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The GovCon Bulletin™

May 8, 2017
A CLOSER LOOK AT THE "BUY AMERICAN AND HIRE AMERICAN" EXECUTIVE ORDER

A few weeks ago, President Trump signed an executive order, titled Buy American And Hire American (the "EO"), aimed at maximizing the use of goods, products and materials produced in the U.S.  It is important to note that the EO, signed on April 18 and that can be found here, does not propose any new additional laws; nor does it amend existing laws or regulations. Rather, the EO signals the administration's intent to vigorously enforce laws already on the books.  In particular, with respect to its “Hire American” mandate, the EO reflects the administration’s desire to rigorously enforce and administer laws permitting the immigration of foreign workers of U.S. employers.  Similarly, although the EO expresses the goal of maximizing the use of U.S.-made goods, products and materials under federal procurements, the EO purports to try to reach this goal by requiring every executive agency to “scrupulously monitor, enforce, and comply with Buy American Laws” and to “minimize the use of waivers.”

At first glance, because the EO focuses on administration and enforcement of already existing laws but announces no new programs or agency initiatives, the impact of the EO might seem muted.  However, the EO by its terms anticipates increased scrutiny by agencies over contractors’ compliance with foreign-worker immigration rules and “Buy American Laws."  Government contractors, therefore, would do well to take this time to identify the practices that may be subject to this scrutiny by reviewing their hiring and employment procedures and by examining their supply chains to identify any services or products of foreign origin.

Moreover, the tenor, if not the terms, of the EO signals that significant changes, indeed, are coming.

Hire American

Government contractors that rely on foreign workers for expertise and to meet technical capability requirements must already square their practices with requirements under the International Traffic In Arms Regulations (ITAR) and the Export Administration Regulations (EAR).  The EO now requires the Secretary of State, the Attorney General, the Secretary of Labor, and the Secretary of Homeland Security to “propose new rules and issue new guidance, to supersede or revise previous rules and guidance” on immigration laws and programs, including the H-1B visa program.  That program permits employers to hire temporarily highly skilled qualified foreign workers in specialty occupations, and under the EO the Secretary of State, Attorney General, Secretary of Labor and Secretary of Homeland Security are required to propose reforms that will ensure H-1B visas are awarded to “the most-skilled” or “highest-paid” petition beneficiaries.

Government contractors that hire foreign employees should, therefore, not only review their practices to ensure compliance with existing rules, but follow closely upcoming developments that might propose or flesh out standards for determining "the most-skilled" program beneficiaries.

Buy American

With regard to the Buy American requirements, the EO sets out a series of mandates for federal agencies, as well as for the Secretary of Commerce, the Director of the Office of Management and Budget, and the U.S. Trade Representative.  For example, within 150 days of the EO, agency heads must make several assessments on their agencies' monitoring, enforcement and compliance with Buy American Laws and their use of waivers. Agencies also are required to develop and propose policies to ensure maximum use of U.S.-produced materials. Another EO requirement is that the Secretary of Commerce and U.S. Trade Representative assess, within 150 days of the EO, the impact of U.S. free trade agreements, as well as the World Trade Organization Agreement on Government Procurement, on Buy American Laws and domestic procurement preferences.

A “Buy American Law” is defined broadly by the EO to include all statutes, regulations, rules, and executive orders relating to federal procurement that require, or provide a preference for, the purchase or acquisition of U.S.-produced goods, products, or materials. Consequently, the scope of the EO includes the Buy American Act of 1933 (BAA).

The BAA generally restricts government contractors from using foreign products to meet contract requirements in contracts above a minimum dollar threshold. As implemented in federal acquisition regulations, contractors that use foreign-made products are subject to price penalties.  These penalties do not apply if a government contract is for “information technology that is a commercial item.” (See FAR 25.103(e).)  The BAA exception for IT commercial items derives from a statutory exemption granted by Congress. Congress, in the Trade Agreements Act, also gave the President the authority to waive BAA requirements on eligible products or services that are produced under contracts above minimum thresholds and that originate from countries that have signed international agreements with the U.S.

Although stopping short of stating so, the EO implies that after the Secretary of Commerce and U.S. Trade Representative have assessed the impact of free trade agreements on the BAA and domestic procurement preferences, the scope of the foreign products or services excepted from the BAA under the TAA might be narrowed.

Government contractors with foreign suppliers or producers should pay close attention to any future developments that might limit the scope of any exceptions to the BAA, particularly those arising from trade agreements, or that impose additional requirements or restrictions on products or services that may be subject to any exceptions.