Buy American or Pay the Price: What Federal Contractors Need to Know About the Tightening Domestic Content Regime

Key Takeaways

• Domestic content rules are tightening across federal procurement. Rising Buy American Act thresholds, expanded Build America, Buy America Act coverage, and stricter Trade Agreements Act enforcement are impacting supply chain compliance obligations in 2026 and beyond.
• Noncompliance now carries significant False Claims Act risk. Misrepresentations regarding country of origin, domestic content, or substantial transformation can trigger treble damages, penalties, contract termination, and whistleblower actions.
• Supply chain visibility and documentation are now mission-critical. Contractors must implement end-to-end origin tracking, supplier certifications, and audit-ready documentation to meet federal requirements and withstand agency scrutiny.
• 2029 threshold increases require immediate planning. Companies that delay restructuring sourcing strategies may face disqualification from federal contracts as domestic content thresholds rise to 75%.

Federal contractors face a rapidly tightening framework of domestic content and supply chain compliance obligations. The convergence of escalating Buy American Act (“BAA”) thresholds, the Build America, Buy America Act (“BABA”), and heightened Trade Agreements Act (“TAA”) enforcement creates serious risk of disqualification, contract termination, and — in the most serious cases — False Claims Act liability for contractors who fail to act.

This alert summarizes the key developments and provides practical guidance for your organization.

What Are the New Buy American Act (BAA) Domestic Content Requirements?

The Buy American Act (41 U.S.C. chapter 83) requires federal agencies to apply a price preference for domestic end products and domestic construction materials.

Key requirements include:

• Two-part domestic test: An end product must be (1) manufactured in the United States; and (2) meet an applicable domestic component cost threshold.
• Current threshold — 65%: The domestic content threshold is 65% for deliveries in 2024-2028, rising to 75% for deliveries from 2029 onward. These thresholds were established pursuant to Executive Orders 13881 and 14005 via a final FAR rule.
• Applicable clauses: FAR 52.225-1 governs civilian supply contracts; DFARS 252.225-7000 applies to DoD contractors.
• Iron and steel: Foreign iron and steel must constitute less than 5% of component costs, and all manufacturing processes — “from the initial melting stage through the application of coatings” — must occur in the U.S.
• Multi-year contracts: Contractors must comply with the threshold in effect at the year of delivery, not award. An agency’s senior procurement executive may authorize an alternate domestic content test locking in the award-year threshold, but this authority is not delegable.
• Price evaluation preferences: Contracting officers add 20% (large business) or 30% (small business) to foreign offers when evaluating against domestic bids; additional factors apply to “critical items.”
• Waivers: Limited exceptions exist for public interest, non-availability, and unreasonable cost; all waiver requests are published publicly at madeinamerica.gov.

How the Build America, Buy America Act (BABA) Expands Domestic Content Rules

BABA (enacted Nov. 15, 2021, Pub. L. 117-58; implemented at 2 CFR Part 184) applies to all federal financial assistance obligated for infrastructure projects after May 14, 2022 — covering not only direct contracts but also grants, loans, and cooperative agreements to state and local governments, universities, and nonprofits at every tier of the supply chain.

Key requirements include:

• Iron and steel: All manufacturing processes must occur in the S.
• Manufactured products: Must be produced in the U.S., with U.S.-origin component costs exceeding 55% (rising to 65% under recently updated standards).
• Construction materials: All manufacturing processes must occur in the U.S..
• FHWA rule change (Jan. 14, 2025): The FHWA terminated its longstanding general applicability waiver for manufactured products. Full BABA domestic content standards apply to projects obligated after October 1, 2026.
• Flow-down obligations: Prime recipients must flow the Buy America requirement to all sub-awards, subcontracts, and purchase orders at every tier and collect and maintain supplier certifications.
• Consequences of non-compliance: Funding clawbacks, project delays, audit findings, and False Claims Act liability for false certifications.

TAA Compliance and False Claims Act Risk: What Contractors Must Know

The TAA prohibits procurement of products from non-designated countries — including China, Russia, and India — for contracts above $183,000. Products must be wholly produced in, or substantially transformed in, the U.S. or a TAA-designated country into a new and different article of commerce.

Key enforcement points include:

• Substantial transformation pitfall: Mere assembly of imported components in a designated country — without a fundamental change in name, character, or use — does not qualify.
• GSA MAS applicability: The TAA applies to all GSA Schedule contracts; contractors must certify country of origin for each product offered.
• FCA exposure: False TAA certifications carry treble damages and civil penalties of $14,308-$28,619 per false claim.
• Prime contractor liability: Prime contractors bear full legal responsibility for the TAA compliance of all products delivered under their contracts, including those sourced from subcontractors.
• Whistleblower risk: Qui tam relators — including competitors and employees — are entitled to 15-30% of any government recovery.

GSA Supply Chain Security Rules and Emerging Prohibited Product Risks

Beyond the TAA, GSA has embedded supply chain security requirements into MAS contracts via clauses 52.240-90 and 52.240-91 (GSA Class Deviation RFO-2025-52), and conducts ongoing compliance screenings and supply chain illumination monitoring. Contractors must remain vigilant: new exclusion orders may require removal or replacement of prohibited items during contract performance, and order-level materials (“OLMs”) are not separately screened by GSA.

How Federal Contractors Should Prepare for 2026 Buy American Compliance

Federal contractors should take the following immediate steps:

• Conduct a supply chain audit. Map all components to their countries of origin, including lower-tier parts such as fasteners, printed circuit boards, and adhesives that can conceal hidden foreign content.
• Update supplier agreements. Require all-tier suppliers to certify TAA and BAA compliance, provide advance notice of manufacturing location changes, and grant audit rights. For BABA-covered infrastructure work, flow down required domestic content terms to all subcontracts and purchase orders.
• Build a documentation system. Maintain records of certificates of origin, substantial transformation analyses, supplier certifications, and any CBP rulings — these will be critical in any audit or investigation.
• Plan for the 2029 threshold increase. Assess now whether your supply chain can achieve the 75% domestic content threshold and begin developing compliant sourcing alternatives.
• Assess waiver eligibility proactively. Initiate waiver requests well in advance of award — BABA waivers can take up to 90 days to process.
• Train procurement and compliance staff on “domestic end product,” “substantial transformation,” and domestic content calculation standards, as well as the consequences of non-compliance.
• Engage counsel immediately upon receipt of any Civil Investigative Demand, OIG notification, subpoena, or indication of a qui tam filing.

Buy American Compliance Is Now an Enforcement Priority

The BAA’s 65% threshold is in effect now, the FHWA’s manufactured products waiver has been substantially curtailed, and TAA enforcement is intensifying through both criminal prosecution and FCA litigation.

For federal contractors and grant recipients, the time to audit supply chains, restructure sourcing, and fortify compliance programs is well before a contract is awarded or a bid is submitted. For assistance with these issues, please contact AGG Government Contracts leader Tenley Carp.

Frequently Asked Questions About Buy American Compliance