Domestic sourcing requirements are not new, but the Government is always developing new tools for increasing the sourcing of goods from the U.S. and allied countries. Both sides of the political aisle have marched to a drumbeat of increased domestic sourcing for the past several years. Most recently, the Biden Administration implemented Executive Order 14005 to “maximize” the U.S. Government’s purchase of goods and services produced in the United States and Executive Order 14104 to increase domestic manufacturing and commercialization in certain research and development supported by federal funding. The ongoing bi-partisan support for bolstering domestic sourcing is illustrated no better than through this year’s NDAA, which focuses on expanding the domestic supply chain for materials and supplies critical to the U.S. military, encouraging the purchase of domestic end items, and providing more opportunities for the Department of Defense (“DoD”) to engage with and purchase from domestic businesses.
A number of provisions in both chambers’ versions of the FY 2024 NDAA seek to expand DoD purchases of goods and services produced in the United States:
- Navy Shipbuilding: Senate Section 866 would adjust the domestic content requirements under the Buy American Act of articles, materials, or supplies procured for use in Navy shipbuilding. Beginning in January 2026, an article, material, or supply is “manufactured substantially” in the United States if at least 65% of the cost of a shipbuilding component is attributed to materials mined, produced, or manufactured in the United States. That percentage would increase on a graduated scale until January 1, 2033, at which time 100% of the cost of such components must be attributable to U.S. sources. Even shipbuilding contracts related to research, development, testing, and evaluation activities would be required to meet these thresholds. This graduated scale would not apply to iron and steel articles, materials, or supplies, which are deemed “manufactured in the United States” only if all manufacturing processes—from initial melting through the application of coating—occur in the United States.
- Major Defense Acquisition Programs: House Section 869 takes this same concept to the next level, proposing to define “manufactured substantially . . . in the United States” for purposes of articles, materials, or supplies procured in connection with any major defense acquisition program (“MDAP”) under the Buy American Act. This requirement would apply only to contracts entered into after the 2024 NDAA is enacted. Under this section, a manufactured article, material, or supply procured in connection with an MDAP is manufactured substantially in the United States if more than 60% of the cost of any MDAP component is attributed to materials mined, produced, or manufactured in the United States. That percentage would increase on a graduated scale until January 1, 2029, at which time at least 75% of each component article, material, or supply cost must be attributable to U.S. sources. Section 869’s requirements would not apply to a country that is a member of the National Technology Industrial Base (“NTIB,” i.e., the United States, Canada, the United Kingdom, Australia, and New Zealand). Because the MDAP and shipbuilding requirements propose to fall under the Buy American Act, we anticipate that these provisions will be subject to further guidance under Buy American Act regulations.
- Components for Auxiliary Ships: House Section 844 would include propulsion system components (including reduction gears and propellers) and other components (including alternators, diesel engines, and steam turbines) used to generate electricity to power the systems of auxiliary ships to the list of items that DoD may procure only from a member of the NTIB.
- Tactical Vehicles: House Section 182 would prohibit DoD from acquiring tactical tracked or wheeled vehicles constructed from a specialty metal, or that include a specialty metal component, unless that metal is melted or produced in the United States. This same prohibition has long applied to aircraft, missile and space systems, ships, and ammunition, but if enacted, this provision could mean further expansion of this sourcing requirement and suppliers to DoD contractors could see additional sourcing requirements flowed down.
- Expanding Coverage of Berry Amendment: Several provisions of the FY 2024 NDAA would expand coverage of the “Berry Amendment”—a longstanding domestic preference statute that requires DoD to buy certain items, like tools, food, and clothing, from American sources—signaling an ongoing openness among lawmakers to support efforts from domestic manufacturers to ensure their products are covered by domestic preference laws. For instance, House Section 367 requires DoD to make recommendations to Congress on how to ensure that boots worn by members of the armed forces are compliant with the Berry Amendment. Similarly, House Section 841 would require full Berry Amendment compliance (domestic production) for flags of the United States acquired by DoD.
- Modification of Definition of Domestic Source for Title III of Defense Production Act of 1950: Senate Section 1080 would include business concerns in Australia and the United Kingdom in the definition of “domestic source” under title III of the Defense Production Act of 1950 (“DPA”), but only in cases in which production and deliveries or services essential to the national defense cannot be fully addressed by U.S. and Canadian business concerns. Title III permits the President to provide funding, purchase commitments, loans or loan guarantees to a contactor or subcontractor to create, maintain, protect, expand or restore domestic industrial base capabilities critical to DoD, mitigate industrial base shortfalls or risks, or reduce reliance on foreign supply chains. The potential expansion of the pool of domestic sources eligible for such funding could lead to increased opportunities for businesses in allied nations to seek DPA Title III funding in some circumstances. That said, recent DPA Title III awards have focused on U.S. and not Canadian businesses, so it is unclear the extent to which DoD may be inclined to spread its pool of DPA Title III funds outside the United States, even with broader authority to do so.
Defense contractors, technology providers, life science companies and commercial-item contractors—and those who invest in these companies—should watch this legislation carefully. Although it is uncertain which of the below provisions will remain in the final FY 2024 NDAA, it is clear that the House and Senate—supported by the White House—are signaling strong support for increasing domestic sourcing requirements.