1) WH: Remarks By President Biden on Delivering On Made In America Commitments (3/4)
. . . I’m announcing the biggest change in the Buy American Act in 70 years. Right now, if you’re manufacturing a product that gets purchased by the federal government, the law says that it has to be “substantially all” of that product should be made in the United States.
But because of loopholes over time, you know what “substantially all” means when I took office? If 55 percent is made in America, it’s “substantially all.” To me, 55 percent isn’t “substantially all;” it’s slightly over half.
Today, we’re issuing a rule to raise the amount of domestic content required to be considered Made in America from 55 percent to 75 percent. “Substantially all” is going to start meaning substantially all.
And, today, we’re also announcing a new framework for critical products where we know we need stronger, more resilient, domestic supply chains.
We saw it during the pandemic that supply chain disruptions can put American lives and livelihoods at risk.
You know, when we — what — when we needed them most, we were short of masks, gowns, gloves, ventilation, and other essential health products we had to buy abroad.
So, we’re creating a new “price preference.” What this means is that if we’re identifying some product that is so critical to our national security, health, or resilience, that we’re going to create rules to allow us to pay a little more for them if they’re made in America.
We’re talking about things like semiconductors, some pharmaceutical ingredients, advanced batteries — among other things.
It’s worth it for us to ensure we have a domestic capacity to protect us from shortages and price spikes in the future.
And, yes, we’re going to keep trading with our allies and friends, and we’re going to work with them to ensure every single country can create global chokepoints for critical goods — can’t have those chokepoints.
But we also need a resilient supply chains of our own so that we’re never at the mercy of other countries for critical goods ever again. . . .
2) Federal Acquisition Circular 2022-05 -- Introduction
This final rule amends the Federal Acquisition Regulation (FAR) to implement section 8 of E.O. 14005, Ensuring the Future Is Made in All of America by All of America's Workers. Upon the October 25, 2022, effective date, this final FAR rule changes the domestic content threshold to 60 percent immediately, then to 65 percent for items delivered starting in calendar year 2024, and then to 75 percent for items delivered starting in calendar year 2029.
While a supplier that is awarded a contract with a period of performance that spans this schedule of domestic content threshold increases will be required to comply with each increased threshold for the items in the year of delivery, this rule allows for the agency senior procurement executive to apply an alternate domestic content test under which the contractor would be required to comply with the domestic content threshold in place at time of award for the entire life of the contract.
This final rule also creates a fallback threshold that would allow for products and construction material meeting a 55 percent domestic content threshold to qualify as “domestic” under certain circumstances.
In addition, the final rule creates a framework for application of an enhanced price preference for a domestic product/domestic construction material that is considered a critical item or made up of critical components.
FAC 2022-05 Introduction https://www.federalregister.gov/d/2022-04179
3) Amendments to the FAR Buy American Act Requirements
In his first week in office, President Biden signed Executive Order (E.O.) 14005, Ensuring the Future is Made in All of America by All of America's Workers, launching a whole-of-Government initiative to strengthen the use of Federal procurement to support American manufacturing. With over $600 billion in annual procurement spending, almost half of which is in manufactured products from helicopter blades to trucks to office furniture, the Federal Government is a major buyer in a number of markets for goods and services and the single largest purchaser of consumer goods in the world. Leveraging that purchasing power to shape markets and accelerate innovation is a key part of the Administration's industrial strategy (https://www.atlanticcouncil.org/commentary/transcript/brian-deese-on-bidens-vision-for-a-twenty-first-century-american-industrial-strategy/
) to grow the industries of the future to support U.S. workers, communities, and firms.
On July 30, 2021, DoD, GSA, and NASA published a proposed rule at 86 FR 40980 to implement section 8 of E.O. 14005, which directs the Federal Acquisition Regulatory Council (FAR Council) to strengthen the impact of Federal procurement preferences in the Buy American statute for products and construction materials that are domestically manufactured from substantially all domestic content. Consistent with section 8, the proposed changes to the implementation of the Buy American statute were designed to support greater domestic production of products critical to our national and economic security and help ensure America's workers thrive.
