Industry groups fear 'Buy America'

Congress is debating a provision intended to strengthen "Buy America" rules, which would require agencies to buy U.S.-made products.

Proponents argue that the Buy America provisions would ensure that the Defense Department is not dependent on any foreign supplies or suppliers, which could be cut off during a dispute. Furthermore, they argue it would boost struggling U.S. manufacturers.

Critics contend, however, that the measure could drive many computer vendors out of the government market.

The provision is part of the House version of the Defense Authorization bill. A conference committee is working to reconcile the House and Senate versions.

The provision would put more of a burden on companies to avoid foreign-made components, which can be difficult to do, said Joe Tasker, senior vice president for government affairs and general counsel at the Information Technology Association of America.

Under the provision, DOD officials must identify critical items in many military systems and determine whether they were made in America or a foreign country. Companies could face criminal fraud charges if they provide false information, said Louis Victorino, an attorney at Sheppard, Mullin, Richter and Hampton LLP in Washington, D.C.

Some fear that the provision is onerous enough that many companies would stop trying to sell to the government.

"Companies don't keep that kind of data because they don't have to in the commercial market," Tasker said. "Sometimes you can't even tell [where components come from]. The resistors on your circuit boards may come from Italy one week and Idaho the next week."

"There is very serious concern about this," said Mike Kush, an Army analyst at Cap Gemini Ernst and Young. "If you really enforce it, it could potentially bring almost every Army program to a screeching halt, at least temporarily as you do the analysis. It would be hard to find a program that doesn't have something in it built outside the [United States.]"

Victorino said the companies likely to be hardest hit, ironically, are those that DOD has been working to attract in recent years.

"There is a segment of U.S. industry that is simply not going to be willing to do that," he said.

"You have this whole movement in recognition by many in [DOD] that we have to start making government procurement more attractive to vendors," he said. "You have with this act something that cuts 180 degrees in the opposite direction. You have to have this accounting system. You may have to change where you make some of your products. I think some of [the companies] are going to say, 'To heck with you, we don't need the business that badly.'"

The Senate version of the Defense Authorization bill does not contain most of the Buy America language that the House version includes.

Another provision would raise the threshold of American-made components that systems must contain from 50 percent to 65 percent. Tasker said that measure won't affect much IT business.

"There's pretty much a consensus in the industry that commercial IT products don't meet the 50 percent test," he said. "We're already shut out by whatever Buy American act there is. Changing the percent from 50 to 65 doesn't hurt us more than we're already hurting."

The Professional Services Council, which also opposes the proposals, believes that the House has identified a real problem — a shrinking manufacturing base in America and more companies contracting manufacturing work overseas — said Alan Chvotkin, the group's senior vice president and counsel.

"They're using the procurement system to address other systemic problems," he said. "The loss of the manufacturing base is a problem. We should find a way to address it. More often than not, the procurement code is [Congress' chosen] tool, and it's a very blunt instrument."

Deputy Defense Secretary Paul Wolfowitz has offered compromise measures to lawmakers, and Victorino predicts that the final legislation will not have the 65 percent threshold.

Suggested changes that Tasker has seen are no more tenable than the existing legislation, he said. For example, one proposal was to rely on existing data sources to ascertain the origin of components in computers and other devices.

"I have some familiarity with existing data sources on this, and they don't exist," he said.

Like Chvotkin, Tasker is sympathetic to lawmakers' concerns. "I understand the point they're trying to make," he said. "They're saying we need to be self- sufficient in our defense procurement." However, "the manufacturing facilities are just not here anymore. As a practical matter that makes it almost impossible."

DOD officials aren't commenting until a final version of the bill is available, a department spokesman said.

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How to buy American

Chief changes of proposed Buy America legislation:

* The provision would require the Defense Department to buy only American-made products in many cases and raise the percentage of American-made components required to be used in products from 50 percent to 65 percent.

* It would prevent DOD from waiving Buy America provisions by invoking an existing trade agreement.

* It would require the department to identify the source, foreign or domestic, of critical items in military systems, and to report whether the contractor is American or foreign. DOD must provide a written explanation of any decision to have work done outside the United States.

* It would forbid the department from buying military systems or components if they were made in countries that restricted the sale of military goods or services to the United States as a result of U.S. policy toward Iraq in effect since Sept. 12, 2002.