Karri Palmetier is a legal expert on one of the fastest evolving subjects in government contracting: domestic-sourcing requirements. She joined me after her well-attended session at NCMA World Congress in Orlando, and we started our discussion with a new Executive Order. The Order prioritizes domestic sourcing in the military supply chain. Underlying that Order is a combination of complicated laws, the Buy American Act and the Trade Agreements Act (or TAA).
This is an area where knowing the caselaw is critical. Neither the FAR nor the statute provide much guidance on how those laws operate in real-world situations. Karri and I talked through some of the biggest cases. Then I couldn’t let Karri leave Orlando without asking her about an important SBIR case about national security reviews.
If you’re watching this on YouTube or listening to the podcast, you can find the full auto-generated transcript at http://www.govconintelligence.com.
Links
Karri Palmetier on LinkedIn https://www.linkedin.com/in/karri-palmetier-93094736
Palmetier Law https://palmetierlaw.com/
Executive Order on “Securing America’s Defense Supply Chains and Ensuring Domestic Sourcing of Critical Materials” https://www.whitehouse.gov/presidential-actions/2026/07/securing-americas-defense-supply-chains-and-ensuring-domestic-acquisition-of-critical-materials/
Buy American Act https://uscode.house.gov/view.xhtml?path=/prelim@title41/subtitle4/chapter83&edition=prelim
Trade Agreements Act https://uscode.house.gov/view.xhtml?path=/prelim@title19/chapter13&edition=prelim
FAR Part 25, Foreign Acquisition https://www.acquisition.gov/far/part-25
OMB’s Made in America Office https://www.madeinamerica.gov/
The DaVinci Company LLC v. United States (COFC) https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2024cv1238-54-0
Energizer Battery LLC v. United States (CIT) https://law.justia.com/cases/federal/appellate-courts/cit/13-00215/13-00215-2016-12-07.html
Cyber Power Sys. (USA) Inc. v. United States (CIT) https://law.justia.com/cases/federal/appellate-courts/cit/20-00124/20-00124-2022-02-24.html
Acetris Health LLC v. United States (CAFC) https://www.cafc.uscourts.gov/opinions-orders/18-2399.opinion.2-10-2020_1529718.pdf
Kayvan Space Corp. v. United States (COFC) https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2025cv0104-79-0
Chapters
00:00 - Introduction to GovCon Intelligence and Karri Palmetier
01:58 - The Securing America’s Defense Supply Chains Executive Order
05:44 - Balancing Supply Chain Requirements and Small Business Burdens
10:57 - Demystifying the Buy American Act Pricing Preference
14:00 - The Made in America Office and the Waiver Process
18:00 - Defining Manufacturing and the Component Test
22:12 - The Trade Agreements Act (TAA) and the Da Vinci Case
28:33 - The Substantial Transformation Test Under the TAA
36:52 - Bid Protests vs. Customs Cases: The Acetris Decision
44:55 - Compliance Tips for Prime Contractors and Subcontractors
48:36 - Knowing Your Competition and Pricing Trade-offs
52:19 - SBIR Contracts and Foreign Ownership, Control, or Influence (FOCI)
57:10 - Conclusion and Contact Information
Transcript (auto-generated)
Introduction to GovCon Intelligence and Karri Palmetier
Sam: Welcome to GovCon Intelligence. We’re here on location at the Walt Disney World Dolphin Resort attending NCMA Congress. My guest today is Karri Palmetier from Palmetier Law. She just gave a terrific presentation on sourcing, the Buy American Act, Trade Agreements Act, and the new supplier EO. So many different topics. It was a very well-attended session. Thanks very much for joining us on the show, Karri.
Karri: I’m so excited, Sam. Because you’ve been doing these since you first started, I was thinking he’s going to get to me eventually, I hope.
Sam: And here we are. It didn’t take too long doing this for a few months.
Karri: It’s the first time I was in person with you.
