The Buy American Act—Preferences for “Domestic” Supplies: In Brief
Released: 2016-04-26T00:00:00

T he Buy American Act of 1933 is the earliest and arguably the best known of the various statutes regarding federal procurement of domestic products. Essentially, the act attempts to protect domestic businesses and labor by establishing a price preference for domestic end products and construction materials in government acquisitions.

The act is of perennial interest to Congress, which has periodically enacted or considered measures to expand the scope of domestic preferences in federal procurements or, more rarely, to narrow it. The act itself has seldom been amended. However, numerous statutory requirements like those of the Buy American Act have been enacted. See generally CRS Report R43354, Domestic Content Restrictions: The Buy American Act and Complementary Provisions of Federal Law , by [author name scrubbed] et al.

This report supersedes CRS Report 97-765, The Buy American Act: Requiring Government Procurements to Come from Domestic Sources , by [author name scrubbed].

Coverage of the Buy American Act

On its face, the Buy American Act appears to prohibit the acquisition of foreign goods by federal agencies by providing that

[o]nly unmanufactured articles, materials, and supplies that have been mined or produced in the United States, and only manufactured articles, materials, and supplies that have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured in the United States, shall be purchased for public use.

As implemented, however, the act is better understood as generally establishing a price preference for domestic end products and construction materials. Specifically, the provisions of the Federal Acquisition Regulation (FAR) implementing the Buy American Act require that, when a domestic offer (i.e., an offer of a domestic end product) is not the low offer, the procuring agency must add a certain percentage of the low offer's price (inclusive of duty) to that offer before determining which offer is the lowest priced or "best value" for the government. This percentage typically ranges from 6%, in cases where the lowest domestic offer is from a large business; to 12%, when the lowest domestic offer is from a small business; to 50%, for Department of Defense procurements, although agencies may adopt higher percentages by regulation. If the domestic offer is the lowest, or tied for lowest, after the application of this price preference, the agency must award the contract to the domestic offeror. However, if the foreign offer still has the lowest price, the agency generally awards the contract to the foreign offeror pursuant to provisions of the Buy American Act permitting the purchase of foreign end products (and the use of foreign construction materials) when the costs of domestic ones are "unreasonable."

Determining the act's applicability to specific procurements—and, particularly, determining whether the act's requirements were violated in particular cases—can raise complicated legal and factual questions. Much depends upon how particular terms (e.g., end product, component) are defined and construed for purposes of the Buy American Act. However, the details of manufacturing processes are often also relevant. Acquisitions of services are generally not subject to the Buy American Act. Nor does the act restrict purchases from foreign persons so long as their products are mined, produced, or manufactured in the United States, as required by the act.

Purchases of Supplies

Under the act, federal agencies procuring goods for use in the United States under a contract valued in excess of the micro-purchase threshold (typically $3,500) may generally purchase foreign (i.e., non-domestic) end products only in exceptional circumstances. The FAR's definition of end product appears straightforward on its face: " End product means those articles, materials, and supplies to be acquired for public use." However, determining whether an item is an end product, or a component of an end product, can be complicated, particularly when the agency seeks to acquire some sort of "system," and judicial and other tribunals often look to the purpose of the procurement in making such determinations.

The term domestic end product , in turn, includes unmanufactured end products mined or produced in the United States. The term also encompasses end products manufactured in the United States, provided that (1) the cost of the components mined, produced, or manufactured in the United States exceeds 50% of the cost of all components, or (2) the end product is a commercially available off-the-shelf (COTS) item.

Manufacture is not defined by the Buy American Act, the executive orders implementing the act, or the FAR, and determining whether particular activities constitute "manufacturing"—such that a product can be said to be manufactured in the United States—can be complicated. In answering this question, judicial and other tribunals have, at various times, considered whether there were "substantial changes in physical character"; whether separate manufacturing stages were involved, or whether there was one continuous process; and whether the article is completed in the form required by the government. Operations performed after the item has been completed (e.g., packaging, testing) generally are not viewed as manufacturing.

A component is any "article, material, or supply incorporated directly into an end product or construction material." However, distinguishing between components and end products can be difficult, as previously noted. In addition, it is important to note that components could potentially be deemed to be mined, produced, or manufactured in the United States, regardless of their actual place of origin, if (1) the end product in which they are incorporated is manufactured in the United States, and (2) the components are of a class or kind determined by the government not to be mined, produced, or manufactured in the United States in "sufficient and reasonably available commercial quantities of a satisfactory quality," as discussed below.

