Opportunities and Risks: Increased U.S. Federal Spending and Changes to Buy American Rules

It’s no secret that companies that manufacture or source electronic products in the United States stand to gain tremendously from increased public spending by the federal government. From national defense to national security and transportation to telecommunications, the U.S. government is poised to make generational investments in America’s future while ensuring that future is “Made in All of America by All of America’s Workers,” as the President announced in an Executive Order issued earlier this year. The current administration’s efforts to use public acquisitions to expand U.S. manufacturing have strong bipartisan support and show no signs of slowing.

Since 2020, the U.S. Government has issued successive waves of regulations and legislation to strengthen domestic sourcing laws—like the Buy American Act and Buy America laws—that apply to certain public procurements and federally-funded grant programs. President Biden signed the $1.2 Trillion Infrastructure Investment and Jobs Act (“IIJA”) into law in November 2021. The Act not only extends Buy America(n) requirements to virtually all federally-funded infrastructure projects, it also codifies the establishment of a “Made in America Office.” This new interagency office will scrutinize waiver requests that may undermine the primary purpose of Buy America(n) laws—to expand U.S. manufacturing through public spending. The administration took these efforts a step further in March 2022 when it announced the most robust updates in 70 years to the acquisition regulations implementing the Buy American Act.

While the array of Buy America(n) rules can be dizzying, one point is clear: to capitalize on increased federal spending, companies in the electronics industry must develop a comprehensive domestic production and sourcing strategy. Contract manufacturers like Benchmark can help.

In this blog post, we summarize the varying domestic-preference requirements that may apply in federally-funded opportunities and explore steps your company can take to ensure it is compliant. If you are interested in learning more about the evolving domestic-preference laws in the United States and how Benchmark can assist your company, we recommend reviewing “The Unofficial Guide to U.S. Domestic-Preference Laws for Electronics.”

NEW FUNDING, TIGHTER PURSE STRINGS

The IIJA expands U.S. domestic preference requirements for federally-funded infrastructure projects, typically administered through federal grant opportunities. Under the IIJA, manufactured products may not be purchased with federal funds for an infrastructure project unless the products are “produced in the United States,” meaning:

1. The manufactured product was manufactured in the United States; and
2. The cost of the components of the manufactured product that are mined, produced, or manufactured in the United States is greater than 55 percent of the total cost of all components of the manufactured product, unless another standard for determining the minimum amount of domestic content of the manufactured product has been established under applicable law or regulation.

As reflected in the second prong of the IIJA test, federal agencies can apply a higher domestic content threshold (i.e., greater than 55 percent) if such a threshold was already established by another applicable law or regulation in effect when the law was signed in November 2021. For example, in competitions for infrastructure grants funded by the Department of Transportation, entities like the Federal Transit Authority (“FTA”) and Federal Highway Administration (“FHWA”) could apply higher Buy America thresholds under their respective regulations for manufactured products (FTA: 100 percent domestic components), “rolling stock” (e.g., buses, other vehicles) (FTA: 70 percent domestic components), and manufactured products comprised predominantly of steel or iron (FHWA: 100 domestic steel or iron content).

Importantly, these Buy America rules differ from the acquisition regulations implementing the Buy American Act and the Trade Agreements Act in federal procurements. Under the current Buy American Act regulations, a manufactured end product (not consisting wholly or predominantly of iron or steel (or both)) qualifies as domestic if:

1. It is manufactured in the United States; and
2. At least 55 percent of the cost of all its components are mined, produced, or manufactured in the United States

Products meeting these requirements are entitled to a price preference that improves their chances of being selected for award. However, effective October 25, 2022, the domestic content standard will increase to 60 percent, with additional scheduled increases by 2024 (65 percent) and 2029 (75 percent). The updated regulations also provide for a “fallback threshold” of 55 percent through 2030 if products meeting the then-current threshold are not reasonably available or too expensive.

The Buy American Act regulations do not apply to every federal procurement. For example, the second element of the Buy American Act test, historically referred to as the “component test,” currently is waived for the acquisition of commercial-off-the-shelf (“COTS”) items, and procurements for commercial information technology (“IT”) are exempt from all Buy American requirements. But the current administration has signaled that the COTS waiver and commercial IT exception are on the table for reconsideration, as is the waiver of the Buy American Act in procurements covered by the Trade Agreements Act. Currently, the U.S. Government must give equal treatment to U.S.-made and designated-country end products in Trade Agreements Act-covered procurements. The Act also prohibits the government from acquiring non-U.S., non-designated country products. Consistent with this, the pertinent regulations require contractors to deliver “only U.S.-made or designated country end products” under contracts covered by the Trade Agreements Act. These regulations primarily look to where a product is manufactured, produced, or “substantially transformed” into a new and different article of commerce.

DETERMINING NEXT STEPS

With such complex legal requirements, it can be challenging to determine which domestic-preference laws apply, let alone how to achieve compliance. At the same time, companies have limited options to capitalize on increased federal spending, which include:

1. Building their own U.S. manufacturing and supply chain capabilities from the ground up.
2. Acquiring another company that already has those capabilities in the U.S.
3. Outsourcing production and supply chain requirements to U.S.-based contract manufacturers.

The first two options require hefty investments of financial resources and time that many companies, understandably, are not prepared to make.

For this reason, more companies are turning to U.S.-based contract manufacturers like Benchmark to help address their Buy America(n) needs. From strategic supply chain development to advanced manufacturing solutions, outsourcing your electronics manufacturing to Benchmark is an efficient and effective way to navigate the evolving U.S. domestic preference rules. Benchmark has the largest percentage of our capacity in the United States of any electronics contract manufacturer, with nine interoperable sites throughout the Nation. The company’s domestic sites are supported by a team of supply chain professionals who have the experience and relationships to help increase virtually any electronic product’s domestic content. Benchmark’s U.S. capacity is augmented by manufacturing sites in Mexico and the European Union, important alternatives for companies that must contend with procurements subject to the Trade Agreements Act. Further, unlike contract manufacturers that mainly produce low-level consumer electronics, Benchmark specializes in manufacturing complex technologies for the transportation, aerospace and defense, homeland security, telecommunications, and medical device industries. This is why some of the world’s most sophisticated companies choose Benchmark to ensure they can consistently deliver high-quality electronic products “When It Matters.”

In short, whether you are looking to chase new federal opportunities or optimize your federal portfolio, Benchmark can help simplify Buy America(n) compliance and position your company for success. To get started, don’t hesitate to get in touch with a Benchmark supply chain and manufacturing operations expert by email (marketing@bench.com) or through our website. You can also learn more by visiting our website at https://www.bench.com/us-manufacturing-buy-american-act-requirements.