On April 18, 2017, President Trump signed an Executive Order (“Order”) that appears designed to strengthen domestic preference procurement requirements and to make changes to the H-1B visa program for the benefit of U.S. workers.
H-1B Visa Provisions
Throughout his presidential campaign and since the beginning of the new Administration, President Trump has called for restrictions to the H-1B visa program, a mechanism that allows employers in the U.S. to sponsor certain foreign professionals for work visas. The Order instructs the Departments of Justice, State, Labor and Homeland Security to “propose new rules and issue new guidance … to protect the interests of United States workers in the administration of our immigration system, including through the prevention of fraud or abuse.” In addition, the Order directs those agencies to “suggest reforms to help ensure that H-1B visas are awarded to the most-skilled or highest-paid petition beneficiaries.”
The language of the Order does not impose any new requirements or restrictions on employers using the H-1B program. Rather, the Order instructs the federal agencies with roles in the administration of the H-1B program to recommend changes and reforms, including refocusing the H-1B program on higher skilled and higher paid workers. As the H-1B program is governed by statute and regulations, most potential restrictions to the program, including those related to H-1B wages, employer requirements and U.S. workers protections, would require regulatory or legislative change, so there is no immediate impact on U.S. employers who employ H-1B workers.
Buy American and Hire American Provisions
Domestic preference procurement requirements typically are considered to include the Buy American Act, 41 U.S.C. § 8301 et seq., the Trade Agreements Act, 19 U.S.C. § 2501 et seq. and Buy America provisions, as implemented by several Department of Transportation departments and the EPA. However, the Order provides little in the way of concrete guidance for federal agencies tasked with implementing the requirements or federal contractors tasked with complying with the requirements. It is possible that, as many commentators have speculated, a potential consequence of the increased scrutiny on compliance with domestic preference regimes will be an increased number of OIG investigations and False Claims Act cases brought against non-compliant contractors, which could result in suspension or debarment, as well as lesser penalties such as contract terminations. However, the Order itself does not provide any explicit guidance in this regard.
Under the Order, within 60 days of April 18, the Secretary of Commerce and the Director of the Office of Management and Budget, in consultation with other agency heads, are required to issue guidance to agencies explaining how the agencies are “to make the assessments and to develop the policies” required by the Order.
Once the agencies have the guidance, they have a further 90 days to submit a report to the Secretary of Commerce and the Director of the Office of Management and Budget: (i) that assesses compliance and enforcement with Buy American Laws within their agency, (ii) that assesses the use and impact of waivers within the agency, and (iii) to “develop and propose policies” that “to the extent permitted by law … maximize the use of materials produced in the United States, including manufactured products; components of manufactured products; and materials such as steel, iron, aluminum and cement.”
Finally, the Secretary of Commerce, in consultation with other agency heads, has a further 70 days to submit a report to the President that “shall include specific recommendations to strengthen implementation of Buy American Laws, including domestic procurement preference policies and programs.” The Order appears to envision that this process will be complete by mid-November 2017. This is in line with the subsequent annual reports that the Order requires be submitted by November 15, 2018, 2019 and 2020.
The Order, however, does not specify whether any of the guidance or reports generated pursuant to the Order will be publicly available. Unless the guidance and reports are made publicly available, federal contractors will have little further insight into specifically how the Administration may seek to enhance already existing domestic preference regimes.
An advantage of the relatively lengthy time frame for the development of the report to the President is that it will enable contractors to seek opportunities to interact with Congress and the Executive Branch regarding the Order’s requirements and, should proposed regulations be issued as part of the process, the public would presumably have an opportunity to comment following typical rule and comment procedures.
The Order contains a limited number of areas in which the potential for more stringent domestic preference requirements is more apparent. For example, the Buy American Act’s “substantially all” requirement, as currently interpreted by the FAR, specifies that U.S.-sourced components must account for more than 50 percent of the total cost of all components of an end product for the end product to qualify as U.S.-origin. Commercial-off-the shelf (COTS) end products are only required to be manufactured in the U.S., regardless of the origin of their components, to qualify as U.S.-origin. Because agencies are directed in the Order to develop policies that “maximize the use of materials produced in the United States” including for “components of manufactured products,” agencies may seek to increase the threshold for compliance with the Buy American Act’s “substantially all” standard so as to ensure more U.S.-sourced components are required. Additionally, new requirements could be added for COTS products to require that a certain percentage of COTS components are U.S.-sourced.
A second example is found in the Order’s definition of “produced in the United States.” The Order defines “produced in the United States” to require that “all manufacturing processes, from the initial melting stage through the application of coatings, occur in the United States for iron and steel products”. This definition is vague and as a result could be interpreted more expansively. For example, under the FHWA’s current interpretation, while the application of a coating is subject to the Buy America provisions, the material being applied as a coating is not covered. See Q No. 14 of FHWA’s Buy America Q and A for Federal-aid Program. In contrast, under the Order’s definition, it is unclear whether the material of the coatings themselves are intended to be covered, and agencies could interpret the definition to require that the coating itself be subject to the Buy America provisions.
Finally, one area that may appear to be more restrictive in writing than in practice is the Order’s attempt to limit the number of waivers. The Order only limits public interest waivers, which are separate and distinct from those waivers granted under the Buy America provisions where (1) the products are not manufactured in sufficient quantities, or (2) using U.S.-manufactured goods would increase the cost of the project by more than 25 percent. See 23 C.F.R. § 635.410(c). Thus, while the Order may successfully limit public interest waivers, it appears to leave unchanged the two other waiver standards.
The next stage of the anticipated process is, therefore, the issuance of Executive guidance to agencies on how to make the assessments and develop the policies sought by the Order. Sidley will of course track all developments and provide further Updates when warranted.