Biden wants review of IT exemption in Buy American Act

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Commercial computer vendors may soon have to assess how much of their products are made in the United States if they want to continue doing business with the federal government.

On January 25, President Joe Biden signed an executive order strengthening the Buy American Act, which requires federal agencies to try to buy products that are at least partially made in the United States, computer products such as PCs, Software and servers — what the government calls commercial-off-the-shelf (COTS) products — have always been immune to the Buy American Act, but Biden’s EO could change that.

Part of the executive order directs its primary procurement authority, the Federal Acquisitions Regulatory Board (FAR), to review the commercial computing products exemption and make recommendations on whether and how to lift it.

If the IT exemption is lifted, IT vendors may have to transfer work that is currently being done overseas to the United States, which could increase the cost of some government-purchased IT products, experts say. But they also believe it could create jobs and alleviate some cybersecurity issues related to technology produced overseas.

Removal of IT exemption

Many US software developments take place overseas, which will create problems for some IT companies if Biden removes the IT exemption, said Peter Bendor-Samuel, founder and CEO of Everest Group, a research and outsourcing consultancy in Dallas.

“It’s not going to be an easy thing for the industry to adapt, because they’ve been moving those jobs over there consistently for quite some time,” Bendor-Samuel said.

Biden’s Buy American revisions could affect IT labor costs, Bendor-Samuel said. If some software development has to return to the United States, the cost of some work could double. The change will also increase demand for certain skills and could result in IT labor shortages for some critical skills by the middle of the year, he said.

On January 25, President Joe Biden signed an executive order calling for a review of computer product exemptions in the Buy American Act.

In the case of a non-exempt product, the United States examines how “domestic” it is to determine if it complies with the Buy American Act. The product undergoes what is called a component test, where each component is considered individually. The law requires that at least 55% of the product be national according to its component criterion.

If the Biden administration removes the commercial IT exemption, along with the component testing exemption for commercial items, then every item must pass the component test, said Brent Connor, senior counsel at Thompson Hine LLP.

Biden’s EO Buy American also changes the way domestic content is calculated, from an analysis of where each component is made to “the value added to the product through U.S.-based production or ’employment support economic activity in the United States’, according to the command. How the calculation change is applied will not be known until FAR completes its review.

If commercial computer products lose their exemption, the Buy American component test for domestic production may apply to hardware and software packages, which could be difficult to calculate in commercial software, Connor said.

In the case of a software product, “what constitutes manufacturing and where does it take place — does enough happen in the United States to constitute manufacturing in United States so that it is considered an American company [domestic] object?” Connor asked.

It’s not going to be easy for the industry to adapt because they’ve been moving these jobs over there regularly for quite some time.

Pierre Bendor-SamuelFounder and CEO, Everest Group

Angie Petty, principal research analyst at information software and services provider Deltek, said the Biden administration was trying to fill loopholes for companies supplying goods and services for federal government contracts.

Indeed, Biden’s order establishes a special White House “Made in America” ​​office within the Office of Management and Budget to review Buy American waiver requests, a process that hardware companies and companies with offshore manufacturing will have to follow if the IT exemption is lifted.

Buy US Waivers

According to Elizabeth Moeller, public policy attorney at New York-based Pillsbury Winthrop Shaw Pittman LLP, placing the Made in America office within the OMB will keep the federal Buy American requirement in the public eye.

If the exemption for commercial computer products is lifted, companies will have to go through an additional level of scrutiny to obtain waivers. Under the executive order, all waiver requests currently being reviewed by individual federal agencies would be routed through the Made in America office for final review. It also means that IT companies should be transparent about how their products are built and where their parts are made.

Besides the Biden administration, U.S. Sen. Chris Murphy (D-Conn.) will push for the passage of legislation to bolster U.S. Buy American policies. He said his bill, the 21st Century Buy American Act, will close loopholes in existing laws that exempt many products from the requirements of the law.

Murphy, who introduced his bill in 2015 and reintroduced it this year, cited an Economic Policy Institute study that said closing loopholes in the law will create 60,000 to 100,000 jobs.

Deltek’s Petty thinks there’s another big factor at play in the federal government’s hyper-focus on buying domestic computer products: cybersecurity.

Cybersecurity concerns prompt focus on IT products

The federal government is already keeping overseas IT procurement spending relatively low, depending on the number of contracts, Petty said.

In fiscal year 2020, the federal government’s total spending on IT contracts was $115 billion. Of that total, the amount spent on U.S. foreign-owned businesses, non-U.S. foreign-owned businesses, and foreign governments was $3.5 billion.

Petty said she thinks part of the motivation behind Biden’s Buy American EO may be to reduce cybersecurity risk in the United States and strengthen the domestic supply chain.

“What we’re seeing in the market is that the federal government is holding contractors accountable for protecting the IT cybersecurity supply chain, ensuring products are either domestically sourced, or that they can ensure the safety of those products or services,” Petty said. .

Potential for job creation called into question

Biden’s Buy American order is on the radars of some IT vendors, such as Epicor Software Corp., an ERP vendor in Austin, Texas.

“We’re just starting to learn about it ourselves,” said Lee An Schommer, senior vice president of global product management at Epicor. But she has a first glimpse of the order.

One positive aspect, Schommer said, is the ordinance’s requirement for greater transparency in government contracts, which can help small and medium-sized businesses compete for government jobs, she said. .

However, she questioned claims that overhauling the Buy American rules will create jobs.

“The belief that it’s going to suddenly create this rapid return of jobs, I think that may be overstated,” she said.

Companies are increasingly automating their processes due to a tight labor market, and the COVID-19 pandemic has accelerated those efforts, Schommer said.

Indeed, the pandemic is prompting companies to automate workflows and move more processes to the cloud to, in part, facilitate remote working. It also accelerates the adoption of technologies that facilitate social distancing, such as Microsoft HoloLens, a virtual reality/augmented reality headset that can be used for training and service work, she said.

Epicor uses a global team for software development, but the company also makes sure to have developers and business analysts close to its customer base, the majority of which are in the United States, Schommer said.

They can already meet any new government threshold on U.S.-based development, but if the order requires a change in location, that’s a pivot Epicor can do, she said.

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