Introduction
The Buy American act was passed in the year 1933 and applies to all United States government purchase of goods that are valued above the micro-purchase threshold. It, however, does not apply to the services. The act states that all goods meant for public use and either fully or partially funded by the American Recovery and Reinvestment Act (ARRA) must be produced in the United States and all the manufactured goods must be manufactured in the United States. Section 1605 of the ARRA clearly states that not a bit of the funds provided by the act may be used to construct, modify, maintain or repair a public building or any other public project unless all of the manufactured goods, the iron and steel used for the construction purposes are produced from the U.S.
Buy American requirements
The Buy American act requires that:
- All the steel, iron and manufactured goods involved in any public work should be from the United States.
- The cost of locally produced components must be more than or exceed by 50% that of the total cost of all the components used in the project.
- The sub grantees keep the necessary records showing their observance of the Buy American Act.
The Act, however, does not require that the tools and machinery used by the labourers be from the United States. It also does not require that the individual raw materials to be comprised in a manufactured product be from the USA. The act requires that only the final product to be used by the public must be put into its final form in the USA. The Act will not apply to a project if it is privately owned or if the iron and steel from the USA increases the overall intended cost of the project. The Act will not also apply if the iron and steel required for the project is not found in the U.S.
Means by Which the Requirements benefit the Company
When acquiring products and services from the suppliers, set procedures that follow the federal Acquisition regulation (FAR) rules are followed by contracting officials. The FAR sets of rules are standardized and are used by national agencies when purchasing goods and services. A variety of contracting methods are used by the government when they want to purchase goods and services. Main methodologies used include:
- Simplified acquisition
- Sealed bidding
- Contract through negotiation
Simplified acquisition procedure involves less administrative details, less documentation and fewer approval levels. The 1994 Federal Acquisition Streamlining Act was aimed at making the purchasing of goods and services by the government much simpler. According to the Act, purchases worth less than $100,000 should not have many competition restrictions. Purchases between $2,500 and $100,000 should be set aside for small businesses unless, two competitive offers from two small businesses are not obtained by the contracting officer.
In sealed bidding, a formal advert stating the issuance of a bid invitation by an agency is made. Government uses sealed bidding when offering competitive contracts whose requirements are concise, complete and accurate. An invitation for bid (IFB) will mainly involve a copy stating the specifications for the purchase, instructions on how to prepare for the bid and conditions applying to the purchase. In cases where the contract is worth more than $100,000, the government may opt to buy the contract through negotiation. Request for proposals, request for quotations or request for tender is issued by the interested parties to the government. The contract will then be awarded to the company with the best proposal. Once a company is awarded the contract by the government, the Buy American Act automatically applies. The requirements of the Act as mentioned above will benefit the company in the following ways.
- It will ensure that all the products used for the project are acquired locally. Locally acquired goods tend to be much cheaper as compared to foreign goods.
- In cases where the materials required are not available locally, the Act offers an exception and the company can purchase products from other countries.
- If the purchase of the materials locally will increase the intended budget, the Act also offers an exception and the goods can be imported. This ends up saving the company money.
Contradictions caused by the Buy American Act
The original purpose of the Buy American Act was to create more job opportunities than before. As much as the act was implemented to help the US citizens and improve the economy, the Act is proving to be a disadvantage the U.S businesses. The U.S government promotes the free market ideology, but the act is making it hard for companies in the import/export businesses such as Costco wholesale and Koch industries, to reach their market both locally and internationally.
The USA economic growth hugely relies on foreign trade and the relations it has with these foreign markets; therefore, it is tremendously vital for the government to promote healthy competition between the USA and other international markets. However, one of the major problems that the Buy American Act has caused is decreased the foreign demand for the American goods. This is because trade wars and foreign household incomes have declined as well as an induced strike back to import inputs for production.
In the year 1998, foreign trade accounted for 2.5% of the total 8.7 trillion dollars economy while, in the year 2008, it accounted for 9.55 of the 14.6 trillion dollars. In the year 2008, figures show that U.S imported goods worth more than what it exported to other countries. This clearly shows that the U.S economy hugely depends on the foreign trade. The World Trade Organization (WTO) and the North American Free Trade (NAFTA) regulations conflict with the American recovery and reinvestment Act that incorporates the American Buy Act. The NAFTA regulations clearly state that it is illegal to discriminate against foreign suppliers and bidders when it comes to projects that involve the government money. Therefore, businesses from other countries such as Canada and Mexico find themselves with only a few options when bidding for USA projects.
