Trade Agreements Act Certifications Undergo New Scrutiny

GAO's recent protest decision in HPI Federal, LLC, B-422583, Aug. 9, 2024, 2024 WL 3823852, highlights the importance of making clear and precise Trade Agreements Act (TAA) compliance certifications when offering products for sale to the U.S. Government.

• On the one hand, GAO found that it was unreasonable for an agency to accept an offeror's certification that certain of its products were "assembled in" a TAA-compliant country as evidence of the product's TAA compliance. GAO reasoned that the referenced assembly - which was not described in the proposal - may not satisfy the TAA's requirement for "substantial transformation" in that country.
• In contrast, GAO found that it was reasonable for the agency to accept the same offeror's certification that other products had a TAA-compliant "country of origin".

As these contrasting examples show, offerors should take care to ensure that their certifications are adequate to establish TAA compliance. A certification falling short of that standard could place an award at risk, and could even render an offeror ineligible for award.

Procurement and TAA Background

The procurement at issue was for the Department of the Air Force to acquire certain Information Technology (IT) products under pre-existing General Service Administration (GSA) Federal Supply Schedule (FSS) contracts. The Air Force issued Blanket Purchase Agreements (BPAs) to a subset of FSS contractors under the Air Force's Client Computing Solutions III (CCS-3) enterprise program. Such FSS contracts and BPAs are subject to the TAA, and the particular Air Force request for quotations (RFQ) at issue required offerors to confirm that their offered end products were TAA-compliant and additionally confirm the country of origin of certain component items of end products.

The TAA statutory country of origin rule states that a product is an end product of a country only if it is (1) wholly manufactured in that country, or (2) "substantially transformed" into a new and different article of commerce, with a name, character, or use distinct from the article(s) from which it was so transformed. 19 U.S.C. § 2518(4)(B). Because it is rare for an end product to be wholly manufactured in one country, the country of origin analysis usually hinges on the substantial transformation prong of the country of origin rule. As stated in HPI Federal, determining whether substantial transformation occurred in a particular country requires a factually detailed, case-by-case analysis, which typically considers "the extent of the assembly operations, whether the parts lose their identity and become an integral part of the new article, or whether the assembly operations are complex or meaningful, rather than minimal or simple, and consequently whether substantial transformation occurs through the assembly process."[1]

The substantial transformation standard is implemented in federal government contracts under the Federal Acquisition Regulation ("FAR") and Defense Federal Acquisition Regulation Supplement ("DFARS") Trade Agreements clauses. See FAR 52.225-5; see also DFARS 252.225-7021. Under the DFARS clause applicable in HPI Federal, a contractor must only deliver U.S.-made, qualifying country, or designated country end products unless certain limited exceptions apply (none of which were at issue in HPI Federal).[2] DFARS 252.225-7021(c). Offerors are required to provide certifications with respect to the country of origin of their products as part of their offers in response to an RFQ or other federal funding opportunity. See DFARS 252.225-7020; see also FAR 52.225-6.

Variation in TAA-Compliance Certifications Created Protest Risk

The core issue of HPI Federal was whether it was reasonable for the Air Force to accept the awardee's statement that its computer monitors were "assembled [in] Mexico, a TAA compliant country" as the basis for its TAA-compliance certification. GAO found it was unreasonable for the Air Force to do so without any additional information regarding the complexity of the assembly taking place in Mexico, because "assembly alone may not constitute substantial transformation."[3] Although GAO allowed for the possibility that such assembly could be sufficiently complex for the monitor's country of origin to be Mexico, and therefore a TAA-compliant country, the offeror did not provide any additional information regarding the product's assembly. GAO specifically noted that the offer did not "list the components of the monitors or describe what assembly operations occur in Mexico."[4] GAO opined that prior U.S. Customs and Border Protection ("CBP") rulings addressing substantial transformation, which are often relied upon for guidance on the interpretation of the substantial transformation standard,[5] "depended upon a fulsome recitation of facts regarding the nature of the components and the assembly process."[6] Without any such manufacturing facts, GAO found it was unreasonable for the Air Force to accept the offeror's TAA certification.

In contrast, GAO found it reasonable for the Air Force to accept, without more, the awardee's identification of a docking station's "country of origin" as a designated country under the TAA, and therefore, determine the offered product was TAA-compliant. GAO found there was nothing on the face of the offeror's quotation to reasonably indicate that TAA-compliant docking stations would not be delivered. Because the agency did not have reason to believe that the offeror would provide a docking station that was not TAA-compliant, it was reasonable to accept the awardee's certification.

Key Takeaways

GAO observed a material difference between the offeror's certification that the docking station's country of origin was a designated country, as opposed to the mere assertion that the monitor was assembled in a designated country. Given the case-by-case analysis of the substantial transformation standard, HPI Federal indicates that agencies may not reasonably rely on certifications related to manufacturing or assembly alone, where such certifications fall short of establishing that a product is TAA-compliant. Offerors should therefore carefully review the language of their certifications. Offerors should also, of course, take care to assess the source of their products' components and the complexity of resulting product assembly prior to making TAA certifications with respect to offered products.

[1]HPI Fed., LLC, 2024 WL 3823852 at *5.

[2] The RFQ was issued by the Air Force, therefore, offerors were subject to the DFARS version of the Trade Agreements clause, which includes its own term of art for a "qualifying country" addressing defense procurement agreements generally. The same exceptions are not available under the FAR as under the DFARS, e.g., a national interest waiver. Otherwise, the underlying substantial transformation analysis applies across both clauses.

[3] 2024 WL 3823852 at *4 (citations omitted).

[4]Id. at *5.

[5] Although CBP does not have authority to opine on whether the product at issue is a U.S.-made end product for purposes of federal procurement because the FAR and DFARS clauses differ from the TAA statute, CBP does have authority to interpret the TAA statute. SeeAcetris Health, LLC v. United States, 949 F.3d 719, 730-31 (2020). Therefore, where the statute and FAR and DFARS clause text align, e.g., with respect to the substantial transformation standard, procuring agencies still rely on CBP rulings to determine the extent to which a particular product may have been substantially transformed in a particular country.

[6] 2024 WL 3823852 at *5 (discussing CBP Headquarters Ruling Letter (HRL) 562385 (May 14, 2002); CBP HRL 560427 (Aug. 21, 1997); CBP HRL 734966 (Oct. 18, 1993); CPB HRL 734213 (Feb. 20, 1992); CPB HRL 734097 (Nov. 25, 1991)).

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