Buying American: Country of Origin Requirements in US

This Practice Note provides an overview of

the most signiﬁcant country of origin (COO)

requirements applicable to federal government

contractors, the Buy American Act of 1933 (BAA)

and the Trade Agreements Act of 1979 (TAA). It

also reviews penalties for non-compliance with

COO requirements and contains practical tips

on completing required certiﬁcates.

Applying country of origin (COO) rules to federal government

contracts can be confusing even to experienced government

contracting professionals. This confusion is due in signiﬁcant part to

the contradictory goals of domestic preference laws, on the one hand,

and international free trade agreements (FTAs), on the other hand.

As in other countries, the US federal government has a long-standing

preference for awarding procurement contract dollars to domestic

companies. The most important domestic preference laws are

embodied in the depression-era Buy American Act of 1933 (BAA)

(41 U.S.C. § 8301). However, the US has also entered into a number

of FTAs that generally provide for reciprocal non-discrimination

in government procurement among the signatories to these

agreements.

The most extensive of the FTAs is the Agreement on Government

Procurement (GPA), a multi-party agreement under the World

Trade Organization, as well as the US’s bilateral agreements

with Israel, Chile, Singapore and Australia, among others. These

bilateral agreements and the GPA guarantee signatory countries

non-discriminatory treatment in government procurement activities

conducted in other signatory countries and are implemented by the

Trade Agreements Act of 1979 (TAA) (19 U.S.C. § 2501).

The overlapping implementing regulations for the domestic

preference laws and international FTAs have resulted in a complex

regulatory web with many exceptions (and exceptions to the

exceptions) to general coverage rules, based on factors including:

 The contract’s anticipated value.

 The nature of the contract requirements.

 The contract vehicle being used for the purchase.

 Whether the procurement is being conducted on a small business

“set-aside” or “sole source” basis.

 The country in which the contractor is established.

This Note provides a comprehensive overview of the most signiﬁcant

COO requirements applicable to federal government contracts,

particularly the BAA and the TAA, and also discusses:

 BAA and TAA certiﬁcates.

 Penalties for non-compliance.

For information on making legal US origin claims in advertisements

and product labels, including when and how these claims must

be qualiﬁed and how they are affected by foreign origin labeling

regulations, see Practice Note, Made in USA Claims (http://

us.practicallaw.com/8-549-3880).

BUY AMERICAN ACT

The most signiﬁcant domestic preference statute is the BAA,

which restricts the delivery of foreign end products under federal

government contracts by granting a price preference advantage to

contractors proposing competing offers of domestic end products.

Domestic source preferences that arise in other statutory and

regulatory regimes but are beyond the scope of this Note include:

 The Berry Amendment. The Berry Amendment applies to

Department of Defense (DoD) contracts for domestic food,

clothing, fabric and specialty metals.

 The Balance of Payments Program. This program encompasses

foreign contracts for supplies and construction.

 The American Recovery and Reinvestment Act of 2009.

Contracts funded by appropriations under this act contain

domestic preferences.

Buying American: Country of Origin

Requirements in US Government

Contracts

G. MATTHEW KOEHL AND VICTORIA L. STROHMEYER, HOLLAND & HART LLP, WITH PRACTICAL LAW COMMERCIAL

View the online version at http://us.practicallaw.com/7-573-3545

Buying American: Country of Origin Requirements in US Government Contracts

PRICE EVALUATION PENALTY

The BAA restricts the purchase of items that are not domestic end

products through a price evaluation penalty applied to competing

offers of foreign end products. It is not an absolute prohibition on

foreign end products. If foreign end products are cheaper even after

application of the penalty, the contracting agency may properly

purchase the foreign end products.

For civilian agency procurements, the price evaluation penalty

depends on whether the lowest domestic offer is made by:

 A large business concern. If the low domestic offeror is a large

business concern, the contracting ofﬁcer adds a price evaluation

penalty to the low foreign offer equal to 6% of the foreign offer’s

price.

 A small business concern. If the low domestic offeror is a small

business concern, the contracting ofﬁcer adds a price evaluation

penalty to the low foreign offer equal to 12% of the foreign offer’s

price.

(48 C.F.R. § 25.105.)

