What “Buy American and Hire American” Executive Order Might Mean for IT Contractors

The Presidential Executive Order on Buy American and Hire American was issued on April 18, setting the “policy of the executive branch to buy American and hire American.”

Key Provisions

The order seeks to develop new policies to drive compliance with existing Buy American regulations and preferences for domestic sourcing, as well as strengthen immigration and H-1B visa programs to protect the interest of US workers.

Key elements of the EO include:

• Compliance Monitoring – within 150 days, agencies are required to begin assessing the monitoring, enforcing and complying with Buy American Laws and the use of waivers within their agencies by type and impact on domestic manufacturing. Further, agencies must propose policies to ensure that financial assistance awards and contracts maximize the use of American-produced products, components of manufactured products, and materials such as iron, steel, aluminum and concrete.  Agency heads must submit assessment findings to OMB and Commerce.
• Agency Guidance – Within 60 days, the Director of OMB and the Secretary of Commerce – working with the Secretaries of State and Labor, the U.S. Trade Representative (USTR), and the Federal Acquisition Regulatory Council – will issue guidance to agencies for how to assess and propose policies as described above.
• Trade Agreement Impacts – Within 150 days, the Secretary of Commerce and the U.S. Trade Representative must assess the impacts of all US trade agreements and the World Trade Organization Agreement on Government Procurement on the operation of Buy American Laws, including their impacts on the implementation of domestic procurement preferences.
• Strengthening Domestic Preference Policies – Within 220 days, the Secretary of Commerce – collaborating with the Secretary of State, OMB Director and USTR are to submit a final report to the President on their assessment findings and include recommendations for strengthening domestic preference policies.
• Annual Progress Reporting – Agencies must begin submitting annual reports on the implementation of Buy American Laws to the Secretary of Commerce and OMB, starting on November 15, 2018. The Commerce Secretary must submit annual report to President starting January 19, 2019.
• Waivers – Agency heads with authority over financial assistance and contract awards can grant "public interest waivers" if they determine that procuring a foreign-sourced good is in the best interest of the public.  The agency head must determine whether a "significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods" and include findings in the waiver determination.
• Immigration Fraud and Abuse Policies – Under the Hire American provisions, the EO directs Secretaries of State, Homeland Security, and Labor and the Attorney General at Justice to propose new rules and guidance to prevent immigration fraud and abuse. Those departments would also be asked to offer changes so that H-1B visas are awarded to the “most-skilled or highest-paid applicants.” 

Observations and Implications

Looking through the EO, there are no overtly IT-centric provisions named. The clear emphasis on raw materials, (steel, iron, concrete, etc.) will likely have a larger impact on physical infrastructure projects over IT. However, several aspects could have significant impacts to IT contracts and contractors as the provisions ripple through agencies.  Some IT contract implications may include:

• Rising Costs – Assuming that domestic component production or assembling of computing devices costs more than overseas options (which is one of the most common reason given for overseas production), it will be interesting to see whether agencies are willing to pay a premium for domestic products and how this will impact their overall IT strategies. It will also add pressure on margins and (possibly) labor rates with vendors as they seek to adjust to a morphing competitive landscape.
• Number of Firms in the Federal Market – For companies that do not currently have much in the way of domestic production/assembly capability it will be interesting to see which ones can sustain the spin-up costs of creating such a capability and sustain a long-range business model. It is conceivable that some firms may run the economic analysis and determine that they cannot compete and leave the federal market – either selectively or in-total.
• Scrutiny on Sub-Contractors – There has been significant emphasis in recent years by agencies wanting to gain greater visibility into a bidding team’s sub-contracting practices and performance as well as a prime vendor’s supply chain. The increased emphasis on domestic sourcing could propel additional efforts in this area.
• Supply and Schedule Impacts – Since domestic manufacturing capability and capacity is something that takes time to grow, it is conceivable that strong demand on limited domestic products could impact supply and therefore the schedules of federal procurements and programs. Albeit unlikely, the danger of this would be mitigated by controlling the speed and scope of how these rules are implemented.

In the end, the final impact to federal contractors will likely be determined by how quickly and uniformly these provisions are applied within each agency. While agency heads have the ability to grant waivers to these rules based on the “best interest of the public,” scrutiny of foreign-sourced IT – including software development services – has been on a steady rise for years in Congress and at the Department of Defense.

While this EO states economic growth as its motivation, it also cites national security, which means that the resulting policies that impact federal IT contracting could find additional support among cybersecurity and supply chain security advocates within agencies and in Congress.