The Buy American Act - The Exceptions May Now …

1 The Buy American Act - The Exceptions May Now Be The Rule by Robert K. Cox, Senior Partner* When you contract with the federal government to supply goods or perform construction, what can cause your bid to be thrown out, your contract price to be reduced, replacement of your goods or construction with domestic materials, default termination and, in extreme circumstances, debarment from federal contracting? The answer is your failure to comply with those laws and regulations known as domestic preference laws or domestic source restrictions. The best known of these laws is the Buy American Act; but it is just one of several domestic preference laws now in effect.

2 There is, however, good news in this article, -- because of international trade agreements, reciprocal defense procurement memorandums of understandings and even within the Federal Acquisition Regulation, Exceptions to the Buy American Act and other such domestic preference laws are more often the rule and not simply the exception . Some Background On The Buy American Act Beginning in the Great Depression years, and for the purpose of protecting and creating American jobs through federal government purchasing of supplies and services, the Congress has enacted various laws giving statutory preference in federal government contracting to goods and materials of origin. The Buy American Act (41 10a-10d), passed in 1933, is probably the best known of the domestic preference laws.

3 This Act established a statutory preference for supplies and construction materials in federal contracts for the construction, alteration or repair of any public building or public work in the United States. The Act provides, in part: Every contract for the construction, alteration, or repair of any public building or public work in the United States growing out of an appropriation heretofore made or hereafter to be made shall contain a provision that in the performance of the work the contractor, subcontractors, materialmen, or suppliers, shall use only such unmanufactured articles, materials, and supplies as have been mined or produced in the United States, and only such manufactured articles, materials, and supplies as have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be.

4 In the United States except as provided in section 10a of this Note that the Act applies to articles, materials and supplies provided by contractors, subcontractors, materialmen and suppliers. The Act does not, however, prohibit foreign builders or offerors, nor does the nationality of the contractor determine whether the article, materials or supplies provided are domestic or foreign. The focus is on the location of where the product is produced. The Federal Acquisition Regulation (FAR) implements the Buy American Act in FAR Part 25. To say the least, the Buy American Act s requirement that construction materials and end products be of domestic origin has been the cause of confusion, frustration and disputes between 2 federal agencies and construction contractors; as well as rulings from the Comptroller General, boards of contract appeals and courts that can be difficult to reconcile.

5 Exceptions To The Buy American Act At the outset of this article, I proposed there was good news (or at least better news) because of the many Exceptions to the domestic preference laws. Indeed, as the title contends: the Exceptions to the Buy American Act may now be the rule. These Exceptions arise from several sources: 1) Exceptions within the Act, 2) Exceptions within the FAR, 3) Exceptions by international trade agreements, and 4) Exceptions by the Department of Defense s reciprocal defense procurement memorandum of understandings. 1) Exceptions Within The Act The Buy American Act is very broad in scope, but there are Exceptions within the terms of the Act. For example, the Act does not apply when the articles, materials and supplies are not for use in the United States.

6 In that regard, the Act defines United States to include the United States and any place subject to the jurisdiction thereof. 41 10 c (a). The FAR defines United States to include the fifty states, District of Columbia and outlying areas. FAR In one case, when a bid protestor contended that a solicitation for paving work at the base at Guantanamo Bay, Cuba was defective for not including Buy American Act terms, the GAO denied the bid protest. The GAO reasoned that the Buy American Act does not apply to work to be performed outside the United States, and Guantanamo Bay is a leased base, not part of the United States for purposes of the Buy American Act. Anderson Columbia Co.

7 , Inc., Comp. Gen. Dec. B-250530, (Nov. 24, 1992) 92-2 CPD 377 (1992). Another domestic preference statute, the Balance of Payments Program, however, did apply to the solicitation. Another exception arising from the terms of the Act is that the public use , public building or public work mean use by, public building of, and public work of, the United States, the District of Columbia, Puerto Rico, American Samoa, the Canal Zone and the Virgin Islands. 41 10 c(b). Thus, private rural electrical power cooperative associations contracting with funds guaranteed by the Rural Electrification Administration of the Department of Agriculture were not federal instrumentalities and therefore the Buy American Act did not apply to their procurements.

8 General Electric Co., Comp. Gen. Dec. B-182688, (March 24, 1975), 75-1 CPD 368. 2) Exceptions Within The FAR A second category of Exceptions exists within the FAR. The policy of the Federal Acquisition Regulation is to use only domestic construction materials in construction contracts performed in the United States , except as provided in FAR See FAR Policy. FAR allows the contracting agency to acquire foreign construction materials without regard to the Buy American Act when one of the following Exceptions applies, (1) Impracticable or inconsistent with public interest. The head of the agency may determine that application of the restrictions of the Buy American Act to a 3 particular construction material would be impracticable or would be inconsistent with the public interest.

9 The public interest exception applies when an agency has an agreement with a foreign government that provides a blanket exception to the Buy American Act. (2) Nonavailability. The head of the contracting activity may determine that a particular construction material is not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities of a satisfactory quantity. (3) Unreasonable cost. The contracting officer concludes that the cost of domestic construction material is unreasonable in accordance with This is consistent with 41 10 d. There is also another exception , though not identified as such, resulting from the FAR definition of construction matieral : Construction material means an article, material or supply brought to the construction site by a contractor or subcontractor for incorporation into the building or work.

10 FAR Consequently, a subcontract for mobile office units manufactured outside of the United States for a contractor s use in constructing a missile site in Montana was not subject to the Buy American Act. The mobile office units were not incorporated into the building or work and therefore were not construction materials under the FAR. Mico Mobile Sales and Leasing Co., Comp. Gen. Dec. B-174851, 1972 CPD 30. 3) Exceptions By International Trade Agreements A third category of Exceptions arises from the United States being a party to trade agreements that require each country s goods and services to be given treatment comparable to domestic goods and services in certain government procurements.