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Wednesday, July 31, 2013

The Buy American Act in Brief: Preferences for “Domestic” Supplies and Construction Materials in Federal Procurements

Kate M. Manuel
Legislative Attorney

The Buy American Act of 1933 is the earliest and arguably the best known of various statutes regarding federal procurement of domestic products. Essentially, the act attempts to protect U.S. businesses and labor by restricting the acquisition and use of end products or construction materials that are not “domestic.” For purposes of the act, domestic end products and domestic construction materials include unmanufactured end products or construction materials mined or produced in the United States, as well as end products or construction materials manufactured in the United States, provided that (1) the cost of the components mined, produced, or manufactured in the United States exceeds 50% of the cost of all components, or (2) the product is a commercially available off-the-shelf item. Any end products or construction materials that do not qualify as domestic under these definitions are generally treated as foreign, and offers that supply foreign end products or construction materials are foreign offers, regardless of the offeror’s nationality. Purchases of services are generally not subject to the Buy American Act.

As implemented, the Buy American Act limits the purchase of foreign end products and the use of foreign construction materials by establishing price preferences for domestic offers. Specifically, the provisions of the Federal Acquisition Regulation (FAR) implementing the Buy American Act provide that, when a domestic offer is not the low offer, the procuring agency must add a certain percentage of the low offer’s price to that offer before determining which offer is the lowest priced or “best value” for the government. This percentage generally ranges from 6%, in cases where the lowest domestic offer is from a large business; to 12%, when the lowest domestic offer is from a small business; to 50%, for Department of Defense procurements, although agencies may adopt higher percentages by regulation. If the domestic offer is the lowest, or tied for lowest, after the application of this price preference, the agency must award the contract to the domestic offeror. However, if the foreign offer still has the lowest price, the agency is generally to award the contract to the foreign offeror pursuant to provisions of the Buy American Act permitting the purchase of foreign end products (and the use of foreign construction materials) when the costs of domestic ones are “unreasonable.”

There are also other “exceptions” to the Buy American Act, which would permit the purchase of foreign end products and the use of foreign construction material if (1) the procurement is below the micro-purchase threshold (generally $3,000); (2) the goods are for use outside the United States; (3) the procurement of domestic goods or the use of domestic construction materials would be inconsistent with the public interest; (4) domestic end products or construction materials are unavailable; (5) the agency is procuring information technology that is a commercial item; or (6) the goods are acquired specifically for commissary resale.

The Buy American Act is of perennial interest to Congress, which has periodically enacted or considered measures to expand the scope of domestic preferences in federal procurements or, more rarely, to narrow it. The act itself has seldom been amended. However, numerous statutory requirements like those of the Buy American Act have been enacted. See archived CRS Report R42501, Domestic Content Legislation: The Buy American Act and Complementary Little Buy American Provisions, by John R. Luckey. The act also interacts with various trade and other international agreements, many of which can result in eligible products (i.e., products substantially transformed in countries with which the United States has trade agreements) being treated as if they were domestic in certain procurements, although other international agreements establish preferences for U.S. goods for use outside the United States.

Date of Report: July 9, 2013
Number of Pages: 15
Order Number: R43140
Price: $29.95

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