products. A 12-percent penalty applies if the competing vendor is a small business. Defense agencies add a 50-percent penalty to the foreign offer.
The Buy American Act now only applies to procurements under roughly $175,000. The Trade Agreements Act, passed in 1979, applies to anything over that amount. The Trade Agreements Act requires federal agencies to treat the products of countries that have signed the Government Procurement Code a multilateral agreement under the General Agreement on Tariffs and Trade as favorably as American-made products, Mohr says. The act prohibits the purchase of products made in countries that have not signed the GPC.
Mohr says there is no fine for misrepresenting Trade Agreement Acts compliance, but the GSA can terminate contracts, and not allow companies to do business with the federal government for at least three years.
Distributors selling to the U.S. Government need to be well-versed in the Buy American Act and the Trade Agreements Act. Recently, a group of office product suppliers settled a claim for millions of dollars accusing them of not disclosing they were selling products made in China, Taiwan and Thailand to federal agencies. Here are the key issues and what to watch for.
In the past year, the government has stepped up its enforcement of the Buy American Act and the Trade Agreements Act, which lay down rules on the types of products that can be offered for sale to the government through the General Services Administration (GSA).
This means that companies must certify to the government that the products they are offering were manufactured stateside or made in countries that have free trade agreements with the U.S. For example, China, India and Taiwan are not on the list of acceptable countries; England, Australia and Japan are.
Just this month, Corporate Express, Broomfield, CO, paid the U.S. $5.02 million to settle allegations it lied about country of origin when it sold office products to the government that were manufactured in China, Taiwan and Thailand.
Last year, under the same claim, the Department of Justice reached a $9.8 million settlement with Office Max Inc.; a $4.75 million settlement with Office Depot Inc., Savage, MD; a $7.4 million settlement with Staples Contract and Commercial Inc., Hackensack, NJ; and a $100,000 settlement with Caddo Design and Office Products, Denver.
Other vendors listed on the lawsuit include Total Business Inc., Boise Cascade Office Products, Future Solutions Inc., Office Pro, KM2 Inc., and Merchandise Distributors.
When the office products distributors contracted with the federal government to sell via the GSA Website, www.gsaadvantage.gov, they had to certify their goods were in compliance with the Buy American Act and the Trade Agreements Act.
This is the main way the government checks whether its vendors are complying with the law. If a vendor lied about the origin of its products, it can be held liable under the False Claims Act, or could lose its contract with the government.
Attorney Andrew Mohr, of CohenMohr LLC,Washington, D.C., says competitors or disgruntled former employees often bring noncompliance to the government’s attention. That was the case in the recent office products supply case; Safina Office Products, Houston, TX, brought a claim against its competitors under the whistleblower provision of the False Claims Act.
Safina’s vice president for business operations, Edward Wilder, and its president Robert Hsi Chou Lee are also listed on the claim. (Safina, Wilder and Lee together will receive about $753,000 of the total recovery as their statutory award under the whistleblower provisions.)
Safina claims that since October 2002, more than 500 office products for sale on the GSA Web site were end products from China, Taiwan and Thailand. Examples provided in court documents included a magnetic clip dispenser from China, paper clips from Taiwan and rubber bands from Thailand. Safina said the defendants offered the products for sale knowing they were from unapproved countries.
Under the False Claims Act, the penalty is $10,000 per occurrence, which can be tripled. In this case, the office supply companies would have had to pay that much per sale of an item if they were found guilty.
The Buy American Act was passed during the Great Depression in 1933 to encourage procurement of American-made products over foreign goods. It requires products be manufactured in the U.S. and comprised of at least 50 percent American-made components.
The law does not prohibit buying foreign products; it only discourages it by adding an evaluation penalty of 6 percent to the foreign-made