With US technology spending expected to reach $1.94 trillion in 2021, it comes as no surprise that the US leads the world in terms of the budget allocated for innovation. This particular willingness to spend, however, is bridled by restrictions that involve some qualification before potential sellers are allowed in the bidding process.
The Buy American Act (BAA) and Trade Agreements Act (TAA) are two similarly themed regulations that give preferences during the government procurement process to products made in the US and associated countries.
What Is the Buy American Act?
Enacted during the Great Depression Era, the BAA stipulates that products acquired by US federal government agencies be manufactured in the US or countries listed by the Federal Acquisition Regulations (FAR). FAR is the main body of rules that regulate government procurement processes—specifically, in Chapter 1 of Title 48 of the Code of Federal Regulations, 48 CFR 1.
The regulations are not set in stone. The requirements laid out in FAR do offer several, albeit complex, exemptions. Also, many states and city-level governments incorporate similar rules into their local procurement activities.
BAA Checklist and Compliance
Firms bound to the BAA’s set of procurement rules need to comprehend how the compliance requirements set forth in the body of regulations apply to their specific scenario.
More often, some of this information can be gleaned from the prospective vendors’ websites. For example, Fortinet offers a range of products that meet the BAA and TAA country of origin requirements. Similarly, SonicWall’s Federal page outlines the company’s efforts to comply with TAA compliance regulations.
The following BAA compliance checklist outlines a few key considerations to keep in mind:
Domestic End Product Qualification
The BAA requires that products used or offered in government contracts must qualify as a domestic end product. This is defined as:
- An unmanufactured end product either mined or developed entirely in the US
- An end product with over 50% of its component costs spent in the US (on mining, production, or manufacturing)
Inclusion of Non-BAA-Compliant Products
Per BAA, all is not lost if a product is deemed non-compliant. It can still be included in the procurement process by adding a penalty fee to its price—either 6% for small businesses or 12% for larger firms.
It’s critical for firms bidding for US contracts to understand whether the BAA or TAA applies to the procurement and whether their products are compliant with the applicable standards. For example, the BAA applies to supply contracts that exceed $2,500 but are below the TAA threshold of $193,000.
The US Department of Defense (DoD) allows products from specific countries to be included in procurements without a pricing penalty. This list of qualifying countries can be found in the Defense Federal Acquisition Regulation Supplement (DFARS) 225.872-1. Products not considered US-domestic or manufactured in a qualifying country are subject to a 50% price penalty.
BAA Threshold Variations
Different US government agencies may vary in how they deal with threshold definitions. For example, some departments may determine BAA requirements based on the overall contract while others may take a line-item approach.
Who Signed the BAA? Is It Still in Effect?
The BAA was signed into law by President Hoover, followed by additions and modifications from subsequent presidents. For example, the BAA was significantly overhauled in January 2021 as a response to an executive order issued by President Trump. More recently, the Biden administration issued another executive order seeking to further tighten the BAA’s requirements.
It’s worth noting that—due to the recent, heated geopolitical climate between the world’s largest trading partners—the BAA is one of the more actively scrutinized and amended regulations dealing with US trade and commerce.
How Does the Buy American Act Differ from the Trade Agreements Act?
Despite both being three-letter acronyms related to the US government’s preference for domestic products, the BAA and TAA differ when it comes to certain thresholds or definitions. Generally speaking, the motivations for the two regulations differ despite sharing similar end results.
The TAA was intended to foster fair and open trade on an international level. In contrast, the BAA’s intent is to protect domestic labor through a preference for US-manufactured products. When dealing with US government procurements, companies must avoid liability imposed by the False Claims Act by ensuring they are in compliance with both regulations—and this means understanding how the two differ.
For instance, the BAA tends to be laxer when it comes to noncompliance, whereas the TAA is black-and-white regarding the inclusion of such products. Non-BAA-compliant products are allowed for use in government contracts as long as the proper surcharge (6% or 12%) is levied. The two also differ in the way they ascertain or classify country of origin. The TAA employs a substantial transformation test vs. the BAA’s cost-of-components test.
In short, the BAA and TAA both deal with domestically produced goods in government contracts and are subject to FAR-mandated provisions. Both layout specific evaluation criteria for domestic preference. That said, their overlapping areas and granular requirements can be the cause of confusion. Bidders are advised to stay up-to-date regarding these differences to prevent the potential compromise of future projects.