Last week a group of four Senate Democrats – led by Minority Leader Chuck Schumer (D-NY) – jointly published an article about “strengthen[ing]” the U.S. Government’s “Buy American policies.” While the senators acknowledged President Trump’s recent efforts to “re-examine the use of . . . Buy American waivers” (see our blog post regarding the “Buy American” Executive Order), they also expressed concern that these efforts would “not fundamentally change . . . Buy American policies.” In other words, both sides of the aisle are targeting “Buy American” reforms. In their article titled “A Better Deal: Taxpayer Dollars Should be Used to Support & Create American Jobs, Not Ship Them Overseas,” Senators Chuck Schumer (D-NY), Debbie Stabenow (D-MI), Bob Casey (D-PA) and Tammy Baldwin (D-WI) revealed that “Democrats will offer major amendments” to the FY 2018 National Defense Authorization Act (“NDAA”) “to protect and strengthen . . . Buy American policies in taxpayer-funded defense contracts.” The senators argued that “Buy American policies have been diminished by . . . waivers and loopholes that allow foreign firms access to large sums of taxpayer dollars.” In fact, in his September 12, 2017 speech on the Senate floor regarding the motion to proceed on the FY 2018 NDAA (H.R.2810), Senator Schumer declared that these “loopholes . . . have allowed Federal agencies to . . . skirt the spirit of the law.”

Pertinently, the senators proposed to strengthen Buy American policies by: “1) eliminating the current NDAA provisions that would weaken buy American laws by eliminating Buy American provisions for a number of products, 2) rolling back the ‘overseas exemption’ to the Buy American Act [41 U.S.C. §§ 8301–8305] and 3) increasing transparency by mandating up-to-date reporting on the use of Buy American waivers for specific products.”

With regard to their second proposal, the senators contended that the so-called “overseas exemption” has provided “the Department of Defense (DOD) the ability to waive Buy American rules simply because the item being purchased is intended for use overseas — this made up 65% of the exemptions DOD issued in the last year.” To curtail this apparent abuse, Senator Stabenow sponsored SA 988 and SA 827 to the FY 2018 NDAA:

• SA 988 (which Senator Stabenow co-sponsored with Senator Baldwin and Chris Murphy, D-CT ) proposed to limit the “overseas exemption” in 41 U.S.C. § 8302(a)(2)(A) to end products acquired by the Government “for use outside the United States needed on an urgent basis or for national security reasons (as determined by the head of a Federal agency).” (Proposed amended language emphasized). See also S.2167, 21st Century Buy American Act (Oct. 8, 2015) (prior proposed legislation introduced by Senator Murphy geared, in part, towards limiting the “overseas exemption”).

• SA 827 (which Senator Stabenow co-sponsored with Senator Baldwin) proposed that “[f]or any item (excluding petroleum) to be used outside the United States that is not to be used on an urgent basis and is not subject to [the Buy American Act], the Secretary of Defense shall direct contracting personnel to identify and give consideration to domestically sourced and Buy American compliant items before soliciting offers for items that are not compliant with the Buy American Act.”

With regard to the senators’ first proposal, Senator Baldwin – along with Senators Jack Reed (D-RI), Tim Kaine (D-VA), and Elizabeth Warren (D-MA) – also sponsored SA 329, the “Supporting America’s Defense Workers Act.” That amendment aimed to remove a provision in the bill that sunsets a requirement to procure certain defense items from within the National Technology and Industrial Base (“NTIB”), meaning the United States, Canada, the United Kingdom, and Australia. In effect, SA 329 would have continued the current NTIB sourcing requirement. It was reportedly one of the most contentious points of disagreement among Senate negotiators.

Ultimately, SA 988, SA 827 and SA 329 were left out of the version of the NDAA passed by the Senate on September 18, 2017. Senator Baldwin noted in a press release that she “strongly object[ed] to the bill’s elimination of critical Buy American standards. I fought against this misguided policy with my pro-Buy American amendment that was also supported by the Trump Administration.” Notwithstanding, Senator Stabenow still was pleased that SA 1014 was incorporated into the version passed by the Senate. SA 1014 “require[s] the Government Accountability Office to evaluate Buy American training policies for the Defense acquisition workforce.”

The Bottom Line

• Certain Senate Democrats want to strengthen “Buy American” policies and requirements, and they likely will continue to focus their efforts on “Buy American” reform. It is also quite notable these same Senate Democrats essentially are aligned with the Trump Administration on these matters.

• Contractors selling end products to the Government, along with their supply chains, should continue to pay close attention to developments in this area.

Practitioner’s Notes Regarding the “Overseas Exemption”

• First, it is important to recognize that the “overseas exemption” is incorporated into the Buy American Act. Specifically, 41 U.S.C. § 8302(a)(2)(A) states that the domestic preferences in the Buy American Act are inapplicable to purchases by the Government of “articles, materials, or supplies for use outside the United States.” Consequently, Congress, not the DOD through the discretionary granting of waivers, created the “overseas exemption.”

• Second, the DOD actually has limited Congress’s broad “overseas exemption” through the DOD’s Balance of Payments Program (DFARS subpart 225.75). This program requires the DOD to acquire domestic end products for use outside the United States, but does provide for certain exceptions or waivers. Although the senators’ proposed legislation would have brought purchases of end products for use outside the United States – other than those needed on an urgent basis or for national security reasons – within the ambit of the Buy American Act’s domestic preference regime, it is unclear how this proposed legislation would be reconciled with DoD’s Balance of Payments Program. To that end, it also is unclear if the senators’ reference to “65% of the exemptions DOD issued in the last year” related to exemptions under the Balance of Payments Program or the “overseas exemption” generally.