New Buy American Executive Order Presents Opportunities, Risks for Contractors

Key Takeaways for Executives

• President Donald Trump has issued a new executive order calling on 30 agencies to ramp up their use of existing “Buy American” requirements.
• The EO asks agencies to encourage both prime and subcontractors that receive federal assistance in the form of loans, grants, etc., to buy manufacturing and building materials, such as steel and aluminum, from U.S. sources.
• While some contractors will benefit from the order, others might see higher prices and shrinking supplies for critical goods and services.

A new executive order that calls on 30 agencies to increase their use of existing “Buy American” requirements would benefit some contractors but harm others, an industry insider told WashingtonExec.

Buy American Act provisions “can be consequential in many different ways,” said Roger Waldron, president of the Coalition for Government Procurement.

On the one hand, these provisions can raise demand for domestic products. But they can also up prices for contractors buying those products, if a suitable domestic product is even available.

“You’re limiting competition to domestic sources, which could result in higher costs and delays,” Waldron said. “The question is, will there be enough bandwidth to support supply?”

As a result, he said there’s no general consensus among contractors as to whether Buy American provisions are helpful or harmful overall.

Trump EO Targets Grants, Other Financial Assistance

The Trump administration wants agencies to encourage both prime and subcontractors that receive federal assistance in the form of loans, grants, etc., to buy manufacturing and building materials, such as steel and aluminum, from American sources.

Trump signed another Buy American executive order in April 2017 requiring agencies to close loopholes in procurement rules that favored foreign products over those made in America. Assistant to the President and Director of Trade and Industrial Policy Peter Navarro told reporters recently the new executive order builds on the previous one by applying Buy American rules for the first time to federal financial assistance.

“What we’ve seen interestingly is an increase of $24 billion in spending on American made products,” he said, as reported by Federal News Network. “U.S. government spending on foreign goods has reached its lowest point in 10 years.”

But according to Navarro, there’s more progress to be made.

“Each year more than 30 agencies award over $700 billion in federal financial assistance to more than 40,000 non-federal recipient organizations,” he said. “If you look at fiscal 2016, of the 265 listings in the Catalog of Federal Domestic Assistance for infrastructure or construction projects, more than 200 didn’t require Buy American consideration. These projects across 14 different agencies added up to over $45 billion in expenditures.”

As a result, according to the executive order, federal agencies should carefully consider whether they can impose Buy American requirements for new financial assistance awards for infrastructure and construction projects.

Agencies must “analyze whether covered programs within the agency head’s jurisdiction would support, through terms and conditions on new federal financial assistance awards under such covered programs, the imposition of a requirement to use iron and aluminum as well as steel, cement and other manufactured products produced in the United States in contracts, subcontracts, purchase orders or sub‑awards that are chargeable against such federal financial assistance awards,” the order says.

Increased Regulatory Risk and Legal Exposure?

Waldron said the new executive order will add to contractors’ sky-high compliance burden, which can particularly affect small contractors — many of which are the ones that apply for federal financial assistance in the first place.

Not only will these contractors have to use their limited personnel resources to ensure compliance with the new rules, he said, but they might have more difficulty than larger firms obtaining the domestic products they need to perform on their contracts.

Waldron also noted the new executive order also will add to the universe of possible contract disputes, many of which are now litigated under the Civil False Claims Act. This could mean additional legal exposure for contractors that accidentally run afoul of the new Buy American requirements, he said.

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