Buy American Exceptions
The Buy American Act has three exceptions and one exemption. The exceptions will require the secretary of Commerce or any delegated official from the commerce department to offer a written determination in order for the Buy American Act to be waived. The exceptions are usually made in the following cases:
- The steel, iron or other relevant manufacturing materials needed for the project are not found in the USA or are not produced in sufficient quantities.
- If purchasing the local iron, steel or the locally manufactured materials will increase the intended overall budget of the project with more than 25%. In order to help determine the costs and pricing of the products and determine if the price will be increased or not, a differential system of price has been established. Once the differential has been identified, it is added to lowest foreign offer and later compared to the local offer. Most government contracts allow a differential of 6% while small businesses and the department of defence allow a differential of 12% and 50% respectively. The differential, however, applies only to the materials being delivered and not the whole contract.
- If applying the Buy American Act domestic reference is not consistent with the interests of the general public. This exception is mainly used by the department of defense as a national security exception.
The exceptions can be deemed advantageous to the U.S economy. In cases where the manufacturing materials are not available locally, allowing the purchase to be made internationally ensures that the project is carried and on time. As seen before, the American economic growth hugely depends on foreign trade, therefore, the exception allows for the continuance of the foreign trade. In cases where purchasing the steel, iron and other needed manufacturing elements will increase the total cost of the project, allowing the products to be purchased outside the country saves the government money that can be used for other purposes. The defence department uses the exception where it feels the national security is threatened as it places a considerable amount of discretion.
Key advantages and Disadvantages of Buy American Act
For VectorCal Company and any other company offering navigation systems, the Buy American Act has proven to be advantageous. Some of the benefits it offers include:
- Where the act has been successfully employed, the domestic industrial base is maintained. For example, when the American department of defence is choosing contractors for its weapon systems, the U.S companies should be offered first consideration. The Act ensures that the companies producing products locally get first priority hence ensuring success of the companies.
- It is, in the government’s best interest, to offer contractors with ways to increase their profits so as to ensure they efficiently carry out the contracts duties. These benefits any company hugely as the profits will ensure the success and continuance of the company.
- Price analysis is the procedure of evaluating the proposed price without having to evaluate associated profits and other cost elements. The government’s pricing policy states that contracting officers should procure supplies from the responsible companies at a reasonable and fair price. In order to determine if the price is fair, the officer should acquire proficient cost or pricing data that are required along with any other data that can be used to ascertain that the price is fair. This helps make sure that the company sells its goods at a reasonable price.
However, there are also some disadvantages that come with the Act. These include but not limited to:
- The foreign demand for America locally produced goods is decreasing, due to the trade wars between the United States and other foreign markets.
- The North American Free Trade (NAFTA) and World Trade organizations (WTO) regulations may collide with the Buy American regulations.
Conclusion
The Buy American Act has been a requirement for federal acquisition ever since it was developed in the year 1933. Its main purpose has been to offer a favoured treatment for locally produced goods and materials used for construction. It provides one of the most discernible trace of the USA government protectionism. Its existence is a clear proof of the governments’ desire to level the playing field as well as protect its local business. The Buy American Act is implemented through the FAR rules that must be applied during the acquisition process. As much as it attempts to level the playing field, the Act is quite ineffective when it comes to offering first choices to local businesses. This is because the exceptions offered in the Act allow for the foreign goods to be offered first priorities.
References
Babin, L. A., & Zalai, Z. (2009). Buy American and Foreign trade-dependent markets: An analysis of Issues and remedies. Retrieved from http://revistapostgrado.eia.edu.co/Revista%20Edicion%20No.4/08%20Buy%20American%20an%20Foreign.pdf
Energize Missouri Communities. (2009). Buy American Act Factsheet. Retrieved from Missouri Department of Natural Resources: https://dnr.mo.gov/transform/documents/enmocom-buyamerican.pdf
FindRFP. (2013). Government Procurement: Bids and Contracts. Retrieved from FindRFP: http://findrfp.com/Government_Contracting/Contract_Method.aspx
