FAR Part 25: Buy American, Trade Agreements, and Prohibited Sources

The foreign acquisition rules in FAR Part 25 govern how federal agencies buy supplies, services, and construction materials from outside the United States. They implement the Buy American statute (41 U.S.C. chapter 83), the trade agreements the U.S. has signed, and executive orders that together favor domestic products while honoring international obligations. For a contractor, the rules come down to three things: a domestic content test that decides whether a product counts as American, price penalties applied to foreign offers, and a set of exceptions and trade agreements that can override the default preference.

What Counts as a Domestic Product

The Buy American statute uses a two-part test. The end product must be manufactured in the United States, and the cost of its domestic components must exceed a set percentage of the total cost of all components. For items delivered in calendar years 2024 through 2028, that threshold is 65 percent. Starting in 2029, it rises to 75 percent.¹

Products made wholly or predominantly of iron or steel follow a stricter rule. Instead of hitting the general percentage, they must contain less than 5 percent foreign iron and steel by component cost. Commercially available off-the-shelf (COTS) fasteners are exempt from that iron-and-steel test, and non-iron-or-steel COTS items skip the domestic content percentage entirely, though they still have to be manufactured in the United States.²

A product that fails the test is a foreign end product. That classification is not cosmetic. It triggers evaluation penalties, disclosure requirements on the Buy American Certificate, and, if the origin was misrepresented, possible contract termination.

How Foreign Offers Get Priced Against Domestic Ones

When both domestic and foreign offers come in for a supply contract, the Buy American statute does not block the foreign bid. The contracting officer adds a percentage to the foreign offer’s price for evaluation purposes:²

20 percent added if the competing domestic offeror is a large business.
30 percent added if the competing domestic offeror is a small business.

So a foreign supplier bidding $100,000 against a domestic small business at $125,000 is evaluated as if it bid $130,000. The domestic offer wins. If the domestic bid still comes in higher after the markup, the foreign product qualifies as reasonably priced and can be bought.

Critical items and products containing critical components carry a heavier penalty. The contracting officer starts with the 20 or 30 percent base and adds a further preference factor listed at FAR 25.105 for that specific item. The result is a steeper handicap on foreign sourcing of products the government treats as strategically important.²

When the Buy American Preference Does Not Apply

Several exceptions let a contracting officer buy foreign even when a product fails the domestic content test:³

Nonavailability. The article is not mined, produced, or manufactured domestically in sufficient commercial quantities of acceptable quality.
Unreasonable cost. The domestic alternative is too expensive after the evaluation factors are applied.
Public interest. The agency head determines the preference would conflict with the public interest, often when a blanket agreement with a foreign government is in place.
Resale. Items bought for commissary resale are exempt.
Commercial information technology. IT products qualifying as commercial products are exempt when purchased with fiscal year 2004 or later funds.

Parallel exceptions apply on the construction side under Subpart 25.2, including public interest, nonavailability, unreasonable cost, and commercial IT.⁴

The Nonavailable Articles List

FAR 25.104 publishes a list of articles the government has already determined are not produced domestically in adequate quantities. Contracting officers can buy these from foreign sources without a separate nonavailability determination. The list is reviewed at least every five years and published in the Federal Register for public comment.⁵

Entries include raw materials such as antimony, bismuth, chrome ore, crude natural rubber, rutile, and tin; agricultural products including bananas, brazil nuts, cashews, cocoa beans, raw coffee, raw silk, and vanilla beans; and specific items like microscope slide cover glass, cobra venom, quartz crystals, and swords and scabbards. Foreign-manufactured spare parts for foreign equipment qualify when no domestic replacement exists.⁵

If a product or its key components are on the list, the Buy American restriction drops away. If not, and no domestic source exists, the head of the contracting activity can still make a nonavailability determination case by case.

Construction Materials

Construction projects on public buildings and public works in the United States fall under Subpart 25.2, which governs materials incorporated at the job site. The domestic content thresholds match the supply rules: 65 percent for materials delivered in 2024 through 2028, rising to 75 percent starting in 2029.⁶

The unreasonable-cost calculation works differently here. The contracting officer adds 20 percent to the price of the proposed foreign construction material. If the domestic alternative still costs more after that markup, the foreign material qualifies as reasonably priced. Agency heads can set a higher percentage, but 20 percent is the baseline.⁷

A nonavailability determination for construction materials requires the head of the contracting activity to verify the material is not produced domestically in sufficient and reasonably available commercial quantities of satisfactory quality. Until January 1, 2030, no separate determination is required for foreign construction materials exceeding 55 percent domestic content.⁴

Trade Agreements Override the Preference

The Buy American price penalty does not apply when an acquisition is covered by a trade agreement. FAR Subpart 25.4 implements the World Trade Organization Government Procurement Agreement (WTO GPA), roughly a dozen bilateral Free Trade Agreements, the Israeli Trade Act, and several other arrangements. Products from designated countries under these agreements are treated the same as domestic products for evaluation purposes.⁸

