Federal Government Contracting: What to Expect Under Second Trump Administration
Federal Government Contracting: What to Expect Under Second Trump Administration
After President Donald Trump’s inauguration yesterday, questions regarding changes in key policies affecting federal government contracting come to mind. Namely, which policies will continue as they were under President Biden’s administration, and which policies originally implemented under President Trump but later reversed might see a return? With the newly elected President wasting no time to sign executive orders, the changes addressed below are likely imminent. While the below are only predictions, a break between the two Trump administrations provides a rare opportunity to foreshadow what’s to come during the “golden age of America”.
Policies that likely will not change under the new administration? The Buy American Act and Build America, Buy America (BABA) Act. First, the Buy American Act, which requires Federal agencies to procure domestic materials and products, has broad support across the aisle. Two conditions must be present for the Buy American Act to apply: (1) The procurement must be intended for public use within the United States; and (2) The items to be procured or the materials from which they are manufactured must be present in the United States in sufficient and reasonably available commercial quantities of a satisfactory quality. This bipartisan act dealing with domestic preferences has been emphasized and supported by both President Biden and President Trump. During his first administration, President Trump issued several executive orders bolstering the Buy American Act and President Biden continued to support the Buy American Act throughout his administration as well, directly contributing to Congress passing the BABA Act.
Second, the BABA Act, enacted as part of the Infrastructure Investment and Jobs Act, requires that any infrastructure project in the United States receiving federal funding must source iron, steel, manufactured products, and construction materials from the United States. Based on President Trump’s first administration, it is safe to say that the Buy American Act and the BABA Act are not going anywhere and, if anything, will get additional support and attention from the President. Contractors can also start preparing for new thresholds for what qualifies as a domestic end product. A domestic end product is currently defined as an unmanufactured end product mined or produced in the United States or an end product manufactured in the United States if the cost of its domestic (or qualifying country) components exceeds 50 percent of the cost of all its components. The 50% threshold was later raised to 60% in 2023, 65% in 2024, and will reach 75% by 2029. The advance notice that the threshold will rise to 75% within four years gives defense contractors a significant advantage, allowing them to plan compliance strategies before the new requirement takes effect.
As many may recall, Buy American waivers were not readily or easily obtained during President Trump’s first administration. Pursuant to the BABA Act, a federal agency may issue a waiver if it finds any of the following conditions are met: (1) Applying the BABA preference would be inconsistent with the public interest; (2) Types of iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality; or (3) The inclusion of iron, steel, manufactured products, or construction materials produced in the United States will increase the cost of the overall project by more than 25 percent. There is no indication that this is going to change anytime soon; in fact, it will likely be more difficult to obtain approved exemptions from either Act. Waiver requests will likely continue to have the same stringent, if not more stringent, requirements and applications (i.e., must be timely, submitted in writing, and with sufficient information) and will continue to be open for public comments.
Policies that will return under the new administration? Tariffs. Under the Buy American Act, components of end products that are sold to the federal government can be subject to tariffs. Tariffs currently in place under the Biden administration will almost certainly be increased significantly under the upcoming administration. During his inaugural address, President Trump pledged to create an “External Revenue Service” to levy tariffs against other countries’ goods. Additionally, during his first administration, President Trump used tariffs as both negotiating tactics and as responses in dealing with actions by other countries. He will likely continue this practice. Although most tariffs have to be issued by Congress, under certain circumstances (i.e., national security), presidents can issue tariffs unilaterally.
Now that President Trump has signaled the likelihood of higher tariffs on steel, aluminum, and on Chinese imports, what does that mean for government contracts? For fixed price contracts, there are still some avenues for relief. Federal Acquisition Regulation (FAR) clauses 52.229-3 and 52.229-4 (commonly known as the federal, state and local taxes clause) should allow relief for “after imposed taxes” (i.e., taxes coming into effect after the contract was awarded). Note, timing is important here. This relief is only for contracts awarded before the new taxes go into effect. Contractors currently proposing or bidding on federal contracts might not be able to recover under these clauses since the tariffs may go into effect on the first day of President Trump’s administration.
An additional limitation to these clauses is that there is no recovery for higher domestic prices. In other words, the clause covers duties imposed on foreign goods, but if tariffs on foreign goods result in increases in market prices for U.S. products and materials, then the higher cost of the domestic items cannot be recovered.
For cost reimbursement contracts, contractors are typically able to recover the higher costs as long as it stays within the cost ceiling or the funded amount. However, it is important to make sure that these contracts have the appropriate economic price adjustments clauses to mitigate these risks. Either way, contractors should be on the lookout for changes to come as the new administration gears up to take office.
Lastly, don’t forget about public-private partnerships (commonly referred to as “P3s”), as they will likely make a resurgence. During his first administration, President Trump made sure that any infrastructure bill that he was going to back had to include special emphasis on private-sector contributions. There is no indication that this preference for funding projects will change during the upcoming administration. P3s will continue to be incentivized as part of President Trump’s broader infrastructure plans, especially given his campaign promises to reduce government spending.
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