For DoD procurements, the price evaluation penalty is 50%,

regardless of whether the low domestic offeror is a large business

concern or a small business concern (48 C.F.R. § 225.105(b)). This is

generally outcome-determinative.

The BAA price evaluation penalty is an evaluation tool only. If an

offer containing foreign end products is selected for award after

application of the evaluation penalty, the contracting agency pays the

proposed price and not the (increased) evaluated price.

APPLICATION OF THE BAA

The BAA applies to supply and construction contracts between

$3,000 and the dollar threshold for TAA applicability (TAA

Threshold). Supply and construction contracts with an estimated

value of more than $3,000 and less than the TAA Threshold are

subject to the BAA. The TAA Threshold, established bi-annually by

the US Trade Representative (USTR), is currently:

 $204,000 for supply contracts.

 $7,884,000 for construction contracts.

The estimated value of a procurement includes the value of the

base award period and the value of all option periods (48 C.F.R. §

25.403(b)(2)).

However, the BAA is generally waived for contracts above the TAA

Threshold. The TAA authorizes the President of the United States

to waive the BAA and other discriminatory provisions for eligible

products from countries that have signed an FTA with the US, or that

meet certain other criteria, such as qualifying as a “least developed

country.” The President has delegated this waiver authority to the

USTR. In general, contracts with an estimated value in excess of the

TAA Threshold are exempt from the BAA and are, instead, subject to

the COO requirements of the TAA.

The BAA also applies to certain procurements regardless of value.

Certain categories of contracts remain subject to the BAA even where

the estimated value of the contract exceeds the TAA Threshold (48

C.F.R. § 25.401). The most common categories of procurements

which remain subject to the BAA at any value are:

 Arms, ammunition or war materials.

 Purchases indispensable for national security.

 Sole-source acquisitions.

 Small business set-aside contracts.

In addition to the BAA’s COO requirements, absent waiver of the

“non-manufacturer rule” by the Small Business Administration, a

small business reseller must supply the product of a small business

manufacturer on a set-aside contract.

Notably, the BAA does not apply to contracts for services.

INSTANCES WHERE THE BAA DOES NOT RESTRICT FOREIGN

OFFERS

Unreasonable Cost

The BAA does not restrict contractors from supplying foreign end

products in other speciﬁed circumstances (48 C.F.R. § 25.103).

The most common of these scenarios is where an offer containing

domestic end products has an “unreasonable cost” as compared

to an offer containing foreign end products. The unreasonable cost

exception is implemented through the price evaluation preference of

the BAA.

For example, if the low domestic offer is priced at $10,000 and the

low foreign offer is priced at $4,500, the low foreign offer has a lower

evaluated price even after the application of any of the possible BAA

price evaluation penalty percentages (6%, 12% or 50%). In these

circumstances, the domestic offer presents an unreasonable cost and

the foreign offer is therefore eligible for award notwithstanding the

BAA’s applicability to the procurement.

Commercial Item Information Technology

The BAA has been waived for information technology (IT) that is a

commercial item (48 C.F.R. § 25.103(e)). The terms “commercial item”

and “information technology” are both deﬁned in Section 2.101 of the

Federal Acquisition Regulation (FAR) (48 C.F.R. § 2.101).

For more information on commercial item contracting, see Practice

Note, Government Contracts: Reduced Risk Through Commercial Item

Contracting (http://us.practicallaw.com/5-532-3257).

Commercial item IT is often sold through:

 The Multiple Award Schedule (MAS) contract program

administered by the General Services Administration and

Department of Veterans Affairs.

 Other large, indeﬁnite-delivery/indeﬁnite-quantity (ID/IQ)

contracts.

MAS contracts are presumed to exceed the TAA Threshold, as are

most ID/IQ contracts for commercial item IT, and are therefore

subject to the TAA but not the BAA. Federal government contractors

should be aware that the TAA applies and the BAA is not applicable

to commercial item IT purchases under these contracts, even for

individual orders that do not exceed the TAA Threshold.

There are some limited exceptions where the TAA does not apply to

commercial item IT purchases, making the waiver of the BAA’s COO

requirement for commercial item IT helpful to contractors. These

exceptions include

Buying American: Country of Origin Requirements in US Government Contracts

 A one-time open market purchase added to a MAS contract

delivery order on a non-competitive basis.