This final rule makes limited changes from the proposed rule and amends the FAR to implement—
A near-term increase to the domestic content threshold following a short grace period during which contractors and the workforce prepare for the increase and a schedule for future increases;
A fallback threshold that would allow for products meeting a specific lower domestic content threshold to qualify as domestic products under certain circumstances; and
A framework for application of an enhanced evaluation factor (price preference) for a domestic product that is considered a critical item or made up of critical components.
A. Increase to the Domestic Content Threshold
This rule increases the domestic content threshold initially from 55 percent to 60 percent, then to 65 percent in calendar year 2024 and to 75 percent in calendar year 2029. See FAR 25.101(a)(2)(i) and 25.201(b)(2)(i). The initial increase to 60 percent will occur several months from publication of the final rule, to allow industry time to plan for the new threshold and to provide workforce training on the new fallback threshold.
The increase of the domestic content threshold ultimately to 75 percent is consistent with the Infrastructure Investment and Jobs Act (Pub. L. 117-58) (IIJA) which was enacted on November 15, 2021. Section 70921 of this statute includes a “sense of Congress” that the FAR be amended to increase the domestic content requirements for domestic end products and domestic construction material to 75 percent.
B. Fallback Threshold
This rule also allows, until one year after the increase of the domestic content threshold to 75 percent, for the use of the 55 percent domestic content threshold ( i.e., the threshold in effect prior to the effective date of this rule) in instances where an agency has determined that there are no end products or construction materials that meet the new domestic content threshold or such products are of unreasonable cost.
C. Enhanced Price Preference for Critical Products and Critical Components
The rule provides for a framework through which higher price preferences will be applied to end products and construction material deemed to be critical or made up of critical components. A subsequent rulemaking will establish the definitive list at FAR 25.105 of critical items and critical components in the FAR, along with their associated enhanced price preference(s). When a final rule goes into place establishing the list and preference factors at 25.105, the higher price preference for critical items or critical components shall be used.
Seventy respondents submitted comments on the proposed rule. The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) reviewed the public comments in the development of the final rule. A discussion of the comments and the changes made to the rule as a result of those comments are provided as follows: . . .
Amendments to the FAR Buy American Act Requirements https://www.federalregister.gov/d/2022-04173
4) NY Times, Why American Mask Makers Are Going Out of Business: Efforts to make the supply chain more resilient after pandemic shortages are no match for low-price foreign products, the companies say. (3/5) https://www.nytimes.com/2022/03/05/business/dealbook/why-american-mask-makers-are-going-out-of-business.html
“Resilience is the byword of the day,” said Marc Schessel, a hospital supply chain expert who is working to develop alternative supply chains for personal protective equipment. And resilience — that is, creating extra manufacturing capacity that can get the country through an emergency — is what the small mask makers say is their value to the country. Sure, they argue, a globalized, just-in-time supply chain for low-cost protective equipment is fine in ordinary times. But we’ve learned these past two years that the country needs domestic manufacturers if we hope to avoid terrible shortages during the next pandemic, and the one after that.
But how do you create that resilience? The federal government spent $682 billion buying goods and services from contractors in 2020, according to Bloomberg Government. That’s the sum the Biden administration wants to use to buy American products. And while it’s hardly chump change, it’s only about 3 percent of America’s $21.5 trillion economy.
The mask manufacturers I interviewed for this article said the Biden administration had expressed interest in buying their masks, but it has yet to happen. Even if it did, it would be unlikely to put much of a dent into Chinese dominance. As Mr. Bowen put it in a recent email to the White House, “Hospitals drive the mask market.” Since their incentives are to reduce costs, he wrote, “Any plan that allows imported masks to cost less than U.S. made masks will result in a foreign government controlled U.S. mask supply — as currently exists.”
To put it another way, the modern imperative of maximizing shareholder value will always put efficiency and cost over resilience.