Navigating the Trade Agreements Act for Foreign Service Providers in U.S. Government Contracts

This article is part of our government contract law firm’s U.S. Federal Procurement Insight series. Learn more from our government contract attorney, and if you’d like to schedule a consultation, contact us today.

Prospective foreign contractors looking to obtain service contracts with the U.S. Government must satisfy the requirements of the Trade Agreements Act (TAA). The TAA was enacted in 1979, generally providing reciprocal treatment in Government procurement with countries that have signed bilateral and multilateral trade agreements with the U.S. The United States Trade Representative (USTR) has been delegated the President’s authority under the TAA to waive requirements of restrictive domestic preference regulations, such as the Buy America Act (BAA), for prospective contractors from countries that qualify under the Act. Under the Federal Acquisition Regulations (FAR) 25.402(a)(2), the relevant test for determining the application of the TAA to services is the country in which the firm providing the services is established. To determine the country in which a prospective contractor is established, the Government considers where the prospective contractor is incorporated or maintains its principal place of business or headquarters.

While relatively straightforward, issues concerning applicability of the TAA for foreign companies performing service contracts may be raised in the form of bid protests. In B-405296, B-405296.2, B-405296.3, the Government Accountability Office (GAO) applied the TAA test for services contracts to a cloud computing data center requirement solicited by the General Services Administration (GSA). In sustaining the protest, the GAO described the TAA test for service contracts in the context of the location of non-U.S.-based cloud computing data centers. In the procurement at issue, the GSA sought to establish a blanket purchase agreement (BPA) amongst the holders of the Federal Supply Schedule (FSS) 70 contract. The BPA was contemplated for the acquisition of cloud computing services, including emails, office automation, records management, migration, and integration services. These services were further divided into sub-categories before being split into two contract line item numbers (CLIN) for pricing purposes. The first CLIN was for U.S.-based prices and required all data and data centers to be in the U.S. The second CLIN was the basis of the bid protest and requested non-U.S.-based pricing applicable to any data or data centers in TAA-designated countries.

In the relevant section of the bid protest, the protestors argued that the solicitation provision requiring prospective contractors to locate their data services in TAA-designated countries only unduly restricted competition. The protestors stated that the requirement had no basis in law or regulation, and the Government did not demonstrate a legitimate need for such a restriction. Therefore, the protestors challenged both the restrictive nature of the data center location requirement and GSA’s legitimate need for the limitation. These properly raised protest allegations shifted the burden of proof on the government to establish that the restrictive requirements were reasonably necessary to meet its needs. In response, the GSA explained that the solicitation had initially limited the data center locations to the continental United States. However, during the pre-solicitation period, the Office of Management and Budget (OMB) and the USTR advised the GSA that such a solicitation would be unduly restrictive of trade. They requested that the GSA expand the geographic scope of the data center requirements, permitting data center locations outside the U.S. In drafting the expanded requirement per OMB and USTR requests, the GSA contracting officer (CO) had no pre-approved list of countries acceptable to house U.S. Government data. That is, the GSA CO did not have any basis to exclude specific countries at the expense of others. Due to this lack of framework for exclusion of countries of particular concern such as Cuba, Iran, North Korea, and China – the CO turned to TAA designated countries to ensure at least some trade framework existed between the U.S. and the Government of the foreign country in which a data center under the prospective GSA BPA could be located.

The GAO sustained the bid protest, determining that the GSA CO arbitrarily restricted the data center locations to TAA-designated countries. In the decision, the GAO clarified that when agencies analyze the country of origin for services under FAR 25.402(a)(2) to ensure compliance with the TAA, they must generally focus on where the company providing the services is established rather than where the services are being performed. Therefore, in the solicitation at issue, compliance with the TAA would turn on where the prospective cloud provider contractor’s business is established and not where the data centers that process and store the Government data are located. In other words, the location of the prospective cloud provider contractor’s data centers would not be determinative of TAA compliance. The GAO further stated that the GSA failed to meaningfully explain its decision to restrict data center locations to TAA-designated countries. That is, the GSA failed to explain how or why the Government data stored in TAA-designated countries would present a lower security risk than data stored in non-TAA designated countries. In conclusion, the GAO determined that the existence of a trade framework with TAA-designated countries did not, by itself, satisfy the Government’s burden of providing a reasonable explanation for establishing the solicitation restriction. Since the Government failed to carry its burden of providing an adequate explanation for limiting non-U.S.-based data centers to TAA-designated countries, the GAO sustained the bid protest.

As the largest single consumer in the world, contracting with the United States (U.S.) Federal Government is naturally viewed as a desirable avenue of expansion for foreign companies. Generally, the TAA’s applicability arises in the context of permitting federal procurement of commercial products from TAA-designated countries. However, issues relating to the applicability of the TAA to federal services contracts may sometimes arise. In such cases, the country of performance of the contract may not be outcome-determinative for TAA compliance purposes, especially if that country is different from the country where the prospective contractor is established. Therefore, pertinent inquiry to demonstrate compliance with the TAA for service contracts may be whether the contractor is incorporated or headquartered in a TAA-designated country.

This Federal Procurement Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or contact our government contract attorney to determine how the law would apply in a specific situation.