 Small contracts individually awarded on a competitive basis.

However, most commercial item IT is not purchased in these one-off

contexts and is subject to the TAA’s COO requirements. This renders

the waiver of the BAA’s COO requirements for commercial item IT of

limited utility to contractors.

Qualifying Country End Products in DoD Procurements

Qualifying countries are those countries that have a reciprocal

defense procurement agreement with the US where both countries

agree to remove barriers to purchases of supplies produced in the

other country. The DoD treats “qualifying country end products”

as domestic end products for purposes of the BAA (DFAR 252.225-

7000(b)(2)).

The countries that are currently designated as qualifying countries

are Australia, Austria, Belgium, Canada, Czech Republic, Denmark,

Egypt, Finland, France, Germany, Greece, Israel, Italy, Luxembourg,

Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland,

Turkey and the United Kingdom.

There is no preferential treatment for qualifying country end products

in acquisitions by civilian agencies.

Other, less common exceptions to BAA applicability include:

 Public interest. This exception applies if the head of a contracting

agency determines that domestic preference is inconsistent with

the public interest (48 C.F.R. § 25.103(a)).

 Nonavailability. This exception applies to items that are not

mined, produced or manufactured in the US:

 in sufﬁcient and reasonably available commercial quantities;

and

 of a satisfactory quality.

(48 C.F.R. § 25.103(b).)

Section 25.104 of the FAR lists articles currently designated as

nonavailable (48 C.F.R. § 25.104(a)). The list is published for public

comment in the Federal Register at least once every ﬁve years (48

C.F.R. § 25.104(b)).

 Commissary resale. This exception applies to items purchased

by the contracting agency for resale at military bases (48 C.F.R. §

25.103(d)).

BAA COMPLIANCE TESTS

The BAA prescribes two different tests for determining whether items

qualify as domestic end products, depending on whether they are:

 Non-manufactured products. To qualify as a domestic end

product, a non-manufactured product must be mined or produced

in the US (48 C.F.R. § 25.003).

 Manufactured products. A manufactured product qualiﬁes as a

domestic end product if:

 it is manufactured in the US; and

 the cost of its components mined, produced or manufactured in

the US exceeds 50% of the cost of all of its components.

(48 C.F.R. § 25.101(a).)

While the BAA test for manufactured goods may seem

straightforward, “real world” application of the test to manufactured

goods is often complex. Courts and administrative tribunals have

observed that the absence of formal guidance about how the term

“manufactured” should be applied in speciﬁc contexts has led to

subjective and inconsistent application by government contracting

agencies (see Davis Walker Corporation, B-184672, 76-2 CPD ¶ 182

(August 23, 1976), at 2).

Domestically Manufactured Products

The difﬁculty in applying the ﬁrst part of the test lies in the fact that

there is no statutory or regulatory deﬁnition for “manufactured”

under the BAA. The term has been interpreted broadly and often

in a confusing manner by the courts and administrative tribunals.

According to the Government Accountability Ofﬁce (GAO), the term

means completion of an article in the form required for use by the

government.

Manufacturing establishes the identity and character of the end

product regarding its current and future use, and may consist of:

 Mechanical operation performed on a foreign product.

 Assembly of separate items.

The key is to determine whether the process makes the item suitable

for its intended use and establishes its identity (DynAmerica, Inc.,

B-248237, 92-2 CPD ¶ 210 (September 28, 1992), at 3).

The level of activity required to meet this test is generally understood

to:

 Require greater complexity than packaging operations.

 Be less stringent than the substantial transformation test used to

determine product COO under the TAA.

(CompuAdd Corp. v. Dep’t of Air Force, 1992 WL 442353 (G.S.B.C.A.

December 23, 1992).)

Components

The second part of the TAA applicability test for manufactured

products requires that the cost of domestic components exceeds

50% of the total component cost. The practical application of this

test can be both complex and administratively burdensome. The

term “component” is deﬁned as “an article, material or supply

incorporated directly into an end product” (48 C.F.R. § 25.003).

For purposes of the BAA’s domestic content test:

 Cost is measured at the component level only.

 Subcomponent cost is not considered.

