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Made in USA

Buy American Impacts on Construction and Manufacturing

February 23, 2021

Federal law requires government agencies to give preference to American firms when possible, but critics say those requirements haven't always been implemented consistently or effectively. There are loopholes and some of the requirements were last updated in the 1950s.

On January 25, 2021, President Biden took steps to add teeth to the “Buy American” initiative by signing an executive order (EO) addressing some of the weaknesses in current regulations.

What it Does

The EO increases government purchases of American-made products through the following summarized means:

  • Establishes a senior director position in the Office of Management and Budget whose focus is on the Made In America campaign. This person is responsible for making sure the new rules and procedures are followed.
  • Establishes a website where American businesses can see the contracts awarded to non-U.S. vendors, along with any notice of Buy American waivers granted.
  • Requires that federal agencies utilize the  Manufacturing Extension Partnership, a national network that works with small and midsize manufacturers across the U.S. and in Puerto Rico. 
  • Increases the percentage of domestic content in order to qualify as a domestic product from 50 percent to 55 percent.
  • Increases the price evaluation penalty for non-compliant products from 6 to 20 percent for large business and from 12 to 30 percent for small businesses.

Construction Industry Benefits

President Biden has relayed plans for massive infrastructure and new energy. This will equate to new projects that need to be built. "We’ll invest hundreds of billions of dollars in buying American products and materials to modernize our infrastructure, and our competitive strength will increase in a competitive world," Biden relayed. "That means millions of good-paying jobs, using American-made steel and technology, to rebuild our roads, our bridges our ports, and to make them more climate resilient."

Manufacturing Industry Benefits

As mentioned, the order implements a central review process for waiver requests to skip Buy American rules. It also establishes the creation of a website that will be available to the public to view the contracts. U.S. manufacturers will be able to see the waivers that were allowed and determine whether they are able to provide the requested goods. It will help more American companies compete for and win federal contracts and ensure communities who have been historically left out of federal procurement contracts are able to compete, according to Biden.

Additionally, utilization of the Manufacturing Extension Partnership to help agencies connect with new domestic suppliers that can make the products they need while employing U.S. workers presents a huge opportunity for small manufacturers who may have previously fallen under the radar.

Lastly, the need to compete with organizations located in other countries where labor is much cheaper has forced U.S. manufacturers to drive labor costs down by increasing automation using robotics and other more efficient means. If Biden’s plan meets his objectives, federal agencies will be forced to pay more in order to secure American made products. It removes some of the pressure to put new systems in place at a breakneck pace.

What Critics Say

Manufacturing and construction industry organizations generally applaud the plan, but not everyone agrees that it will be good for America. Below are three common concerns.

  1. Some critics are concerned that the requirements limit competition and therefore options, which will raise the average cost of a project while also potentially lowering the quality.
  2. The program has the potential to disrupt trade relations. For example, Canadian Finance Minister, Chrystia Freeland told reporters that she is concerned about losing out if government procurement rules are tightened.  
  3. Price preferences, while helping firms using domestic content in the short term, will make them increasingly reliant on government projects, as the products will not be competitive in the commercial market where such artificial preferences do not exist.

Final Thoughts

The full impact of Biden’s Buy American EO remains to be seen and we will certainly be watching as the plan unfolds. Manufacturers will want to continue looking for opportunities to build efficiencies so as not to become too dependent on government jobs. It is also worth becoming involved in the Manufacturing Extension Partnership and watching for the new website to view secured contracts in order to identify new opportunities. The construction outlook is good, especially for businesses focused on infrastructure and renewable energy.

MarksNelson offers many advisory services, including technology solutions, that can help you run more efficiently and identify new opportunities as you navigate the new regulations. Give us a call at (816) 743-7700 to discuss your unique situation.

About THE AUTHOR

Sara Stubler specializes in international and corporate tax. She provides solutions that help her clients minimize tax burdens, increase cash flow, and maximize profits. She does this by taking the time to get to know her clients and their challenges—and by staying in contact with... >>> READ MORE

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