Buy American? Agencies Must Carefully Document Market Research for Domestic Preference Compliance, says GAO

A recent GAO case on protest costs looked at whether costs were reimbursable centered around whether a Buy American Act waiver was properly applied in the procurement process. As you likely know, the Buy American Act is something many contractors (especially supply and construction contractors) must deal with in their contracting process, and getting a waiver or an exception often may be critical to a proposal. This case arose from a protest seeking costs, but it is still a great opportunity for contractors to better understand the limits of a waiver or exception of the Buy American Act and GAO’s expectations surrounding such an action.

In the events underlying Unico Mechanical Corporation – – Costs, B-420355.5, (Mar. 24, 2023), the Army initially awarded a contract to McMillen, LLC, but the award was protested by Unico Mechanical Corporation, alleging that the Army improperly waived the Buy American Act requirements, and improperly evaluated Unico’s proposal. After the filing of the Agency Report, Comments, and a Supplemental Protest, the Agency filed a Notice of Corrective Action, which led to the GAO case being dismissed, and Unico requesting costs related to the Bid Protest. The case being discussed here is basically the assessment of whether Unico is justified in receiving costs related to the bid protest that resulted in corrective action.

GAO, when determining whether costs for a bid protest are reimbursable, must determine if an agency “unduly delayed taking corrective action in the face of a clearly meritorious protest.” Thus, GAO has to look at whether the protest grounds were so clearly correct or meritorious, that the Agency didn’t need to wait so long for corrective action. This leads to GAO often diving deep into the standards of the legal theories at issue, such as they did here with the Buy American Act. Thus, this case gives contractors and SmallGovCon readers a glimpse into what GAO expects of Buy American Act waivers and documentation.

In the procurement process at issue in the underlying case, eventual awardee McMillen relied on the use of foreign materials for two 90 inch butterfly valves and one hydraulic power unit (“HPU”). McMillen asked for the Army to waive the Buy American Act for these specific items. Initially, the Agency denied McMillan’s request and, as expected, documented their rationale for the denial. Then during discussions, at the Agency’s request, McMillan submitted additional information in attempt to support its previously denied Buy American Act waiver request. However, the Agency did not document its analysis of this additional information, nor were there indications that such a waiver was granted to McMillen prior to their award of the contract. As GAO summarized it: “In short, the record demonstrates that the agency awarded a contract to McMillen knowing that McMillen’s proposal relied on foreign construction material, but without granting a Buy American Act waiver, and without documenting a determination that a Buy American Act exception applied.” Despite this, after McMillen was awarded the contract, the Agency issued a modification to the contract adding the butterfly valves and HPU to the list of material exempted from the Buy American Act requirements.

GAO, when reviewing the record, noted that the procurement itself incorporated FAR 52.225-9, of the Buy American Act, which requires the use of domestic (i.e., American) construction material. But FAR 52.225-9 also contains certain exceptions that the contracting officer could apply if they determine that any of the specific exceptions listed could apply. In addition to these exceptions, contractors may request waivers of the Buy American Act prior to contract award, under FAR 52.225-10. McMillen, in its waiver request, argued that the cost of the domestic material was unreasonable, which under the waiver would mean that domestic manufacturer costs exceed the costs of acquiring those same materials from a foreign source by 20%. As part of this request for a waiver, contractors are expected to supply detailed information backing up their assertions, and for this specific waiver, include a “reasonable survey of the market.”

There was at least one offeror who requested a waiver for butterfly valves stating that they were not available from domestic manufacturers at a reasonable cost. As such, the Agency conducted market research, contacting manufacturers, including the eventual protestor, Unico. The Agency discovered and documented that Unico and two other domestic manufacturers had indicated the ability to manufacture the butterfly valves in compliance with the Buy American Act. Accordingly, the CO documented that “there are sufficient resources existing to allow contractors to comply with the Buy American [Act] requirements” for the butterfly valves. Consequently, the solicitation did not list any Buy American Act waivers.

McMillen, in its request for a waiver, only supplied a table discussing the lump sum price of the domestic material and foreign material, with no break down of the lump sum costs by supplier or item. Thus, the waiver was denied, and the CO documented the denial. The Agency then sent McMillen a negotiation memorandum requesting more information in support of its waiver request. McMillen responded with information about four additional foreign manufacturers of the butterfly valves and HPU, but no domestic manufacturers. Under the Buy American Act, if a contractor does not request, or does not receive, a waiver prior to submission of offers, then it must submit its request and supporting information with its offer, and if the CO does not grant a waiver, an agency can only evaluate offers based on the use of domestic material, only accepting offers based on foreign materials if the offer was revised during negotiations to meet domestic material requirements.

There was no such record of the Agency granting McMillen’s waiver request prior to award, or that the CO determined a Buy American Act exception applied. Yet after award (surprisingly), there was a contract modification exempting the butterfly valves and HPU from Buy American Act requirements. GAO found that the Agency’s lack of documentation, as to the rationale for the eventual modification, the Agency’s documented knowledge of other domestic manufacturers that could meet Buy American Act requirements, and McMillen not looking at domestic manufacturers in its updated information, made it unreasonable for the Agency to waive the Buy American Act. As such, GAO granted Unico costs for this portion of their protest, as “a reasonable agency inquiry into Unico’s Buy American Act argument would have disclosed the lack of a defensible legal position” making Unico’s argument on these grounds “clearly meritorious.” As a note, the GAO did not find this standard met for the other aspects of Unico’s protest.

While this case was technically focused on whether Unico’s reimbursement of costs was justified, upon review, it really is a roadmap for Buy American Act exceptions and waivers. If you find yourself competing for a procurement, and the Buy American Act is involved, then it may be fruitful to conduct methodical documented approaches for any sort of waiver, that takes into account the industry participants here in America. GAO has made it clear here that it expects agencies to scrutinize and document the rationale behind each waiver request. If contractors plan on arguing that there are no domestic manufacturers for an item at a reasonable cost, GAO has shown through this case that contractors must clearly show that industry participants in America cannot manufacture the item domestically, within the requirements of the Buy American Act.

McMillen did not make this distinction clear in their documentation, while the Agency in their process did find some manufacturers that could possibly meet Buy American Act requirements. While the Agency here initially awarded McMillen, despite that they subsequently had to take corrective action, and GAO awarded the protestor fees for the protest. Also, contractors should keep in mind, that they are not the only ones looking at whether there are exceptions or possible waivers, Agencies themselves, through their COs, may be doing the same industry research looking for exceptions. If there are discrepancies between what the Agency finds, and what the contractor finds, there may be a waiver denial, or need for further documentation. Here, the protest process successfully shone a light on compliance with the Buy American Act.

The Buy American Act and its different exceptions or waivers can be quite a thicket of regulations and hurdles for contractors. As such, waivers and exceptions often may be seen as one way to try to avoid these hurdles. But, any such waiver or exception request will require dedicated and determined analysis by contractors, as well as agencies, as GAO will expect extensive documentation and justification for any waiver or exception. If that is not present, a proposal or an award decision could be put in jeopardy.

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