Government Contracts Article – Week of March 2, 2020

Case Summary: Federal Circuit Issues Ruling Impacting The TAA

The Case: Acetris Health, LLC v. United States, 2020 WL 610487

Background: Acetris Health sold (and wanted to sell more of) a hepatitis drug to the VA that the VA considered non-TAA compliant because the active ingredient in the drug was from India, which is not an approved country for TAA purposes. The various components, in including the active ingredient, were combined in a manufacturing facility in the U.S. to create the drug sold to the VA.

Acetris argued the drug was a U.S-made end product as that term is defined in the FAR trade agreements clause. It did so despite an adverse ruling from CBP, which the government relied on as conclusive. The CBP ruling indicated that the product was made in India because its active ingredient was from India and no substantial transformation had occurred in the U.S.

Outcome: The Court ruled in favor of Acetris holding the drug was an end product of the United States despite its active ingredient being made in a foreign country.

Reasoning: The Court’s reasoning in this case is important. It indicates trade agreements compliance requires an analysis of 1) whether the deliverable is a foreign-end product approved for sale to the government (wholly manufactured or substantially transformed in an approved foreign country), or 2) whether the deliverable is a U.S.-made end product (according to the Court, a product manufactured in the U.S. irrespective of the origin of the product’s components). Per the Court’s reasoning, if the deliverable falls into either of these categories, it is compliant with the trade agreements clause of the FAR.

Impact On Contractors: Pursuant to this ruling, it appears that contractors manufacturing end-products in the U.S. may no longer need to be concerned that foreign components of their deliverable will disallow them from certifying compliance with the TAA.

Certainly, the Court’s holding can be strictly construed to apply only to pharmaceuticals and the origin of their active ingredient. However, given the Court’s reasoning the same outcome will likely arise in similar situations regardless of the product. Accordingly, the case has a significant impact in that it creates a defensible position for offerors and contractors who create a deliverable in the U.S. but now decide to source critical components of the product to non-approved countries

Additionally, the Court opines that CBP decisions are not applicable to procurement law. As such, its reasoning also seems to have nullified reliance as authority of CBP rulings on what constitutes substantial transformation in procurements.

The case is one of great importance in the complicated framework of the TAA and for contractors deciding whether their products are compliant and now whether to expand their supply chains.

 

Attorney Kristi Morgan AronicaOur government contracts briefs, reports, and articles are published by Attorney Kristi Morgan Aronica. She serves as counsel to government contractors and subcontractors throughout Texas and nationally.