The costs of components are generally determined based upon certain costs incurred by the contractor in purchasing or manufacturing the components. Specifically,

for components purchased by the contractor, the cost of components includes the acquisition costs (including transportation costs to the place of incorporation into the end product or construction material), and any applicable duty (regardless of whether a duty-free certificate of entry is issued); and for components manufactured by the contractor, the cost of components includes all costs associated with the manufacture of the component (including transportation, as discussed above), and allocable overhead costs, but excluding profits and any costs associated with the manufacture of the end product.

Commercially available off-the-shelf (COTS) items generally include any item of supply (including construction material) that is (1) a "commercial item," as discussed below; (2) sold in substantial quantities in the commercial marketplace; and (3) offered to the government without modification, in the same form in which it is sold in the commercial marketplace.

Purchases of Construction Materials

The Buy American Act similarly bars agencies from using nondomestic construction materials absent exceptional circumstances. Construction material generally encompasses any "article, material, or supply brought to the construction site by a contractor or subcontractor for incorporation into [a] building or work," including items brought to the site preassembled from articles, materials, or supplies. However, materials purchased directly by the government are supplies, not construction materials.

Domestic construction material , in turn, includes unmanufactured construction materials mined or produced in the United States, as well as construction material manufactured in the United States, provided that (1) the cost of the components mined, produced, or manufactured in the United States exceeds 50% of the cost of all components, or (2) the construction material is a COTS item.

Other key terms, including manufacture , components , and COTS , are defined in the same way for construction materials as for end products. The costs of construction materials are also generally calculated in the same way as the costs of end products.

Exceptions to the Buy American Act

The FAR lists five "exceptions" to the Buy American Act, or five circumstances in which an agency may purchase foreign end products or use foreign construction materials without violating the act. These exceptions apply when (1) the procurement of domestic goods or the use of domestic construction materials would be inconsistent with the public interest; (2) domestic end products or construction materials are unavailable; (3) the contracting officer determines that the costs of domestic end products or construction materials would be unreasonable; (4) the agency is procuring information technology that is a commercial item; or (5) the goods are acquired specifically for commissary resale. However, some commentators also view the requirements that purchases be above the micro-purchase threshold, and for use in the United States, as exceptions to the Buy American Act.

The procuring agency may determine, on its own initiative, whether one of these exceptions applies. Alternatively, particularly in the case of construction contracts, vendors may request that the contracting officer make a determination regarding the applicability of an exception prior to or after contract award. Contractors are, however, generally not entitled to a determination that an exception applies.

Impracticable or Inconsistent with the Public Interest

The Buy American Act and its implementing regulations expressly authorize agencies to purchase foreign end products and use foreign construction materials if the head of the contracting agency determines that application of the act's restrictions would be "impracticable" or "inconsistent with the public interest." The "public interest" prong of this exception encompasses agency agreements with foreign governments that provide for the purchase of foreign end products or construction materials, as well as ad hoc determinations that application of the act's restrictions would not be in the public interest. Such determinations are typically seen as entrusted to agency discretion, and generally will not be reviewed by judicial or other tribunals.

Nonavailability

The act and its implementing regulations also permit agencies to purchase foreign end products and use foreign construction materials when the relevant articles, materials, or supplies are not mined, produced, or manufactured in the United States "in sufficient and reasonably available commercial quantities and of a satisfactory quality." In some cases, the government has made a determination that particular classes of products are nonavailable. However, such "class determinations" mean only that domestic sources can meet 50% or less of the total U.S. government and nongovernment demand, and procuring agencies must generally conduct market research "appropriate to the circumstances," including seeking domestic sources, before acquiring an article listed as belonging to a nonavailable class. In other cases, the head of the contracting agency may determine in writing that individual goods which are not subject to class determinations are nonavailable. However, written determinations of nonavailability are not required if the acquisition was conducted using "full and open competition"; was synopsized as required in Subpart 5.201 of the FAR; and resulted in no offer of a domestic end product.

Unreasonable Cost

The Buy American Act and its implementing regulations also authorize the purchase of foreign end products and construction materials if the cost of domestic end products or construction materials would be "unreasonable." In practice, this exception is generally implemented through the price preferences granted to U.S. products in procurements where foreign bids or offers are the lowest priced or offer "best value," as discussed above.

Resale

The FAR expressly authorizes contracting officers to purchase foreign end products (there is no similar exception for construction materials) when the products are specifically for commissary resale. This exception can be seen as consistent with the Buy American Act's requirement that domestic goods be "acquired for public use." Products for resale in commissaries are arguably not for public use, since they are intended for resale to third parties.