Sam: Oh, wonderful. You’re out of Littleton, Colorado, in the Denver area. You work primarily with small businesses on any number of issues. We were on the bar association together in the Small Business Committee. We were co-chairs for many years, and you were vice chair there. The topic of the presentation today is a very timely one on how manufacturers, and now I learned even services companies, comply with these domestic sourcing rules.
Karri: Yes, service companies have to comply with the Trade Agreements Act. It’s a little bit less complicated than supply companies. Once I started learning about it and thought about all the other presentations I’ve seen, it’s not an area that’s well educated and talked about in various forums, so I’ve gotten excited about it.
The Securing America’s Defense Supply Chains Executive Order
Sam: And it’s really on people’s minds because of an executive order that just came out a week ago today. We’re filming on Monday, July 27th. The executive order is called “Securing America’s Defense Supply Chains and Ensuring Domestic Acquisition of Critical Materials.” We were talking before your session about how this is really a bipartisan issue. You have executive orders from Biden here, and you have another executive order from Trump about domestic sourcing. What’s the context of this particular EO?
Karri: This is obviously addressing our critical minerals. Other terms you may have heard are rare earth minerals. They’re the minerals we need to make our information technology and weapon systems. In my career, what I have seen is titanium started some of the issues a couple of decades ago, where there was defective material.
We ended up having to do a big assessment throughout the aerospace industry of everybody who had titanium. I’ve just been seeing counterfeit parts. We’ve had guidance and government industry program issues with the supply chain failing. I’m seeing over my career more and more clauses and requirements that impose additional controls, quality, and sourcing, and less reliance on materials coming out of certain countries where we could end up not being able to access critical minerals essential for our national security and defense weapons. Cell phones have these minerals in them, so we need to make some changes to find sources.
We’re referencing this recent executive order regarding access to anything from countries that are not always aligned with our interests. I was at United Launch Alliance for nine years, and one of our launch vehicles had an engine from Russia. That’s why United Launch Alliance had to have another launch vehicle started a decade ago for critical components, because Congress decided we shouldn’t be relying on a Russian engine for our launch vehicle. When it was created, it was done intentionally for a good reason: to keep the engine technology, after the fall of the Soviet Union, out of the hands of less friendly countries. By using it for the Atlas launch vehicle, it protected that technology and kept it in US hands. It was a good move back then; it just had consequences.
Balancing Supply Chain Requirements and Small Business Burdens
Sam: You make a good point that it’s not just US-sourced materials. The executive order refers to allied countries as well. It says it’s the policy of the United States that not only the finished equipment deployed by our military, but also the critical materials and components necessary to manufacture, maintain, sustain, and repair that equipment are sourced domestically or from allied nations.
Karri: Yes, and that’s a very key point. Part 25 of the FAR, which covers international acquisitions and domestic sourcing, is a direct reflection of our trade policy. We have trade partners and friendly countries. We have our foreign military sales program and our security cooperation program, where we provide a lot of military technology to those countries.
Sometimes we can offer to provide the finished product in exchange for access to rare earth source materials. It’s a lot more complicated than people really understand.
Sam: What do small businesses need to know about this executive order? What might come out of it, and what might they need to prepare for?
Karri: In preparing for this podcast, Sam, I’m going to point out an ironic requirement. In section three, the executive order provides guidance to the Secretary of Defense to develop a policy. One of the comments is that such regulations shall seek to ensure small businesses, nontraditional defense companies, and new entrant firms are able to comply without being unduly burdened. Yet, the very first requirements start off stating they have to submit a complete indentured bill of materials that traces all components, parts, equipment, software, and materials. They have to implement written procedures and documentation.
These are conflicting requirements for small businesses. I’m not arguing that small businesses shouldn’t have policies or comply. It just depends upon the size of the small business.
For a truly small business with fewer than 100 employees and small revenue, this is a huge burden. If they’re providing materials that are part of our weapons systems, it may just be a barrier to entry where they’re going to have to get help in the manufacturing lines to ensure they understand how to set up these requirements. Having to create a bill of materials is not an easy process.
Sam: Going way down the supply chain.
