This analysis covers FAR Subpart 25.5, which prescribes the specific procedures and mathematical applications for evaluating foreign offers in supply contracts to ensure compliance with the Buy American statute and various trade agreements.
Overview
Subpart 25.5 provides Contracting Officers with a standardized framework for applying price evaluation factors to foreign end products when they compete against domestic or eligible products. It establishes a hierarchy of evaluation—moving from basic price ranking to the application of specific percentage penalties (20% or 30%) intended to provide a preference for domestic manufacturing.
Key Rules
- Order of Operations: The Contracting Officer must first eliminate all offers that are unacceptable for non-price reasons (e.g., debarred, non-responsive, or prohibited sources under Subpart 25.7) before ranking the remainder by price.
- Line Item vs. Group Evaluation: Evaluation is performed on a line-item basis unless the solicitation specifically allows for a "group" or "all-or-none" award.
- The Buy American Factor: When a foreign offer (non-eligible) competes against a domestic offer, the CO applies an evaluation factor to the foreign offer—typically 20% for large business domestic offers or 30% if the lowest domestic offer is from a small business.
- Trade Agreement Primacy: For acquisitions covered by the WTO GPA (World Trade Organization Government Procurement Agreement), the CO generally considers only U.S.-made or designated country end products. If trade agreements apply, the CO cannot use Buy American factors to favor one foreign offer over another foreign offer.
- Domestic Content Thresholds: For group awards, a group is evaluated as "domestic" if the price of the domestic end products exceeds 50% of the total group price.
- Tie-Breaking: If the application of evaluation factors results in a tie between a domestic and foreign offer, the domestic offer must be selected.
Responsibilities
- Contracting Officers (CO):
- Must apply evaluation procedures to each line item or authorized group.
- Must identify and reject prohibited end products (e.g., those from sanctioned countries).
- Are permitted to rely on the offeror’s certification of end product origin unless there is a reason to question it.
- Must ensure that trade agreement rules are not used to discriminate between two different foreign offers.
- Must perform and document "nonavailability determinations" if no domestic or eligible offers are received.
- Offerors:
- Responsible for accurately certifying the origin of their products (Domestic, Eligible Foreign, or Non-Eligible Foreign).
- Must specify if their offer is on an "all-or-none" basis, which triggers specific group evaluation math.
Practical Implications
- The "Price Cushion" for Domestic Firms: In practice, a domestic firm can be significantly more expensive than a foreign competitor and still win the contract. For example, if a small business domestic offer is $100,000, a foreign non-eligible offer must be lower than approximately $76,923 (after the 30% factor is applied) to be considered the low offer.
- Strategic Grouping: Offerors who provide a mix of domestic and foreign goods can benefit from "Group Evaluation" rules. If they can ensure more than 50% of the group's value is domestic, the entire package is treated as a domestic offer, potentially shielding their foreign components from the 20-30% price penalty.
- Small Business Foreign Offers: A critical nuance in 25.502(d)(3) and 25.504-1 is that a small business offering a manufactured article that is not a domestic end product is treated as a foreign offer. Small businesses cannot rely on their size status alone to bypass Buy American requirements.
- Complexity in Multi-Item Bids: As seen in the examples in 25.504-4, evaluating "all-or-none" bids against line-item bids requires a "tentative award pattern" calculation. This creates a high administrative burden on the CO to prove that a group award is actually in the government's best interest compared to multiple individual awards.