NATIONWIDE: An Introduction to US Government Contracts Practice Nationwide
The outlook for public procurement in the United States changed significantly with the election of President Donald J Trump. In a shift from last year's more mixed outlook, President Trump's promises to increase defense spending and pass a massive infrastructure bill, combined with his highly engaged management style and pledges to "Buy American," have made US procurement markets more promising though, potentially, with more legal risk.
Defense and Cybersecurity in the Trump Administration
While the Trump administration had yet to deliver its first budget as of the time of this writing, President Trump has made plain that he intends to expand the Defense Department's budget. The Trump administration argues that the United States "cannot allow other nations to surpass our military capability," and has said that it will "pursue the highest level of military readiness." The new administration moved to meet those goals with an executive order issued on January 27, 2017, which called upon the Defense Department to undertake an immediate, and intensive, review of the Department's military needs.
How much defense spending will increase will turn, in part, on existing budget constraints. Under a prior legislative compromise, increases in defense spending are subject to budget caps, and there may be Congressional opposition to spending hikes that exceed those caps. The areas that may receive increased defense funding will likely be a source of consideration over strategic direction. The President has expressed wishes for more Naval ships, more troops, and more funding for nuclear weapons, but as of now details have yet to be presented.
Despite these potential budget battles, it is likely that the federal government will shift resources and attention to enhanced cybersecurity. A series of highly publicized "hacks" during the election prompted President Trump to meet with cybersecurity experts on January 31, 2017, as part of a broader effort to improve cybersecurity.
There may be an unforeseen obstacle to enhanced cybersecurity, however. Although effective cybersecurity in the federal government often depends on tightening rules, the Trump administration has tried in general to stem the growth of federal regulations. On January 30, 2017, President Trump issued an executive order directing that for every new regulation issued at least two prior regulations must be eliminated, and that the costs of planned regulations must be controlled. The order did not explicitly exempt cybersecurity, and in cybersecurity (as elsewhere) regulators may find it difficult to strengthen the regulatory regime without running afoul of White House opposition to new and expensive regulations.
The Trump White House has promised infrastructure legislation potentially worth hundreds of billions of dollars, and polls show very strong popular support for increased federal spending for roads, mass transit and other infrastructure. Federal infrastructure spending is often done through grants to states and other public and non-profit entities, which can add a layer of legal complexity – federal, state and local grant rules – to the spending process. In his first address to Congress, President Trump indicated that he would also look to private capital sources as part of the promised infrastructure spending boost, perhaps suggesting efforts to boost reliance on public-private partnerships.
Infrastructure legislation passed in the Trump administration also is likely to reflect the administration's strong commitment to "Buy American," discussed below. If the Trump administration follows the model of the American Recovery and Reinvestment Act (the fiscal stimulus which passed in 2009, at the beginning of the Obama administration), then the Trump administration's infrastructure bill may include a provision calling for the use of US iron, steel and manufactured goods in projects funded by the legislation. Experience under the 2009 legislation showed that the domestic preference was complicated to apply, and often slowed procurements under the Recovery Act.
"Buy American" in the Trump Administration
Two cornerstone promises of the Trump campaign, which President Trump repeated during his inaugural address, were to "Hire American" and "Buy American." These commitments are likely to carry into new domestic preferences in the $500 billion federal procurement market. As discussed above, an infrastructure bill may include a domestic preference provision; after a recent executive order calling for a study on using exclusively US steel on private pipelines, some have asked whether federal grant rules might be rewritten to impose domestic preferences. The open question is how more vigorous "Buy American" policies might apply to other areas of procurement. Pressure for more reliance on waivers from these requirements may grow given increased reliance by US firms on global sourcing strategies.
As a start, one can anticipate what may not be affected by new domestic preferences: transborder procurement in defense materiel which is covered by existing reciprocal defense procurement agreements between the United States and its allies. Under those agreements, the US Defense Department and its counterpart ministries of defense agree not to discriminate when purchasing defense materiel from their counterparts' vendors. These agreements, which can cover billions of dollars in defense procurement, enhance interoperability among US allies and help bolster a common defense, which makes it less likely that the Trump administration will undo them.
It is possible that President Trump will admonish federal contracting officials to "Buy American" by favoring US firms; he may do so directly, by intervening in programs, or indirectly, for example through a public announcement. In either case, if a later award is diverted to a US firm as a result of the President's admonition, a disappointed foreign vendor may be able to challenge the award. Federal bid protest forums strictly enforce the award criteria set forth in a solicitation. If an awarding official deviates from published award criteria – to accommodate a demand from the President to "Buy American," for example – the award ultimately may be challenged and overturned.
Another option would be to slow or stop any new international trade agreements that would open US procurement markets. The Trump administration has already blocked the Trans-Pacific Partnership (TPP), which would have opened US federal procurement to vendors from a number of Asian countries including (for the first time) Malaysia and Vietnam. The Trump administration has also signaled opposition to the Transatlantic Trade & Investment Partnership (TTIP) with the European Union, which similarly could have reduced barriers to procurement trade.
Perhaps the simplest option would be to slow accession negotiations with China, which seeks to join the World Trade Organization (WTO) Government Procurement Agreement (GPA). Allowing China to join the GPA would open much of the US federal procurement market to Chinese competition. Because of President Trump's concerns with Chinese competition and the administration's general support for "Buy American" policies, it is possible that the new administration will seek to slow China's accession to the GPA.
Ethics, Compliance and Anti-Corruption How the Trump administration will approach issues of ethics, compliance and anti-corruption remains an open question. From early on, the Trump administration has been dogged by ethics questions stemming from the Trump Organization's worldwide businesses. At the same time, however, the President has vowed to "drain the swamp" in Washington by imposing new and stricter ethics requirements. In an executive order signed on January 28, 2017, the Trump administration called for stricter post-employment controls on executive branch employees, and for tighter regulation of registered lobbyists – both measures in support of tighter ethics enforcement.
As a practical matter, firms doing business with the new administration should recognize that many members of the Trump administration have limited experience in government, and so may not be steeped in the government's complex ethics requirements. Companies doing business with the federal government therefore may wish to strengthen their internal compliance systems, to ensure that they, and their government customers, remain above reproach in this time of rapid change and opportunity.