(See also our Customs Fraud page)
Do You Know a Company Selling Foreign Products or Materials as American Made in a Government Contract?
Violations of the Buy American Laws Are Grounds for Whistleblower Awards under the False Claims Act
Since the Great Depression in 1933, Congress has required the Federal government to give preferences to American made products. Beginning that year, Congress passed the Buy American Act and continues to pass similar legislation today. These laws were passed to stimulate the American economy and preserve valuable manufacturing jobs in the United States.
When a government contractor or vendor substitutes foreign-made goods, there is a potential whistleblower claim under the False Claims Act. (Some foreign goods are dangerous or inferior too… more on that below.)
Even if the foreign made goods are of the same quality – often they are not – there is still a fraud on taxpayers if a contractor fails to use American products. Why? Because the vendor profited from its government contract yet the government was deprived of its ability to promote American manufacturing and job creation.
Buy American Act
As noted above, the first of these American preference laws was the Buy American Act passed in 1933. That law requires government to purchase American made “articles, materials and supplies.” There are exceptions to the law including the ability to grant waivers if a particular product is not produced in the United States or is prohibitively priced.
Subsequent treaties such as the North American Free Trade Agreement (NAFTA) also exempt certain goods from specified countries.
Buy America Act and Transport Project Whistleblower Claims
The Buy America Act was passed in 1983 and incorporated into the Surface Transportation Assistance Act. This law requires certain transportation projects to give preference to American made products.
Trade Agreements Act of 1979
The Trade Agreements Act modified the Buy American Act to allow the U.S. to provide preferences to certain countries that entered into trade agreements with us.
American Recovery and Reinvestment Act of 2009
Construction of public buildings or buildings built with public funds must use American steel, iron and other products. FAR 25.003 lists these countries. The list is updated regularly.
National Defense Authorization Act
Other laws that give preference to American made goods include the National Defense Authorization Act which says that certain arms and ammunition critical to our defense must be made in the U.S. In a time of war, Congress doesn’t want a foreign power to cut off weapons needed for our defense.
Berry Amendment on American Sourced Military Clothing & Food
A similar law called the Berry Amendment requires textiles (clothing) and food for the military be sourced within the United States.
“Little Buy American” Acts
There are many more such laws that give preference to American made goods. These laws include spending for local public works grants, disaster relief funds, water treatment facilities constructed with federal funds, and Indian health care facilities. Often these secondary laws are called the “Little Buy American” acts.
There are two bills introduced in Congress that would further strengthen the American made preference laws. Called the 21st Century Buy American Act and the American Jobs Matter Act, these laws would remove some of the loopholes that allow agencies to grant waivers.
Trump Buy America Executive Order
On April 18, 2017, President Donald Trump signed an executive order titled, “Buy American and Hire American.” That order was one of the first orders of his then new administration.
Under the order,
“It shall be the policy of the executive branch to buy American and hire American.
Buy American Laws. In order to promote economic and national security and to help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases, it shall be the policy of the executive branch to maximize, consistent with law, through terms and conditions of Federal financial assistance awards and Federal procurements, the use of goods, products, and materials produced in the United States.”
The term Buy American specifically refers to both the Buy America and Buy American acts.
Executive Order on Maximizing Use of AmericanMade Goods, Products, and Materials
The newest executive order, the Executive Order on Maximizing Use of AmericanMade Goods, Products, and Materials, was signed by President Trump on July 15, 2019. Experts say it is the most powerful of the three recent executive orders.
Currently, there is a structure in place for determining a product’s domestic status. There are also pricing preferences built into the existing law that are dependent on the percentages of foreign made components in a finished product. That structure will remain in place but the percentages are slated to change.
Under existing law, a product must have at least 50% U.S. components to be considered made in America. Under the executive order, that percentage will increase to 55%. For iron and steel used in steel end products, the percentage increases to 95%.
Currently there is a 6% penalty for foreign made goods. That penalty will increase to 20%.
Executive orders have great impact on federal agencies and their spending. Although government purchases often must comply with these Made in USA laws, the Executive Order not only reaffirms the need to adhere to the law, it also says that it is the policy of the government to purchase goods made here in the United States.
Buy American Agency Rules
Each of the five major transportation agencies have specific rules for how they interpret the various Buy American laws. We anticipate some changes to those rules in late 2017 or early 2018 as a result of the Trump Executive Order. Presently, those rules can be summarized as follows:
FAA – The FAA says product is “produced in the United States” if domestic content represents 60 percent of the overall cost or if final assembly takes place in the United States.
FTA (Federal Transit Administration) – Presently construction materials such as steel must be made primarily of U.S. steel or iron. “Primarily” is not defined. Rolling stock is set to increase yearly until 2020 when that stock must have 70% domestic content.
Federal Highway Administration – End product is produced in the United States if 100% of that product is “produced in the United States.” For steel and iron, that means melted and poured at a U.S. forge.
Federal Railroad Administration – 100 percent domestic content if contract has a value of $100,000 or more.
AMTRAK – Raw materials and manufactured goods must be sourced and produced in the United States. AMTRAK uses a value approach, that is the value of the domestic content must be 50% or more of the total cost.
Increased Enforcement of Buy America Rules
Laws and executive orders are meaningless without enforcement. The current administration has not only signed three executive orders strengthening the Made in America preferences, it has followed up with action. We have signed a marked increase in enforcement activity. And that is great news for both whistleblowers and American workers and businesses.
Safety Concerns with Imported Steel and Other Products
Despite the ability to obtain waivers for cause, some contractors cut corners and falsely certify that they have used American made products. These fraudsters bill taxpayers as if they were using higher quality and higher cost American made products yet substitute lower quality, cheap goods.
This is especially true with steel used in bridges and government buildings. There is a big price differential between American made steel and imports from certain countries such as China. When contractors lie about the origin of steel, safety concerns also arise.
The Bay Bridge (San Francisco – Oakland) project in San Francisco elected to use imported steel and is now plagued with safety concerns and billion dollar cost overruns as key structural components must now be replaced. Even though steel manufactured at one facility looks like steel produced from any other facility, there are large differences in quality.
The chemical composition of steel and how it was made and tempered varies widely. Every piece of industrial steel sold in the United States comes with a certificate of origin and composition. When a dishonest vendor or contractor forges or swaps these certificates, it is impossible to know the quality of the steel.
MahanyLaw’s Whistleblower Lawyers are Experienced in Buy America and Buy American False Claims Act Cases with Whistleblower Awards
Whistleblowers can report companies that violate Buy America rules to the Federal trade Commission (FTC) or if the goods are part of a government contract, to the contracting agency directly. That doesn’t earn you an award and according to a recent New York Times article, enforcement by the FTC is “weak.”
We can’t stop every violation of the Buy American rules but if the goods or products are being sold to the government or funded with tax dollars, we can. Steel used in government buildings and bridges, rail cars for passenger railroads, photocopiers sold to Uncle Sam… if the government buys it or pays for it, there is probably a False Claims Act violation. That means triple damages and a reward of up to 30% of whatever is collected from the wrongdoer.
The whistleblower lawyers at Mahany Law have years of experience in investigating and bringing False Claims Act cases involving foreign made products wrongfully substituted and sold as Made in America. Our legal team has helped our clients collect over $100,000,000.00 in award monies (whistleblower cash rewards) and has helped taxpayers recoup billions of dollars.