Component versus Subcomponent

Whether an item is a component or subcomponent often determines

if its domestic content is sufﬁcient (50%) to qualify as a domestic end

product under the BAA.

The proper deﬁnition of component can be ambiguous in some

contexts. It can be difﬁcult to determine if a particular item is either a

component of the end product, or a subcomponent of a component

that is incorporated directly into the end product.

Buying American: Country of Origin Requirements in US Government Contracts

For example, a contractor supplies commercial grade ovens to an

Army base. The oven door is comprised of a glass and metal face

manufactured in the US. However, it also includes a large metal

handle manufactured in China, which is added to the glass and metal

face during an assembly process performed by the contractor in the

US.

If the handle is treated as a component by itself (because

the domestic assembly process was too simple to qualify as

manufacturing), its value would count as foreign (Chinese) for

purposes of the BAA domestic content test. If, however, the entire,

ﬁnished oven door is treated as the component (because the

domestic assembly process qualiﬁed as manufacturing, causing the

handle to become a subcomponent to the component-level oven

door), its entire value, including the handle, would be domestic.

Accordingly, the BAA deﬁnition of component affords contractors

in some contexts a degree of ﬂexibility to deﬁne component in a

manner to maximize the likelihood of qualifying as a domestic

end product. A contractor should disclose any “close calls” in its

component determinations in the BAA certiﬁcate (see BAA and TAA

Certiﬁcates) or proposal to the contracting agency.

Component Cost

The administrative burden of compiling and analyzing all of the

elements necessary to build up to a component’s deﬁned cost can be

signiﬁcant. The methodology for calculating component cost varies

depending on whether the components are:

 Purchased. For components purchased by the contractor, the

component cost is comprised of:

 the acquisition cost;

 any transportation costs to the place of incorporation into the

end product or construction material; and

 any applicable duty.

 Manufactured. For components manufactured by the contractor,

the component cost is comprised of:

 all costs associated with the manufacture of the component;

 any transportation costs to the place of incorporation into the

end product or construction material; and

 allocable overhead costs.

Excluded from the component cost deﬁnition are:

 The contractor’s proﬁt margin on manufactured components.

 Any costs associated with the manufacture of the end product.

(48 C.F.R. § 25.003.)

Components with Unknown COO

Frequently, a contractor lacks reliable information about the COO

of certain components used in the end products it delivers. If a

component is of unknown origin, it is presumed to be foreign,

increasing the challenge of meeting the component cost prong of the

BAA test (48 C.F.R. § 52.225(2)).

BAA TEST FOR COMMERCIALLY AVAILABLE OFF-THE-SHELF ITEMS

In general, commercially available off-the-shelf (COTS) items are

common, commodity-type products that are widely available in the

commercial market. The FAR deﬁnes a COTS item as any item of

supply, including construction material, that is:

 A commercial item as deﬁned in Section 2.101(1) of the FAR.

 Sold in substantial quantities in the commercial marketplace.

 Offered to the federal government, under a contract or subcontract

at any tier, without modiﬁcation, in the same form in which it is

sold in the commercial marketplace.

(48 C.F.R. § 2.101.)

COTS items are exempt from the BAA’s component cost test.

Consequently, COTS items need only be manufactured in the US to

comply with the BAA. Contractors do not need to demonstrate that

domestic components represent 50% of the item’s cost (48 C.F.R. §

25.001(c)(1)).

“MADE IN AMERICA” DISTINGUISHED FROM THE BAA

Even if an end product qualiﬁes as a domestic end product under

the BAA, this does not mean that it is properly labeled as “Made in

America.” The Federal Trade Commission (FTC) regulates the use of

Made in America claims and labels. The FTC has published guidance

indicating that an item must be “all or virtually all” domestic to be

properly labeled as Made in America.

For example, an end product that is manufactured in the US and

passes the 50% domestic component cost test but is not comprised

of all or virtually all domestic components is a BAA “domestic end

product,” but is not properly labeled as Made in America. The FTC’s

FAQs, Complying with the Made in USA Standard, provide more

information on complying with Made in America standards.

TRADE AGREEMENTS ACT

The TAA implements several international trade agreements that

guarantee signatory countries non-discriminatory treatment in

government procurement activities conducted in other signatory

countries.

