 52.225-2 requires contractors to certify compliance with the Buy American Act.