America's mixed sentiments about economic globalization are fully reflected in a complex set of rules that control the federal government's procurement of foreign products or services. The law with greatest relevance to Information Technology companies is the Trade Agreements Act (TAA). That's because the government has exempted itself from the overarching Buy American Act (BAA) when it comes to IT.
TAA allows the government to buy goods and services emanating from those designated countries that have signed a government procurement agreement guaranteeing US companies equal access to foreign government markets in exchange for access to the US government market via competitive government procurement systems like ours.
So in the end, it's all about trade—and as such, TAA cuts both ways. To give the US Trade Representative leverage to negotiate government procurement trade agreements, the US limits its purchase of items from non-designated countries, e.g., China, Malaysia, Thailand, to small amounts referred to as the TAA Threshold (generally $202,000 per transaction as of 2014). Procurements above the threshold are prohibited.
But when it comes to the government's most widely used contract vehicle, the General Services Administration (GSA) Multiple Award Schedule contract, the prohibition is absolute with each contractor solemnly certifying to abide by the TAA designated-country list for all items offered and awarded on a Schedule contract.
There are two main ways for a country to gain access to the government market under the TAA: sign a bilateral or regional free trade agreement with the United States, or join the World Trade Organization Agreement on Government Procurement (WTO GPA). The most common, mutually open government procurement trade relationship the United States has with other countries is negotiated via the WTO GPA, a club of countries that have agreed to liberalize international access to their government markets. The most recent signee of the WTO GPA is Taiwan, which joined in July 2009.
Countries with which the United States has a bilateral or regional free trade agreement are guaranteed access to each other's government procurement market, and the thresholds of their guaranteed access are often lower than the WTO GPA threshold. For example, the threshold for products from Canada is $25,000, while services is $79,507 (see FAR 25.402 for the complete list).
Strangely, there are a number of services excluded from the WTO GPA and from the guarantee of equal access in some free trade agreements.
The theoretical effect of exclusion of a service is to both abrogate the guarantee of foreign company access and lift the prohibition against companies from nondesignated countries for certain services. At first look, this seems somewhat bizarre, since many services are those the government would rather not have, for example, a Chinese firm perform – such as providing telecommunications network services.
What's happening with these services is a simple paradox. The government opens wide the theoretical aperture restricting participation by companies from certain countries in order to more tightly snap it shut later on.
Removing the prohibition on companies from nondesignated countries from bidding on an exempted service also nullifies the guarantee that designated-country companies will be treated equally to domestic companies in the procurement process. Thus the government can ensure that only US companies qualify to propose, without running afoul of the TAA. In government, it's often opposite day, where in order to go up, one starts going down until down becomes up.
As mentioned at the outset of this article, GSA schedule contractors certify to abide by the TAA designated-country list for all items offered, awarded and delivered, even if individual orders fall below the WTO GPA threshold. GSA's position is that the collective value of orders placed pursuant to the contract count toward the TAA threshold. Other indefinite delivery contracts interpret the threshold as applying to each order separately. But regardless, the government always asks for country of origin certification and misrepresentation can lead to charges of fraud.
In 2005 a few big office-supply companies were hit with successful multimillion-dollar False Claims Act lawsuits for selling products from non-designated countries. Since then, more than dozen such complaints have been filed against IT schedule contractors. Certifications in government contracting are stern stuff.
The preceding information was adapted and digested from the book “The Inside Guide to the Federal IT Market,” published by Management Concepts Press. For more information, visit www.insideguidetofederalit.com/.
BIO Steve Charles is co-founder and executive vice president of immixGroup, which helps technology companies do business with the government. He is a frequent speaker and lecturer on technology and the federal procurement process. He can be reached at Steve_Charles@immixGroup.com.