Trade Agreements Act

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A proposed amendment to the Federal Acquisition Regulations (“FAR”) published on July 30, 2021 will “strengthen the impact of the Buy American Act” (“BAA”) over the next eight years, according to the Federal Register notice. Federal contractors and subcontractors were put on notice of coming proposed changes in January when President Biden issued Executive Order (“EO”) 14005 revoking or superseding multiple EOs issued by the Trump Administration. The Proposed Rule arising from Section 8 of EO 14005 would alter and build upon existing requirements of the BAA. The Proposed Rule includes immediately higher domestic content thresholds that will increase over time, price preference enhancements for “critical” items, and contractor reporting of domestic content within 15 days of an award to the newly created Made in America Office of the Office of Management and Budget (“OMB”). The new proposed Buy American restrictions will not apply to acquisitions subject to various trade agreements under the Trade Agreements Act.

Sorting through domestic preference requirements applicable to government contracts is no simple task. Different agencies like the DOD, FTA, FAA, FHWA, have their own rules applicable to certain programs. Exceptions from those rules can differ when a small business is making the offer. And the rules are subject to change. With the Court of Appeals for the Federal Circuit’s (“Federal Circuit”) decision in Acetris Health LLC v. United States (Fed. Cir. 2/10/2020), the situation is now a little more complicated. The same product may be “U.S. made” for government contracts purposes but considered foreign origin for customs and international trade purposes which triggers US customs duties and tariffs.

On July 15, 2019, President Trump signed Executive Order 13881 addressing domestic preferences in government procurement. Unlike Executive Order 13788 (April 18, 2017) and Executive Order 13858 (Jan. 31, 2019), which had no substantive effect on existing domestic preference statutes and regulations, this one does.

EO 13881 calls for the FAR Council to make two significant changes to FAR clauses implementing the Buy American Act. The first increases the domestic content requirements for items to comply with the Buy American Act. The second increases the price preference for domestic products.

Under the Christian Doctrine, prime contractors face the risk of having a court or a board of contract appeals read a clause into their contracts, even if it was omitted from the contract that they signed. In this entry we discuss whether the Christian Doctrine applies to subcontractors.

The Christian Doctrine is almost certainly inapplicable to subcontractors. For the reasons why, consider the decision in Energy Labs, Inc. v. Edwards Engineering, Inc., (N.D. Ill. June 2, 2015). A subcontractor contracted to manufacture and deliver HVAC systems for the Chicago Transit Authority. In its own contract, the prime contractor certified that the HVAC system would comply with the Buy America Act. But the prime contractor failed to flow the requirement down to the HVAC manufacturer, which planned to manufacture the units in Mexico. After learning that the plan to manufacture the units in Mexico would not meet the Buy America requirement, the prime contractor canceled the order and purchased the units from another manufacturer.

The original manufacturer sued for breach of contract. In its motion to dismiss, the prime contractor made two arguments. The subcontract was “illegal” because it omitted the Buy America requirement. Or it was legal only because the Christian Doctrine meant that the Buy America requirement was read into the subcontract by operation of law. The court rejected both arguments. There was nothing “illegal” about the prime’s failure to include a Buy America requirement in the subcontract. And there was no basis to read the requirement into the subcontract through the Christian Doctrine. “The Christian doctrine . . . was intended to apply to contracts between the federal government and government contractors, not to subcontracts.”

This result is consistent with our experience.

The General Services Administration estimates the size of the federal market for commercial products to be about $50 billion a year. Manufacturers and distributors of commercial products have seen GSA’s multiple award schedule contracts as a good way to way to access federal customers. But a GSA schedule contract does not guarantee sales and the process of obtaining and adhering to such a contract presents its own headaches.

Soon there will be a better way.

Section 846 of the National Defense Authorization Act for FY 2018 establishes a program that will allow federal agencies to purchase commercially available off-the-shelf (COTS) items through commercial e-commerce portals that are currently available only to the private sector. As long as the procurement is under the new $250,000 Simplified Acquisition Threshold, COTS products (not services) will be available for purchase Government-wide, presumably without additional competition and without a lengthy list of FAR clauses incorporated by reference.

Under the program, GSA will enter into “multiple contracts” with “multiple e-commerce portal providers.” To the maximum extent possible, the Government will adopt and adhere to standard terms and conditions established by the e-commerce portals themselves.

President Trump’s April 18, 2017 Executive Order announces that it is “the policy of the executive branch to buy American and hire American.” It demands that federal agencies enforce and comply with all current “Buy American Laws.”

There is nothing remarkable about that. New policy initiatives and statutory changes will come later, presumably with the input of the affected agencies. The Order requires federal agencies to assess and monitor their enforcement and implementation of existing Buy American Laws, including their use of waivers and the impact waivers may have on jobs and manufacturing. Based on the 150-day deadline in the Order, the agency reports are due by September 15, 2017.

The most controversial and most significant changes resulting from President Trump’s Order are likely to come as a result of changes to existing trade agreements. The President’s Order requires the Secretary of Commerce and the United States Trade Representative to assess the impact of all United States free trade agreements and the WTO Government Procurement Agreement. By November 24, 2017, they are to submit a report to the President containing “specific recommendations to strengthen implementation of Buy American Laws.”

Title 41 of the U.S. Code holds many of the key laws governing contracts with the federal government. A four-year effort to organize this collection of public contract laws and remove “ambiguities, contradictions, and other imperfections” was completed on January 4, 2011. The President’s signature on Public Law No. 111-350, 124 Stat. 367 (Jan. 4, 2011) [pdf] has the effect of renumbering the entirety of Title 41 and giving new section numbers to many of the most important government contract laws.

The False Claims Act encourages individuals with knowledge of fraud against the Government to file a court action seeking damages for the fraud.  It does this by promising a bounty. The relator receives a percentage of the amount recovered in a false claims case.  But there is a constant tension between encouraging plaintiffs to bring cases alleging fraud and protecting defendants from frivolous cases. The January 11, 2011 decision in United States ex rel. Folliard v. Hewlett-Packard Co. illustrates how the requirement that a plaintiff include all of the details of an alleged fraud in the initial complaint helps strike this balance.