"My Administration will follow two simple rules: Buy American, and hire American.” - President Donald J. Trump.
Fulfilling a prominent campaign promise, today President Trump signed an Executive Order (EO) detailing his administration’s approach to applying domestic preference for US products and US labor in federal procurement and federally funded projects. The EO is far-reaching and is designed to ensure broad applicability of the various domestic preference laws and to elevate enforcement of those laws.
The existing domestic preference laws governing the procurement of goods include:
- The Buy American Act – which creates a preference for U.S.-made goods, meaning that the cost of domestic components of an end product must be 50% or more of the products cost;
- The Trade Agreements Act – which creates an exception to the Buy American Act for certain countries with which the United States has entered a trade agreement, allowing products “substantially transformed” in those designated countries to be treated as domestic products;
- The Buy America Acts – a series of laws which impose preferences and restrictions similar to those found in the Buy American Act on federally-funded projects, primarily those funded by the modal administrations of the U.S. Department of Transportation; and
- The Berry Amendment – a Department of Defense-specific requirement that imposes a 100% domestic content restriction on enumerated items such as textiles, food, and certain hand tools.
Each of these laws sets forth different requirements which will be discussed in future Alerts. As with the EO, this post uses the term “Buy American” in reference to domestic preference laws generally, and not just the Buy American Act itself.
Contractors at the federal, state and local level will need to pay close attention to the EO, develop an understanding of the myriad domestic preference laws, and be mindful of the emergence of enforcement of these laws as a top priority of this Administration. Beyond identifying the requirements of these laws, prudent contractors will develop internal controls to ensure the integrity of their supply chain and hiring practices, to train employees on these requirements and to pass on these requirements to their subcontractors and supply chain partners.
Stay tuned for a more detailed Alert on the EO, and for a series of Alerts on the various domestic preference laws, enforcement mechanisms and best practices for contractors, contractors, but here are the highlights of the EO, as described in statements from the White House and the President.
With respect to domestic sourcing of supplies and materials the EO is built around four main pillars:
- First, the EO places an emphasis on enhancing compliance with existing domestic preference requirements. To this end it requires federal agencies to conduct a top to bottom Buy American performance review and report to Commerce Secretary Wilbur Ross within 60 days on their current implementation of domestic preference laws and their use of waivers. With this information, Secretary Ross is to report to the President within 220 days and include recommendations for strengthening Buy American policies.
- Second, the EO states that the Administration’s policy is to maximize the use of domestic content and minimize waivers going forward.
- Third, the EO notes the Trade Agreements Act exceptions to Buy American requirements and directs the Secretary of Commerce and US Trade Representative to assess each of the trade agreements is “fair and reciprocal.”
- Fourth, the EO reaffirms the “melted and poured” standard for U.S. steel production.
The EO contains other important provisions as well which we will discuss in a future, more comprehensive Alert.
As we will discuss in a future Alert, the EO aligns with an uptick in enforcement of the domestic preference laws by procuring agencies within the Executive Branch. Further emphasis on enforcement should be expected.
The EO also establishes certain Hire American standards, which are not necessarily limited to federal procurement or federally-funded projects. This primarily includes an overhaul of the “H1B” visa program to replace the lottery features of the program and to impose restrictions designed to preclude the H1B program from being a conduit for lower-cost labor at the expense of American workers.
Again, stay tuned for a more in-depth Alert on the Executive Order and for our series of Alerts on domestic preference requirements, but contractors should be preparing now for enhanced application and enforcement of Buy American and Hire American requirements.