Unlike the BAA, which creates only a preference for domestic end

products, the TAA prohibits supplying products and services from

countries not approved as TAA-eligible (for example, China). If a

product or service has a COO that is not TAA-eligible, it may not

be supplied in connection with TAA-covered procurements without

a government waiver. TAA compliance has become especially

problematic for federal government contractors in recent years as

production of many common commercial item products has moved

to countries which are not TAA-eligible, including China, India,

Malaysia, Thailand and Vietnam.

TAA ELIGIBLE COUNTRIES

In addition to domestic products and services, the TAA allows

contractors to supply products and services from countries with

which the US has signed multilateral or bilateral FTAs, or has

otherwise determined to be TAA-eligible (Designated Countries). The

Designated Country list is comprised of:

Buying American: Country of Origin Requirements in US Government Contracts

 GPA countries. The countries that have signed the GPA are Aruba,

Austria, Belgium, Bulgaria, Canada, Cyprus, Czech Republic,

Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong,

Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea (Republic of),

Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands,

Norway, Poland, Portugal, Romania, Singapore, Slovak Republic,

Slovenia, Spain, Sweden, Switzerland, Taiwan and the United

Kingdom.

 FTA countries. The countries that have signed a bilateral FTA

with the US are Australia, Bahrain, Canada, Chile, Costa Rica,

Dominican Republic, El Salvador, Guatemala, Honduras, Mexico,

Morocco, Nicaragua, Oman, Peru and Singapore.

 Caribbean Basin countries. The Caribbean Basin countries

are Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize,

British Virgin Islands, Dominica, Grenada, Guyana, Haiti, Jamaica,

Montserrat, Netherlands Antilles, St. Kitts and Nevis, St. Lucia, St.

Vincent and the Grenadines, and Trinidad and Tobago.

 Least Developed Countries. The Least Developed Countries are

Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso,

Burundi, Cambodia, Central African Republic, Chad, Comoros,

Democratic Republic of Congo, Djibouti, East Timor, Equatorial

Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti,

Kiribati, Laos, Lesotho, Liberia, Madagascar, Malawi, Maldives,

Mali, Mauritania, Mozambique, Nepal, Niger, Rwanda, Samoa,

Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands,

Somalia, Tanzania, Togo, Tuvalu, Uganda, Vanuatu, Yemen and

Zambia.

(48 C.F.R. § 25.003.)

TAA TEST FOR COMPLIANCE: PRODUCTS

To meet the TAA’s COO requirement for products, contractors must

supply items which are either:

 Wholly grown, produced or manufactured in the US or a

Designated Country.

 Substantially transformed into new and different articles of

commerce in the US or a Designated Country.

(19 U.S.C. § 2518(4).)

The substantial transformation test, applied on a totality of the

circumstances basis, most often assesses whether a “ﬁnal stage”

manufacturing or assembly process involving components originating

from multiple countries transforms these components into a new and

different product that differs from the underlying components in:

 Name.

 Character.

 Use.

(HQ No. 735315 (April 10, 1995).)

“Complex and meaningful” manufacturing processes tend to meet

the substantial transformation test, while “mere assembly” of

components does not effect a substantial transformation and the

underlying components retain their original COO. For example,

a partially assembled but non-functional laptop computer is

substantially transformed through addition of memory, hard-

drive, keyboard and software downloads. Conversely, assembly of

components of cut fabric for a laptop carrying case, entailing simple

combining operations, trimming and joining together by sewing,

does not involve sufﬁcient skill or complexity to effect a substantial

transformation.

It is important to understand that the COO of an end product’s

components is considered but is not dispositive for the substantial

transformation test. For example, electronic equipment built entirely

of Chinese components in the US could qualify as a US-made end

product if the manufacturing process performed in the US effected a

substantial transformation of the underlying Chinese components.

US Customs and Border Protection (CBP) has the legal authority

to interpret and apply the TAA’s COO test and rules by issuing ﬁnal

determinations and advisory rulings requested by interested parties

(19 C.F.R. Part 177, Subpart B). CBP issues administrative rulings

applying the TAA’s substantial transformation test to speciﬁc items

of commerce. A searchable database of these rulings is available at

the CBP website. CBP’s rulings interpret the TAA in speciﬁc factual

scenarios, sometimes in the context of US government procurements.

