GOVERNMENT CONTRACTING INSIGHTS DEFENSE CONTRACTING
Congress Grapples With Buy American Laws
Back in May, this column reported on President Donald Trump’s “Buy American” executive order, which formally announced the administration’s policy and plan to “maximize . . . use of goods, products and materials produced in the United States” through federal procurements to “support the American manufacturing and defense industrial bases.”
Among other things, the order required agencies to “scrupulously monitor, enforce and comply with” so-called Buy American laws and minimize the use of waivers.
It also required Commerce Secretary Wilbur Ross to issue a report to Trump by November that would provide specific recommendations to strengthen implementation of the laws, including domestic procurement preference policies and programs. As of press time, the report has yet to be released.
However, there have been several developments in recent months.
In June, nine Senate Democrats wrote a letter to Trump arguing that the North American Free Trade Agreement “creates loopholes in Buy American requirements.” They urged the president to address these loopholes by removing the government procurement chapter from NAFTA.
The following week the director of defense procurement and acquisition policy issued a memorandum noting that, “recent fraud convictions related to compliance with Buy American laws highlight the need for the defense acquisition workforce to be vigilant in its oversight and enforcement strategies.”
The memorandum also indicated training modules for Buy American Act and Berry Amendment compliance had been updated. Compliance clearly is on the Defense Department’s radar. Later that month, Ross and Office of Management and Budget Director Mick Mulvaney issued a memorandum to all federal agencies providing guidance about what must be included in their forthcoming reports regarding the “assessment and enforcement of domestic preferences in accordance with Buy American laws.”
Federal agencies must evaluate their oversight of such laws, report on the use of exemptions and waivers, identify actions to review and update relevant agency guidance, and describe plans for strengthened internal reviews.
In July, the Defense Department inspector general issued a report concluding that Defense Logistics Agency personnel did “not consistently comply with” the Buy American Act and the Berry Amendment. Among other things, the report recommended that DLA officials “amend standard operating procedures and internal processes to improve compliance.”
Trump subsequently issued an executive order on “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States.” Although not directly related to the Buy American directive, it was premised on the notion that the “manufacturing capacity and defense industrial base of the United States have been weakened by the loss of factories and manufacturing jobs.”
In September, Senate Minority Leader Sen. Chuck Schumer, D-N.Y., declared during a speech on the Senate floor that “loopholes in our Buy American rules have allowed federal agencies to waive Buy American requirements and skirt the spirit of the law.”
That same day, Schumer — along with three other Senate Democrats — published an article about the need to “strengthen” the government’s policies. They noted that “[w]hile the president has acted to re-examine the use of our Buy American waivers, this examination will not fundamentally change our Buy American policies.”
The senators proposed three actions be taken through the fiscal year 2018 National Defense Authorization Act: eliminate the current NDAA provisions that would weaken Buy American laws by eliminating Buy American provisions for a number of products; increase transparency by mandating up-to-date reporting on the use of waivers for specific products; and roll back the “overseas exemption” to the Buy American Act [41 U.S.C. §§ 8301–8305].
The so-called overseas exemption refers to that part of the act that makes domestic preferences inapplicable to government purchases of “articles, materials or supplies for use outside the United States.”
However, the senators’ article does not acknowledge that the Defense Department has limited the exemption through its balance of payments program.
The Senate subsequently passed its version of the 2018 NDAA, which failed to include various proposed amendments aimed at strengthening Buy American laws.
Notable amendments that were left out would have ended a requirement to procure certain defense items from the national technology and industrial base; limited the Buy American Act’s overseas exemption; and added new reporting requirements for waivers.
So what does all of this mean?
Trump’s Buy American focus is still a significant issue and has garnered attention both in the Defense Department and among Democrats on Capitol Hill. The administration and Congress will continue to grapple with domestic preference laws and their impact on the U.S. manufacturing and defense industrial bases.
Further, we expect that agencies will significantly increase their scrutiny and enforcement of all domestic preference regimes — through civil or criminal False Claims Act investigations and enforcement actions, contract terminations, and suspension or debarment. This scrutiny will be particularly intense with respect to the use of waivers.
Accordingly, contractors and their supply chains need to take steps now to ensure that they are ready for the increased scrutiny that the administration’s Buy American policies will engender.
Jeff Bozman is an associate, Justin Ganderson is special counsel and Sandy Hoe is senior of counsel at Covington & Burling LLP.