Foreign Acquisition

Foreign acquisition is the procurement of products or services originating from outside the United States by U.S. federal agencies, subject to Buy American Act restrictions, trade agreement exceptions, and specific national security limitations.

What is Foreign Acquisition?

Foreign acquisition occurs when a U.S. federal agency purchases end products manufactured outside the United States or services performed by foreign nationals or foreign entities. FAR Part 25 (Foreign Acquisition) governs when and how agencies may purchase from foreign sources.

The general framework operates in layers:

Layer 1 - Buy American Act: For contracts below the Trade Agreements Act thresholds (~$182,000 for goods/services, ~$7 million for construction), the Buy American Act restricts purchases to U.S.-manufactured end products. Foreign products may still be purchased if no domestic product is available, if the domestic price is unreasonable (generally a 20-25 percent cost differential threshold), or if purchase is in the public interest.

Layer 2 - Trade Agreements: For contracts above TAA thresholds, foreign products from designated countries are eligible on a non-discriminatory basis. Foreign products from non-designated countries (China, India, Russia, etc.) remain ineligible above and below TAA thresholds.

Layer 3 - Special restrictions: Certain foreign acquisitions are prohibited regardless of thresholds or trade agreements:

• Section 889 prohibits purchase of telecommunications and video surveillance equipment from specific Chinese firms (Huawei, ZTE, Dahua, Hikvision, Hytera) and their subsidiaries.
• Section 846 restricts purchase from entities on the DoD Prohibited Sources List.
• Specialty metals restrictions (DFARS) apply to DoD metal purchases.
• ITAR restricts flow of defense technology through foreign acquisition channels.

FAR 25.101-103 contains the price evaluation adjustments that apply when comparing domestic and foreign offers below the TAA threshold.

Why Foreign Acquisition rules matter for government contractors

IT resellers and product distributors whose supply chains include manufacturing from non-designated countries face the most complex foreign acquisition compliance challenges. Maintaining accurate product origin records, staying current on prohibited source lists (Section 889), and understanding how TAA thresholds affect specific contracts is essential for compliant federal sales.

Example

A federal IT manager needs to purchase network routers for a new facility. She identifies routers available from two vendors: Vendor A offers routers assembled in the United States at $52,000 per unit; Vendor B offers routers assembled in China at $38,000. China is not a designated country. The Buy American Act applies (the purchase is below the TAA threshold). The contracting officer applies the price evaluation differential: the domestic product threshold is met if the U.S. product costs no more than 20 percent above the foreign alternative (for large businesses). $38,000 x 1.20 = $45,600. Vendor A's $52,000 price exceeds the threshold, so the foreign product qualifies as reasonably priced relative to domestic. A waiver determination is made documenting that the domestic price is unreasonable, and the Chinese-assembled routers may be purchased.

Frequently Asked Questions

Can a foreign company win a federal contract?

Yes, in many circumstances. The Buy American Act and trade agreement rules focus on the origin of the products being delivered, not the nationality of the contractor. A foreign company may win a federal contract if it delivers U.S.-manufactured or designated-country products. Some security-sensitive contracts impose additional restrictions on foreign-owned contractors (FOCI concerns, personnel security requirements, facility clearance issues).

Are construction services subject to foreign acquisition rules?

For construction contracts, the Buy American Act restricts the use of non-domestic construction materials (iron, steel, manufactured products) incorporated into the project. The restriction applies to materials, not to the nationality of the construction workforce, though labor laws and prevailing wage requirements apply separately.

What is the price evaluation adjustment for domestic products?

For large businesses, the FAR adds a 20 percent price evaluation penalty to foreign offers when comparing them to domestic offers below the TAA threshold. For small businesses, the penalty is 30 percent. This means the domestic offer does not need to be cheapest; it only needs to be within the penalty percentage of the foreign offer to be selected.

Do agencies have to document every foreign acquisition decision?

FAR 25.106 and 25.103 require contracting officers to document the basis for waivers of Buy American Act requirements. Public interest waivers above certain thresholds require OMB/USTR review. For TAA-covered procurements, the contracting officer simply notes that the procurement is above the TAA threshold and trade agreement countries are eligible; no waiver is needed for designated country products.