Information Technology that Is a Commercial Item

For acquisitions conducted using FY2004 or subsequent fiscal year funds, agencies are exempt from the Buy American Act when acquiring information technology that is a commercial item. For purposes of this exception, information technology means "any equipment, or interconnected system(s) or subsystem(s) of equipment," used by the agency in acquiring, storing, managing, or transmitting data or information, while a commercial item is

[a]ny item, other than real property, that is of a type customarily used by the general public or by non-governmental entities for purposes other than governmental purposes, and (i) [h]as been sold, leased, or licensed to the general public; or (ii) [h]as been offered for sale, lease, or license to the general public ...

Use Outside the United States

The Buy American Act expressly provides that agencies are not required to purchase domestic end products or construction materials "for use outside of the United States." As used here, the "United States" includes the 50 states, the District of Columbia, and "outlying areas" (e.g., Puerto Rico), but excludes areas over which the United States lacks "complete sovereign jurisdiction," such as military bases leased from foreign governments. (Note, however, that certain international agreements, which are outside the scope of this report, may call for the use of U.S. products in procurements conducted outside the United States.)

Purchases Below the Micro-Purchase Threshold

The act only applies to contracts whose value exceeds the micro-purchase threshold (generally, $3,500).

Waiver Pursuant to the Trade Agreements Act

Although not an exception to the Buy American Act, per se, the Trade Agreements Act (TAA) of 1979, as amended, can result in certain "foreign" products being treated the same as "domestic" ones in specific procurements. The TAA generally authorizes the waiver of "any law, regulation, procedure, or practice regarding Government procurement" that would result in "eligible products" from countries with which the United States has a trade agreement, or that meet certain other criteria (e.g., "least developed countries") , being treated "less favorably" than domestic products and suppliers. The Buy American Act has been so waived. This means that products that are wholly grown, produced, or manufactured in certain foreign jurisdictions, or "substantially transformed" into new and different articles within these jurisdictions, may be treated the same as "domestic" ones in particular procurements.

However, such nondiscriminatory treatment only applies when (1) the procuring agency is one covered by the agreement; (2) the goods or services being procured are covered by the agreement; (3) the value of the goods or services meets or exceeds certain monetary thresholds specified in the agreement; and (4) the circumstances of the procurement are not such that it is otherwise exempt from the TAA's waiver of the Buy American Act (e.g., procurements set-aside for small businesses).

Enforcement and Reporting

When the procurement is for the acquisition of supplies, prospective vendors are required to provide a Buy American certificate, wherein the vendor attests

that each end product, except [any] listed [below] ... is a domestic end product and that, for other than COTS items, the offeror has considered components of unknown origin to have been mined, produced, or manufactured outside the United States.

Similar certificates are not required with construction contracts, although construction contractors are to request any "waivers" of the act at the time when they submit their offer, and must also submit data adequate for the government to evaluate their requests. Agency officials are generally entitled to rely upon the representations made by vendors regarding their products, and need not inquire further into the origins of particular products or components unless they have reason to believe that the contractor might have misrepresented whether its products are mined, produced, or manufactured in the United States, as required by the act.

Vendors could potentially challenge an agency's implementation of the Buy American Act, or another vendor's compliance with it, prior to contract award as part of a bid protest. However, after the time for a post-award protest has passed, the vendor's compliance with the Buy American Act is generally viewed as a matter of contract administration. In other words, any noncompliance does not affect the validity of the contract, and cannot be protested by the vendor's competitors. The procuring agency, however, has various contractual and administrative remedies for any noncompliance after contract award. These remedies include monetary damages, termination for default, and debarment or suspension. Prime contractors, in turn, are responsible for ensuring subcontractors' compliance with the Buy American Act.

In addition, compliance with the Buy American Act's requirements is also subject to congressional and other oversight. For each of fiscal years 2009 through 2011, agencies were required by statute to submit a report to Congress each year "on the amount of the acquisitions made by the agency in that fiscal year of articles, materials, or supplies purchased from entities that manufacture the articles, materials, or supplies outside of the United States." The information in these reports was based, in part, on contractors' certificates of compliance, discussed above. However, the reports focused on the place of manufacture, per se, without regard to the origin of the components. Thus, certain goods that would not count as domestic end products or construction materials for purposes of the Buy American Act could potentially have counted as made in the United States for purposes of these reports (e.g., goods made in the United States from 100% foreign components).

Separate from the annual reports to Congress, agencies are required to input data into the Federal Procurement Data System (FPDS) regarding whether the goods they procure are manufactured inside the United States "in accordance with the Buy American Act." Agencies must also note any exceptions to or waivers of the act's requirements. These requirements are not tied to particular fiscal years, unlike the government-wide reports to Congress.