Dollar Thresholds

Trade agreements only apply when the acquisition value hits certain thresholds, which vary by agreement and contract type. For supply and service contracts, the WTO GPA threshold is $174,000. The Korea FTA triggers at $100,000. Agreements with Australia, Chile, Singapore, Colombia, and several others trigger at $105,767. The Israeli Trade Act has the lowest supply threshold at $50,000. Construction thresholds run much higher, generally $6,683,000 under the WTO GPA and most FTAs, though the agreements with Bahrain, Oman, and the USMCA for Mexico set construction thresholds near $13.75 million.⁹

Designated Countries

The designated country list is broad. WTO GPA countries include most of the European Union, Canada, Australia, Japan, South Korea, and Israel. FTA countries include Mexico, Chile, Colombia, Peru, Singapore, Australia, Bahrain, Morocco, Oman, Panama, Korea, and the CAFTA-DR nations (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua). Trade agreement treatment also extends to least developed countries and Caribbean Basin countries.¹⁰

Substantial Transformation

Under trade agreements, country of origin is not measured by component cost percentages. The test is substantial transformation: a product originates in the country where it was last transformed into a new and different article of commerce. Raw materials from one country processed into a finished product in a designated country make that finished product a designated country end product. This is a different analysis from the domestic content test used under the Buy American statute.

What Trade Agreements Do Not Cover

Several categories fall outside trade agreement coverage entirely. Small business set-asides are the most common exclusion. Arms, ammunition, and war materials are excluded, as are purchases indispensable for national security. Acquisitions from Federal Prison Industries and from nonprofit agencies employing people who are blind or severely disabled fall outside the framework. Transportation, dredging, utility services, and research and development are excluded from the WTO GPA and most FTAs.⁸

Prohibited Sources

FAR Subpart 25.7 prohibits acquiring supplies or services from certain foreign sources under economic sanctions administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). Most transactions involving Cuba, Iran, and Sudan are prohibited, along with most imports from Burma and North Korea. These restrictions apply to agencies, contractors, and subcontractors.¹¹

OFAC also maintains the Specially Designated Nationals and Blocked Persons List, identifying specific individuals, companies, and organizations under sanctions. Iran’s Revolutionary Guard Corps and its affiliates carry separate prohibitions under the International Emergency Economic Powers Act. Contractors have to screen supply chains against these lists. Violations can lead to debarment from future federal contracts and criminal liability under the underlying statutes.¹¹

What Contractors Certify

Which clauses and certificates appear in a solicitation depends on the acquisition value and whether trade agreements apply. The structure runs in three tiers:¹²

Above the micro-purchase threshold but below $50,000: the basic Buy American clause (FAR 52.225-1) and the Buy American Certificate (FAR 52.225-2). No trade agreement provisions apply.
$50,000 up to $174,000: adds the Buy American-Free Trade Agreements-Israeli Trade Act clause (FAR 52.225-3) and its certificate (FAR 52.225-4).
$174,000 and above: the Trade Agreements clause (FAR 52.225-5) and certificate (FAR 52.225-6) apply, covering WTO GPA, FTA, and other trade agreement products.

The Buy American Certificate at FAR 52.225-2 requires an offeror to certify that each end product is domestic unless listed otherwise. Any product manufactured in the United States that fails the domestic content test has to be listed as a foreign end product, along with its country of origin. For foreign products that are not iron or steel, the offeror also has to indicate whether the product exceeds 55 percent domestic content. Domestic end products containing critical components must be listed separately.¹³

The contracting officer relies on the disclosed information to apply the correct evaluation factors and to determine whether any trade agreement exception covers the offer. An incomplete or inaccurate certificate can knock a bid out of the running, or create liability later if the government finds the product did not meet the claimed domestic content level.

1
Acquisition.GOV. 25.101 General
2
Acquisition.GOV. Subpart 25.1 – Buy American-Supplies
3
Acquisition.GOV. 25.103 Exceptions
4
Acquisition.GOV. 25.202 Exceptions
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Acquisition.GOV. 25.104 Nonavailable Articles
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Acquisition.GOV. Subpart 25.2 – Buy American-Construction Materials
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eCFR. 48 CFR 25.204 – Evaluating Offers of Foreign Construction Material
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Acquisition.GOV. Subpart 25.4 – Trade Agreements
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Acquisition.GOV. 25.402 General
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Acquisition.GOV. 25.003 Definitions
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Acquisition.GOV. Subpart 25.7 – Prohibited Sources
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Acquisition.GOV. 25.1101 Acquisition of Supplies
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Acquisition.GOV. 52.225-2 Buy American Certificate