Karri: I tell them they have to get the information, but I don’t give them formats or levels of detail. We’ll see what the implementing regulations look like, and I’m sure our committee will be providing comments as they come out. I foresee this continuing to grow because just in the last five years, we’ve had supply chain executive orders, the Made in America Office created, and an increase under the Buy American Act for the components test. There are still pushes to have more domestic sourcing requirements to bring manufacturing back into the United States.
Sam: So you have this tension that we keep seeing over and over again about national security, domestic sourcing priorities, and the burden on small businesses. We’ve seen it with CMMC, now with FOCI, and here we are looking at a supplier.
Karri: As part of this bill of materials, they’ve added an equivalent FOCI requirement. They want to know the origin and the sourcing of it. What I anticipate in the regulations is a preference for sourcing out of friendly countries, not out of prohibited countries that end up in our other requirements.
Also, they want to ensure whoever is selling the materials doesn’t put a control in there that limits use or requires disclosure back as to how the materials will be used. I’m thinking it’s going to look something like the Anti-Boycott Act, where if you ever receive a requirement to boycott a country that we don’t boycott on our own, you have to report it.
If you’re buying materials from a country that says you can have our materials but you must tell us how they’re used and who buys them, that’s going to be seen as control and influence. Depending upon the country of origin, that could end up becoming something the government doesn’t want.
Sam: Similar to what we were talking about with AI and any lawful use clause.
Karri: The government is not going to want that information reported back to the foreign country selling us the materials unless we have an agreement with them at the national level for information sharing. They’re going to call that too much control and influence.
Sam: Well, something to watch out for when the proposed rule comes out based on that executive order.
Demystifying the Buy American Act Pricing Preference
Sam: Let’s talk about the Buy American Act, which is sometimes misunderstood. It’s a price preference, and it has a very specific application. Tell us generally how the Buy American Act works.
Karri: It’s one of those where we hear all the time that a contract has the Buy American Act, and everybody assumes that means you can only have American products. That’s not what it does. What it does is put a pricing penalty on a product that does not meet the requirements for the price evaluation in the competition. It will be sold at the same price, but as long as that foreign product is cheap enough compared to the American product, it can be bought.
It’s a disclosure requirement, not a prohibition. It just gives a preference for American products at the pricing level because companies want to go overseas to lower their price. The price ranges for civilian agencies are a 20% pricing preference if the awardee is a large business, and 30% if the awardee is a small business. For the DoW, it’s 50% across the board.
That’s a pretty big barrier for a foreign-sourced product to overcome.
Sam: You have to get good at math, something we’re used to in the Small Business Committee.
Karri: Yes.
Sam: There are a few exemptions in the Buy American Act, and one of them includes information technology. But there’s a bit of confusion about COTS. How does that work?
Karri: Keep in mind the standards for the Buy American Act and the Trade Agreements Act are completely different. This exception is only for the Buy American Act. What it exempts is commercial information technology. It doesn’t have to be COTS because COTS is a subset of commercial, but any commercial information technology is exempt from the Buy American Act. It’s not exempt from the Trade Agreements Act.
In addition to that, COTS components are exempt from the calculation of how much of the cost of your components in the end item are sourced from America.
Sam: So you can even go down into the components.
Karri: Yes, if you have COTS components coming in that can be used elsewhere for other products, they’re exempt from the calculation. The interesting part is they don’t tell you how to do the math for that. I don’t know if you just reduce the total so you’re only doing the assessment on the percentages of the total. It would be nice if they just said how you do that math, but I think you do the math the way that works.
Sam: Maybe we’ll get an example in the next FAR compliance guide on how to do this math.
The Made in America Office and the Waiver Process
Sam: Talking before about Biden-era rules versus Trump-era rules, one thing the Trump administration kept from the Biden administration is the Made in America Office and the role it plays in reviewing Buy American Act waivers. What do they do, and how do you request a waiver?
Karri: What was happening before was contracting officers would grant waivers, and it wasn’t disclosed. People didn’t know what waivers were granted or how they were done. There was a consistency issue across the government with all the agencies and contracting officers.