For example, CBP determined that multi-line Avaya telephone sets to

be offered to the US government under a government procurement

contract were substantially transformed in Mexico and were,

therefore, TAA-compliant Mexican end products (HQ 563236 (July

6, 2005)). When applying the TAA rules to a speciﬁc procurement,

administrative tribunals have accorded exceptional weight to CBP

rulings interpreting the TAA (see CompuAdd Corp. v. Dep’t of Air Force,

GSBCA Nos. 12021-P, 93-3 B.C.A. (CCH) ¶ 26123 (May 10, 1993)).

TAA TEST FOR COMPLIANCE: SERVICES

While government enforcement activity and bid protests involving the

TAA have focused almost exclusively on contracts to supply products,

the TAA (unlike the BAA) is expressly applicable to government

contracts for services. The TAA test for COO under services contracts

is where the contractor is established (48 C.F.R. § 25.402(a)(2)). The

term “established” is not deﬁned in the FAR, but has been recognized

by the GAO to mean the country where the contractor is either:

 Incorporated.

 Headquartered.

(Technosource Information Systems, LLC; True Tandem, LLC, B-405296,

et al., 2011 CPD ¶ 220.)

APPLICATION TO EVOLVING TECHNOLOGIES

As commercial products and services evolve over time, the available

guidance for determining the TAA COO of certain items can lag,

resulting in substantial ambiguity about the proper COO. Over the

past several years, guidance on the proper test for TAA COO has

become available for software and cloud computing, two evolving

and important areas of technology.

Buying American: Country of Origin Requirements in US Government Contracts

Software

Beginning in the early 1990s, CBP issued rulings stating that the

COO for software was established by the country where the “diskette”

containing the software was produced (HRL 732087 (February 7,

1990)). However, as commercial practices for delivering software

evolved over time away from diskettes to internet download and

software as a service (SaaS) models, there was resulting ambiguity

about the correct test to determine TAA COO for software. In 2012,

the CBP issued an advisory ruling applying traditional “substantial

transformation” analysis to software applications (HQ H192146 (June

8, 2012)). In particular, the programming of some source code in

non-Designated Countries (such as India or China) is permissible as

long as certain (further) key steps occur in the US or in a Designated

Country.

The ruling emphasizes the “software build,” which CBP deﬁnes as the

process of methodically converting source code ﬁles into standalone

lines, converting routines and subroutines of software object code

ﬁles into standalone lines, and converting routines and subroutines of

software object code that can be run by a computer. CBP found that

the software build is what gives the software a new name, character

and use, making the location of the software build paramount over

other steps in the software production process.

Cloud Computing

In 2011, the GSA issued a request for quotation subject to the TAA,

seeking proposals to provide cloud computing services. In response

to a pre-award bid protest by a potential bidder, the GAO clariﬁed

that the TAA COO for the solicited cloud computing services is

determined by the country where the bidder was “established”

regardless of where the contractor’s data center was located

(Technosource Information Systems).

For example, a US-based company providing the solicited services

using servers located in a data center in China would comply with the

TAA COO requirement. However, a US or Designated Country-based

contractor performance plan based on the use of a Chinese data

center could cause security concerns for the procuring agency, even

while meeting TAA COO requirements.

BAA AND TAA CERTIFICATES

For procurements covered by the BAA and TAA, contractors must

ﬁle certiﬁcates of compliance with the procuring agency. Subsection

(b) of the FAR BAA certiﬁcate requires the contractor to identify, by

proposed contract line item, all foreign end products included in its

offer. Subsection (b) of the FAR TAA certiﬁcate requires the contractor

to list all non-US and all non-Designated Country end products.

Many contractors misunderstand the mechanics for completing

the BAA and TAA certiﬁcates. They do not realize that by leaving

subsection (b) of the certiﬁcate blank they are representing that they

will supply exclusively domestic end products under the BAA, or

Designated Country or US-made end products under the TAA.

Government auditors and investigators have not considered

confusion about the mechanics of completing the BAA and TAA

certiﬁcates to excuse a contractor’s failure to comply with BAA and

TAA requirements in the resulting contract.

