GAO Investigates Buy American Act Exceptions and Waivers

The Buy American Act includes a number of waivers and exceptions. The Section 809 panel, for one, has called for expanding these exceptions, at least for the DOD. A recent GAO report examines how agencies apply the existing waivers and exceptions to the Buy American Act.

GAO’s general opinion is that agencies should improve their Buy American Act data reporting and enhance training on its waivers and for procument personnel. The report also provides some interesting details about the scope of the Buy American Act, and how agencies implement it.

The report is entitled BUY AMERICAN ACT: Actions Needed to Improve Exception and Waiver Reporting and Selected Agency Guidance. It came about because Congress asked GAO to look into implementation of the Buy American Act (BAA). Note that the report examines the rules in place during fiscal year 2017, and some of these rules may have changed since then.

The report provides some good background and context for its investigation.

For fiscal year 2017, total federal obligations were $508 billion. Of that amount, about $196 billion was potentially subject to the BAA because it consisted of contracts for end products subject to the BAA. Foreign end products accounted for less than 5 percent of total federal contract obligations for end products—about $7.8 billion.

The BAA was enacted during the Great Depression “to create and preserve jobs for American workers.” It establishes “a preference for the federal government to buy domestic end products.”

Domestic end products are defined as: “unmanufactured products mined or produced in the United States” or “end products manufactured in the United States provided that (a) the product is a commercially available off-the-shelf item; or (b) the cost of the components mined, produced, or manufactured in the United States exceeds 50 percent of the total cost of all components.”

The BAA “does not apply to products that are purchased for use outside the United States or obtained through contracts under the micro-purchase threshold, which was generally $3,500 in fiscal year 2017.” For fiscal year 2017, almost $3.7 billion—about 47 percent of all dollars obligated for foreign end products—was for use outside the United States, and therefore the BAA does not apply to those products.

Through trade agreements, the US can waive the requirements of the BAA for certain acquisitions of foreign end products from other countries. The president has waived the BAA for products from approximately 60 countries covered by the World Trade Organization’s Government Procurement Agreement, Free Trade Agreements, and the Israeli Trade Act. The details of these agreements are complex.

For one thing, each agreement has different dollar thresholds below which the exception doesn’t apply (e.g. Australia – $80,317; Peru – $180,000). Plus, there are exceptions to the trade agreement exception, such as if the procurement is not conducted through full and open competition. Importantly for readers of our blog, the trade agreements exception to BAA does not apply to “acquisitions set aside for small businesses.” FAR 25.401. This means that small business set-aside contracts must abide by the BAA requirements, unless some other exception besides trade agreements applies.

The FAR also includes a number of exceptions to the BAA. “These include situations when a domestic end product is not produced in sufficient quantities or cases where the cost would be unreasonable to buy a domestic end product.”

Some exceptions require a written determination by a contracting activity official, while other exceptions, such as “the exception for commercial information technology, are blanket exceptions that do not require a written determination.”

The five exceptions to the BAA are:

  1. Public interest. “This exception applies when an agency has an agreement with a foreign government that provides a blanket exception to the Buy American Act.” The most common exception is through the DOD, which has blanket agreements with many countries for a public interest exception to the BAA. This DOD public interest exception amounted to nearly $2.9 billion for fiscal 2017.
  2. Domestic non-availability. “Articles, materials, or supplies, either as a class or individually, are not mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality.”
  3. Unreasonable cost. “Purchasing the material domestically would burden the government with an unreasonable cost. If a domestic offer is not the low offer, this exception applies an evaluation factor to foreign offers: 6 percent is added if the lowest domestic offer is a large business and 12 percent is added if it is a small business.”
  4. Commercial information technology.
  5. Commissary resale.

So how does the government track data about BAA exceptions?

Vendors must certify in their SAM profiles “where their products are manufactured or produced—whether in the United States or in a designated country covered by the Trade Agreements Act.” Alternatively, vendors can supply data about product origins in their solicitation offers.

The awarding agency must also input data about the origin of products “and whether the foreign product acquisition is authorized by one of the Buy American Act exceptions or a trade agreement” into FDPS-NG. For end products, the agency must include a “Place of Manufacture” for all manufactured end products.

Civilian agencies are more likely to use one of the five BAA exceptions, which means they are more likely to require documentation or approval by a more senior agency official. This makes sense as the DOD does more procurement overseas, and it has the blanket public interest exceptions to the BAA for many foreign countries.

GAO’s report identified a number of errors in its review of how various agencies input BAA-related information into FDPS-NG. Most of these involved using an incorrect exception to BAA when identifying the product, and the agencies corrected them once GAO identified them. It’s worth noting that these errors might not have been identified had GAO not done this audit. It makes you wonder if there are other errors out there in the BAA system.

GAO also identified some errors in how contracting officers apply the BAA and its exceptions. “For example, we found instances in which contracting officers applied a waiver or exception to contracts where the waiver did not apply and did not have complete guidance for required determinations or reviews. There also were challenges in confirming product origin information when vendors did not provide consistent information.”

The interesting thing about training and policies for the BAA is that each agency is quite different in its approach, although this may reflect the fact that some agencies deal with the BAA much less than others. The report identifies HHS and the VA as those where more training is needed, while DOD (the report focused on the Defense Logistics Agency) and DHS have upped their BAA training game of late.

The GAO report on BAA exceptions identified a number of errors or issues with the application, reporting, and training on BAA exceptions. In the absence of a GAO or internal audit, these errors may continue, but the report’s call for enhanced training and guidance provides some recommendations to combat these errors.

This report is also a reminder that, when it comes to errors in contractor certifications about BAA requirements, the government may not be so lenient as it is when it comes to government errors. So, it’s always a good idea to stay cognizant of BAA requirements and exceptions, especially if you commonly contract in sales covered by the BAA.

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