Procurement rules are changing.
President Joe Biden’s executive order "Ensuring the Future Is Made in All of America by All of America's Workers" includes a renewed focus on governmental procurement agencies. The executive order requires agencies to adapt rapidly and ensure proper reporting and compliance. What’s more, diversifying the supplier pool will now be of critical importance.
This order affects federal agencies’ direct purchase contracts for goods and services. But this is just the latest in a series of rules impacting government procurement. Prior to Biden’s order, two significant changes to Federal Acquisition Regulation clauses had already been implemented under the previous administration as part of the Buy American Act. One increased domestic content requirements while the other raised the price preference for domestic products. Notably, restrictions for commercially available-off-the-shelf iron and steel products were revived, requiring both the end product and 95% of the components to be sourced domestically.
The most recent policy changes revise the definition of American-made products and raise local content requirements further. Specifically:
- Domestic content requirements and evaluation preferences provided by the FAR for domestically manufactured goods increased from 50% to 55%.
- Pricing preferences for domestic suppliers increased from 6% to 20% for large organizations, and from 12% to 30% for small businesses.
The new executive order requires the FAR council to review these changes and consider proposing additional changes, which are likely to result in tighter restrictions on foreign procurements. Additionally, the executive order also makes it more difficult for federal agencies to issue waivers to allow governmental agencies to purchase goods overseas.
The Impact on Information Technology
The Buy America Act is nothing new: It has been around for the last 80+ years and has been modified numerous times with Biden’s executive order being the latest. While it has impacted many products over that time, information technology has traditionally been immune as it has benefitted from a blanket waiver under FAR regulations. However, that may be changing as a result of the latest executive order.
The latest executive order requires the FAR council to “promptly review existing constraints on” applying the standard to information technology and requires recommendations for removing the constraints outright. Beyond the desired direct economic impact from this executive order, the global pandemic may have just provided the necessary push to remove many of these exceptions. This is because the pandemic has exposed a true resilience issue with the chip and semiconductor supply chain. A global chip shortage has impacted the availability of many consumer goods and it has impacted the production of automobiles in the U.S. resulting in billions in lost profits for some of the largest employers in the United States.
While these shortages are the direct result of the pandemic, it has exposed the United States' dependence on foreign sources for critical semiconductor components. It also places a spotlight upon the fact that the U.S.’ share of this market has decreased by 66% in the last 30 years.
As the heads of industry plead and lobby with the Biden administration to invest and incentivize the development of a domestic semiconductor and chip manufacturing base, it adds greater credence to the argument that the IT exception to the Buy American Act must be closely re-examined to ensure there is sufficient incentive for a viable domestic supply base guaranteeing the U.S. has a resilient supply base.
A Changing Landscape Is on the Horizon
It is anticipated that the changes set forth by the Biden administration are the tip of the iceberg, and new restrictions and policies will emerge that will undoubtedly impact the information technology landscape. It is incumbent upon organizations to understand and monitor these changes and map their supply base to understand where any subsequent changes would impact them.
Jarrod McAdoo is a senior manager of product marketing at Ivalua.
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