Federal projects to require more domestic content, metal suppliers

Metal fabricators that sell directly to the federal government or its prime or subcontractors and often use foreign metal suppliers will have to examine their supply chains because of new buy American requirements. Darren415/Getty Images

Things just got a little tougher for metal fabricators selling to big federal agencies given the White House’s March 7 final changes to the Buy American Act (BAA).

Already constricted supply chains will have to be rejiggered in some instances so that companies can meet the new domestic content thresholds. This new rule from the Federal Acquisition Regulatory Council increases a current 55% domestic content floor to 75% in steps between 2023 and 2029. The first increase to 60% goes into effect Oct. 25. Theoretically, these increases are supposed to steer more business to U.S. manufacturers.

Metal fabricators that sell directly to the federal government or its prime or subcontractors and often use foreign metal suppliers will have to examine their supply chains. They might need to find additional local steel or aluminum suppliers, prices be damned. In some instances these higher thresholds can be avoided, but those exceptions might not come into play that often.

Moreover, the BAA rules already are very confusing with regard to steel because agencies, such as the Federal Transit Administration and its infrastructure programs, have requirements that the steel used in their specific federal programs be 100% domestic content.

The new thresholds will be problematic for some companies that sell the same products in the federal and commercial markets given that they might have to purchase expensive domestic metal in some instances. Commercial products automatically become more expensive and less competitive when compared to products made by manufacturers that seek the cheapest metals, no matter where they might be made. This is a problem companies such as Boeing previewed last year when the new thresholds were first proposed.

David Cade, vice president, corporate contracts, Boeing, gave the Federal Acquisition Regulatory Council the example of Boeing’s P-8 aircraft made for the U.S. Navy and foreign militaries. Five percent of production went to the U.S.

“Boeing could get a price adjustment for its P-8 aircraft but would have to absorb 95% of the cost of these provisions that flow into the aircraft delivered to commercial airline customers. We believe that implementing the proposed increases to the BAA will likely increase those costs materially and jeopardize the competitiveness of American firms globally,” Cade said at the time.

Paul Lewis, a Boeing spokesman, did not respond to a query about Boeing’s feelings about the final rule.

The National Electrical Manufacturers Association (NEMA) had some of the same concerns about the proposal’s negative impact on supply chains. Madeleine Bugel, a NEMA policy official, said the final rule has not erased those concerns.

U.S. companies that meet the new thresholds do get extra consideration when competing against foreign sources. A contracting officer can apply a price preference of either 20% for a large company or 30% for a small one to a cheaper foreign bid. If that foreign bid is still lower than the bid from a U.S. company, the foreign company presumably gets the contract.

A second “loophole” for U.S. companies that meet the domestic content threshold but whose product is deemed of unreasonable cost is available. It is called a fallback threshold, and its application is a bit complicated.

Basically, if an agency can’t find an end product or construction materials that meet the new domestic content requirement or finds that fully BAA-compliant items are available only at an exorbitant expense, the government buyer can elect to impose the lower 55% content requirement. This fallback threshold is set to expire in 2030.