The US Court of Appeals for the Eighth Circuit’s decision in United

States v. Rule Industries, 878 F.2d, 535 (8th Cir. 1989) illustrates

the contractual requirements created when the contractor leaves

subsection (b) of a BAA certiﬁcate blank:

“In each of these contracts, Rule certiﬁed that the hacksaw

blades were ‘domestic end products’; the space for exceptions to

the Buy American Act was left blank. Thus, taking into account

the language of the ‘Buy American Act’ clause in the contract,

Rule certiﬁed that the hacksaw blades were manufactured

in the United States and that the cost of the hacksaw blades’

components (i.e., those articles, materials and supplies ‘directly

incorporated’ into the hacksaw blades) mined, produced or

manufactured in the United States exceeded 50 percent of the

cost of all of the hacksaw blades’ components.”

(878 F.2d 535, 536-537 (8th Cir. 1989).)

PENALTIES FOR NON-COMPLIANCE WITH COO

REQUIREMENTS

In the 1980s and 1990s, contractor non-compliance with COO

requirements mostly played out in bid protests, with competing

contractors accusing one another of failing to meet a particular

solicitation’s BAA or TAA requirements. For example, the General

Services Board of Contract Appeals sustained a protest where

the awardee of a contract to supply desktop computers to the Air

Force proposed computer monitors that were not “substantially

transformed” in a Designated Country (CompuAdd Corp. v. Dep’t of

Air Force, 1992 WL 442353 (G.S.B.C.A. December 23, 1992)).

COO issues are still raised in the bid protest process, although

seemingly with less frequency. For instance, the GAO overturned

a contract award where the awardee had declined to execute the

required TAA certiﬁcate promising to deliver only Designated Country

and US-made end products (Wyse Technology, Inc., B-29745, 2006

CPD ¶ 23 (January 24, 2006)).

However, over the past decade, contractor post-award non-

compliance with the COO requirements in their government

contracts has become the subject of regular government audits and

investigations, often implicating the False Claims Act (31 U.S.C. §§

3729-3733) and the potential for extraordinary damages. These cases

are commonly referred to as “product substitution” claims, where a

contractor promised to deliver products that comply with applicable

COO requirements but instead delivered non-compliant products.

For an overview of the False Claims Act and the issues counsel should

consider when defending a False Claims Act action, see Practice Note,

Understanding the False Claims Act (http://us.practicallaw.com/7-561-

1346).

The following is a selected list of payments made by contractors to

resolve allegations of post-award non-compliance with the COO

requirements in their contracts with the US government, published

by the Department of Justice:

In 2014, Ossur Americas, Inc. agreed to pay $500,000 to settle

allegations that it supplied the Army with hundreds of foreign-made

prosthetic, bracing and support products under contracts for which

the company had certiﬁed that it would supply only domestic end

products under the BAA.

Buying American: Country of Origin Requirements in US Government ContractsBuying American: Country of Origin Requirements in US Government Contracts

07-14

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In 2013, CDW-Government, LLC agreed to pay $5.66 million

to settle allegations that it improperly supplied IT and ofﬁce

products manufactured in China and other TAA non-Designated

Countries under contracts subject to the TAA. In 2012, ADC

Telecommunications, Inc. agreed to pay $1 million to settle

allegations that it supplied telecommunications goods manufactured

in TAA non-Designated Countries under contracts subject to the TAA.

In 2012, Cable Express Technology agreed to pay $2 million to

settle allegations that it supplied items from TAA non-Designated

Countries, including China, Taiwan, Indonesia, Malaysia and Thailand

under contracts subject to the TAA. In August 2009, the Civilian

Agency Acquisition Council and the Defense Acquisition Regulations

Council issued an interim rule amending the FAR to add Taiwan

to the list of Designated Countries. The alleged MAS contract

deliveries involving products from Taiwan presumably pre-dated this

amendment to the FAR.

In 2009, OfﬁceMax, Inc. agreed to pay $9.8 million to resolve

allegations that it supplied ofﬁce supply products manufactured

in TAA non-Designated Countries under contracts subject to the

TAA. Several other large ofﬁce products suppliers agreed to pay

substantial amounts to resolve similar allegations of non-compliance

with the TAA in connection with this same qui tam lawsuit and

associated government investigation.