In honor of Small Business Week, Inc. reporters deployed to several cities where they spent one day talking to owners and entrepreneurs in a particular sector about their challenges.

When President Trump signed his "Buy American" and "Hire American" executive order last month, the latter provision received more attention. Any effort to limit the awarding of H-1B visas affects tech companies' access to top talent. And the travails of Silicon Valley always make headlines.

The "Buy American" mandate, by contrast, matters chiefly to federal contractors, who labor in relative obscurity. Vowing to eliminate waivers and exemptions to existing Buy American rules, Trump proclaimed that, "American projects should be made with American goods. No longer are we going to allow foreign countries to cheat our producers and our workers out of federal contracts."

The outcome for small government contractors, in particular, is likely to be a mixed bag. Anytime new sourcing requirements come down the pike, small manufacturers and equipment vendors must produce more documentation for their large customers (in this case government agencies or the prime contractors that serve them). They must also step up policing on their own supply chains, which may include very small shops indeed. As the Dodd-Frank conflict minerals rules demonstrated, that can add significant cost and red tape.

But small domestic companies may also benefit. The Janz Corporation is a roughly $6 million company, based in Reynoldsburg, Ohio, that provides medical equipment to the departments of Defense and Veterans Affairs. Rick Finsterbusch, a retired Army major who is CEO and co-owner of Janz, says that a Buy American crackdown would benefit companies like his that play by the rules. "There are a lot of dishonest contractors out there who are selling Chinese-made products and not getting caught," he says. "It is a lot of effort on our part to make sure we don't sell Chinese-made products. And unfortunately we lose a lot of business because we stick to that rule."

But sorting out what "made in America" means can be complex. For example, construction materials manufactured here are considered domestic even if slightly below 50 percent of their components are. The onus is on the contractor to certify that those percentages are met. Buy American provisions in the 2009 American Recovery and Reinvestment Act caused some confusion and raised administrative costs.

Christoper Yukins, a professor at the George Washington University School of Law, advises contractors to "take a hard look at whether the goods they are selling to the federal government qualify as American-made. What happened in the Recovery Act is small businesses had to shift extremely rapidly to try to sort out whether their supply chains and goods they were providing qualified," says Yukins. "It's a major challenge to sort out, and they should be talking to experts."

 

Published on: May 5, 2017