Pricing a domestic offer against a foreign one

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1. When cost reasonableness comes up

One of the exceptions to the Buy American statute for supplies is unreasonable cost: the contracting officer may decide that the cost of a domestic end product would be unreasonable (FAR 25.103(c)). The Federal Acquisition Regulation (FAR) decides that question in section 25.106 and subpart 25.5. The test applies when there is a domestic offer that is not the low offer and the restrictions of the statute apply to the low offer (FAR 25.106(b)(1)(i)).

The contracting officer must use the evaluation factors in FAR 25.106, unless the head of the agency decides in writing that higher factors are more appropriate (FAR 25.106(a)(1)). If that decision applies to all of the agency’s acquisitions, the agency’s factors must be published in its regulations. The contracting officer must not apply evaluation factors to offers of eligible products if the acquisition is subject to a trade agreement under FAR subpart 25.4 (FAR 25.106(a)(2)).

2. The 20 and 30 percent factors

For end products that are not critical items and do not contain critical components, the contracting officer adds a factor to the price of the low offer, inclusive of duty (FAR 25.106(b)(1)(i)). The factor is 20 percent if the lowest domestic offer is from a large business concern. It is 30 percent if the lowest domestic offer is from a small business concern.

The contracting officer must use the 30 percent factor, or another factor set in agency regulations, in small business set-asides (FAR 25.106(b)(1)(i)(B)). That applies where the low offer is from a small business concern offering a small business product that is not a domestic end product. The price of the domestic offer is reasonable if it does not exceed the evaluated price of the low offer after the factor is added (FAR 25.106(b)(1)(ii)). Evaluation procedures are in FAR subpart 25.5.

3. The 55 percent fallback

A second step applies to end products that are not COTS items and do not consist wholly or predominantly of iron or steel (FAR 25.106(b)(2)(i)). It applies if the first step finds the domestic offer’s cost unreasonable, or no domestic offer is received, and the low offer is a foreign end product that does not exceed 55 percent domestic content. The contracting officer then treats the lowest offer of a foreign end product that is made in the United States and exceeds 55 percent domestic content as a domestic offer. The contracting officer judges that offer’s cost by applying the same evaluation factors to the low offer.

The price of that foreign end product offer is reasonable if it does not exceed the evaluated price of the low offer after the factor is added (FAR 25.106(b)(2)(ii)). These procedures no longer apply as of 1 January 2030 (FAR 25.106(b)(2)(iii)). The same date appears in the nonavailability rules, where a determination is not required before 2030 if an offer for a foreign end product exceeds 55 percent domestic content (FAR 25.103(b)(2)(i)).

4. Critical items and critical components

FAR 25.105 holds the list of articles determined to be critical components or critical items, with their preference factors (FAR 25.105(a)). In the current text the list paragraphs are reserved, so no articles are listed. The FAR 25.105 list is to appear in the Federal Register for comment at least once every four years (FAR 25.105(b)). Unsolicited recommendations for deletions may be submitted at any time and should provide data and rationale sufficient for evaluation. The list is used in determining reasonableness of cost for end products that contain critical components or are critical items (FAR 25.105(c)).

For those end products, the factors in the first step are increased (FAR 25.106(c)(1)(i)). The contracting officer adds 20 percent for a large business or 30 percent for a small business, plus the additional preference factor listed for the critical item or component. The small business set-aside rule applies in the same way. The domestic offer’s price is reasonable if it does not exceed the evaluated price of the low offer after the factor is added (FAR 25.106(c)(1)(ii)).

The 55 percent fallback also has a version for critical items (FAR 25.106(c)(2)(i)). It works like the general version but uses the increased factors in paragraph (c)(1). It also stops applying as of 1 January 2030 (FAR 25.106(c)(2)(iii)).

5. Rising thresholds across a contract

The domestic content threshold rises from 60 percent to 65 percent for items delivered in 2024 through 2028, and to 75 percent from 2029 (FAR 25.101(a)(2)(i)). A contract whose performance spans those increases must comply with each increased threshold for the items in their year of delivery (FAR 25.101(d)(1)). The exception is where the agency’s senior procurement executive allows an alternate domestic content test for that contract.

Under the alternate test, the threshold in effect at contract award applies for the whole period of performance (FAR 25.101(d)(1)). That authority cannot be delegated. The senior procurement executive must consult the Made in America Office of the Office of Management and Budget before allowing the alternate test. When the alternate test is allowed, the contract uses the appropriate alternate clause to show the threshold that will apply throughout (FAR 25.101(d)(2)(i)). Simplified acquisitions using FAR 52.213-4 use a fill-in in that clause instead (FAR 25.101(d)(2)(ii)).

6. What the factor does not do

The FAR limits what the evaluation factor is for. The unreasonable cost exception works through an evaluation factor applied to low foreign offers that are not eligible offers (FAR 25.101(c)). The factor is not used to give one foreign offer a preference over another. Where a trade agreement covers the acquisition, offers of eligible products are not given evaluation factors (FAR 25.106(a)(2)). The domestic content test itself is covered in what makes an end product domestic.

Key terms

Evaluation factor	A percentage added to the low foreign offer to test the domestic offer’s price.
20 and 30 percent	The factors where the lowest domestic offer is from a large or a small business.
55 percent fallback	Treating a United States-made offer above 55 percent domestic content as domestic, until 2030.
Critical item	An item the FAR 25.105 list would name, with an added preference factor; the list is currently reserved.
Alternate content test	Fixing the award-date threshold for a whole contract, with senior procurement executive approval.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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