Domestic Content Requirement

Domestic content requirements are percentage thresholds embedded in federal statutes and regulations that determine whether a product qualifies as domestic for procurement purposes. Multiple distinct legal regimes impose these thresholds, and they differ in their percentages, calculation methods, and scope. Contractors must identify which regime applies to a given contract before certifying a product as domestic.

What is a Domestic Content Requirement?

Under the Buy American Act, implemented at FAR Part 25, a manufactured product qualifies as a domestic end product if it is manufactured in the United States and the cost of its domestic components exceeds 55% of the total cost of all components. The FAR Council raised this threshold from 50% to 55% through FAR Case 2021-011, effective January 2022, with further increases to 60% planned for 2024 and 65% planned for 2029, as required by the Biden administration's Made in America executive order. Contractors must apply the threshold in effect at the time of award, not the threshold in effect when they prepared their bid.

Under the Build America Buy America Act (BABA), which applies to federal financial assistance for infrastructure rather than direct federal procurement, manufactured products must be produced in the United States and meet the same 55% domestic content threshold by cost. The categories covered by BABA and the calculation methodology differ in certain respects from the Buy American Act, and OMB guidance governs the BABA calculation.

The Berry Amendment (10 U.S.C. 4862) imposes a stricter requirement on certain Department of Defense purchases: 100% domestic content is required for food, clothing, fabrics, fibers, yarns, hand tools, measuring tools, and stainless steel flatware. No percentage calculation is involved; the item must be grown or manufactured entirely in the United States.

Trade Agreements Act (TAA) exceptions complicate the picture further. When a contract is covered by the TAA, products from TAA-designated countries (WTO Government Procurement Agreement members, US free trade agreement partners, least-developed countries, and Caribbean Basin countries) are treated as domestic, bypassing the Buy American Act percentage test entirely. However, TAA designated-country treatment does not apply to the Berry Amendment or to BABA, which contain no equivalent exception.

The percentage thresholds are computed based on the cost of components, not the selling price or the value added by manufacturing. A component is domestic if it is manufactured in the United States, even if its raw materials originated abroad. Contractors must maintain records supporting their calculations.

Why it matters for contractors

A contractor that incorrectly certifies a product as meeting the domestic content threshold may be liable under the False Claims Act, which allows the government to recover treble damages plus penalties. The certification appears on the offer itself and is incorporated into the contract. If audited, the contractor must be able to produce cost records showing how the percentage was calculated.

Contractors working across contract types -- direct federal procurement and federally funded grants -- must track which legal regime applies to each contract and use the correct threshold and calculation method. Because the percentages are scheduled to increase under current policy, multi-year contracts awarded under one threshold may face a different threshold at option exercise.

Example

A manufacturer bids to supply electronic sensors to a US Army base under a contract subject to the Buy American Act. The sensors contain microcontrollers sourced from Taiwan, housings sourced from Mexico, and circuit assemblies manufactured in Ohio. The manufacturer calculates that the cost of domestically manufactured components (the Ohio circuit assemblies and domestic wiring) represents 58% of the total component cost by the FAR Part 25 methodology. The product clears the 55% threshold in effect at the time of award, and the manufacturer certifies it as a domestic end product on its offer. The manufacturer retains the cost records supporting this calculation in its contract files.