Last week, the Department of Defense (DoD) issued its long-awaited Final Rule on Buy American Requirements in the Defense Federal Acquisition Regulation Supplement (DFARS). The final rule aligns the DFARS with recent amendments to the Buy American Act (BAA) and BAA rules of the Federal Acquisition Regulation (FAR), while also incorporating DoD-unique requirements. 

Biden's Buy American Initiative Background

In January 2021, President Biden signed Executive Order 14005, Ensuring the Future is Made in All of America by All of America's Workers (the E.O.) (discussed here), which aimed "to maximize the use of goods, products, and materials produced in the United States in order to strengthen and diversify domestic supplier bases and create new opportunities for U.S. firms and workers." Then, on November 15, 2021, the president signed into law the Infrastructure Investment and Jobs Act (Public Law 117-58) (IIJA), which commits $1.2 trillion to fund new public infrastructure projects throughout the U.S. While the IIJA did not amend the BAA, it reflects Congress's support for several of the BAA-related changes announced in the January 2021 E.O. These acts launched a government-wide initiative that soon produced significant changes to the FAR provisions implementing the BAA in connection with federal procurement contracts. 

On June 9, 2023, DoD published a proposed rule to amend the DFARS to implement the E.O. The proposed rule addressed section 8 of the E.O., which requires increasing the impact of the Buy American statute. On February 15, 2024, DoD published a final rule that was largely unchanged from the proposed rule issued last summer.

Summary of DoD's Final Rule

The DFARS rule largely follows the provisions of the FAR final rule published in March 2022 (discussed here). Like the FAR rule, the new DFARS rule:

• Modifies the definition of domestic end product, qualifying country end product, and domestic construction material by increasing the domestic content threshold to 65 percent for calendar years 2024 through 2028, and to 75 percent beginning in calendar year 2029. This increase aligns the DFARS domestic content threshold with that in the FAR.
• Adopts a "fallback threshold" that allows agencies to purchase end products or construction material with at least 55 percent domestic content if products or materials meeting the current domestic content requirement threshold are not available or too expensive. This "fallback threshold" will remain in effect under both the FAR and DFARS rules until 2030. 
• Implements an enhanced price preference for domestic products. This enhanced price preference requires a list of each domestic end product with critical components or critical items and for foreign end products that exceed the required 55 percent (except commercially available off-the-shelf (COTS) items) but do not consist wholly or predominantly of iron or steel or a combination of both. A "critical component" is defined as a component that is mined, produced, or manufactured in the U.S and deemed critical to the U.S. supply chain. A "critical item" means domestic construction material or a domestic end product that is deemed critical to the U.S. supply chain. The DFARS rule cross references the FAR list called for in the March 2022 FAR rule.

The DFARS rule also includes DoD-specific requirements: 

• An exemption for components or items from a list of 28 qualifying countries with which the U.S. has a reciprocal defense procurement agreement, including Canada, France, Germany, Israel, Japan, and the U.K. Items from those countries will be considered equivalent to domestically sourced items for purposes of the domestic sourcing requirement in DoD acquisitions. 
• Addresses the Balance of Payments Program, though the program remains unchanged by the rule. The Balance of Payments Program is a set of DoD regulations that have been in place for decades that apply to contracts for supplies to be used and construction to be performed outside the U.S. The program places limitations on countries from which contractors may purchase supplies to be used on DoD contracts and requires certifications from offerors to demonstrate that end products are domestic.

Takeaways

Because DoD's DFARS final rule largely tracks the same requirements as the FAR rule published back in March 2022, these domestic sourcing requirements should already be familiar to most contractors. However, DoD contractors should pay special attention the rule's DoD-specific requirements, such as the exemptions for components or items from qualifying countries and DoD-specific price preferences for items critical to the U.S. supply chain. DoD contractors should also assess the impact this final rule will have on their contracts and supply chains, if any. This may include taking a fresh look at component and subcomponent sourcing, domestic versus international manufacturing processes, cost of component calculations, and managing new and existing BAA certificates. 

We will continue to monitor and report on the continued implementation of the Buy American domestic sourcing and other requirements. If you have any questions about Buy American requirements in general, please contact one of the Miller & Chevalier attorneys listed below:

Alex L. Sarria, asarria@milchev.com, 202-626-5822

Alexandra S. Prime, aprime@milchev.com, 202-626-5940

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Ashley Powers, apowers@milchev.com, 202-626-5564

Connor W. Farrell, cfarrell@milchev.com, 202-626-5925

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

This, and related communications, are protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices, and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this presentation without prior written consent of the copyright holder.