What the Made in America Office does is review these waivers to ensure you’re not getting a waiver just for preferential treatment or trying to circumvent the rules, to keep consistency, and to make everything public.
Sam: So all those waivers are public?
Karri: Yes. I actually thought that wasn’t a bad thing, despite the added bureaucracy and time. What I would say to companies is if you and your competitors need a waiver, start early, long before the next contract is going to come out so you can get through this process.
Know your customers. Find a customer who may be more willing, or talk with the Made in America Office to see what the rules are. But if you are one company that is not compliant with the Buy American Act and there are multiple compliant companies, I’m not foreseeing a waiver being granted.
Sam: On the other hand, if you’re one of the companies that complies and the others don’t, that’s a huge competitive advantage.
Karri: That’s a huge competitive advantage because they can’t get the waiver. Sometimes the government might still be willing if it increases competition, because they still think competition is the best thing to keep prices down. There is also a push to incentivize companies to enhance the US market. It might be worth the investment for your company to become compliant.
Sometimes your competitors can become your allies; we’ve seen that in other rules like the Rule of Two for set-asides, where having competitors friendly enough ensures you’re both eligible to go educate contracting officers.
Sam: What about class waivers? Are you seeing those requested and granted?
Karri: The standard is pretty high. Class waivers are now only being granted if US production of that item is less than the total purchasing need in the US, both government and commercial. There’s a lot of research into what the total government and commercial need is, and how much production we have in the United States. It has to be less than 50% to even be considered for a class waiver.
Sam: I imagine there’s a lot of data involved in that, especially regarding non-governmental needs.
Karri: There’s a lot of research that goes into this.
Defining Manufacturing and the Component Test
Sam: Country of origin tests. There’s this phrase “substantial change in physical character.” What does that mean, and how do you figure out where the product comes from?
Karri: The first time I saw this, I wondered what the definition in the FAR was. Guess what? It’s not in there. The definition isn’t in the statute either. I went to Black’s Law Dictionary and common dictionaries like Oxford, and there is not a common definition of manufacturing anywhere.
“Significant change” is one of the definitions out there, but manufacturing is not a defined term. What I have found is that the standard tends to be lower for the Buy American Act than for the Trade Agreements Act. It’s a case-by-case assessment, usually handled through bid protests.
Sam: A good opportunity for lawyers.
Karri: Yes, arguing that a product is not manufactured in the United States because it’s merely assembly, so they shouldn’t have been eligible or the pricing preference should have applied. It is a good area for some wiggle room.
Sam: That’s why you call your lawyer. You mentioned something interesting in the session about components versus subcomponents. There’s a distinction there as well.
Karri: This is one of those things I never really appreciated; I just thought you had to look at the whole chain. But you only look at each component level. You have your end item and your components. You look at the sourcing of each component. It’s not a matter of the subcomponents; it’s whether the component itself is an American manufactured product.
The 65% cost test only applies at the end item level, they don’t actually apply it to the subcomponents.
Sam: You keep going down the chain.
Karri: The test stops at some point in time. You go back to whether the component is manufactured in the United States, rather than the composition of all the subcomponents.
Sam: It gets a bit easier for small businesses not having to go down to lower tiers on that.
Karri: That’s what’s going to change with some of those critical minerals, though.
Sam: Exactly, it sounds like you have to go all the way down. If you are a small business that produces something made of iron or steel, the test is much harder.
Karri: Oh yes, the test is 95% at that point. The iron and steel industries in the United States used to be a really big part of our country’s manufacturing, and we’ve lost a lot of it. The Buy American Act and Trade Agreements Act are part of our international trade policy and national security, trying to incentivize those industries to come back to the United States because you can’t fight a war without iron and steel.
Sam: Really trying to incentivize the use of domestically sourced iron and steel all the way to 95%.
Karri: Yes, that test is pretty high.
The Trade Agreements Act (TAA) and the Da Vinci Case
Sam: Going to switch over to the Trade Agreements Act. When I was at SBA, I knew hardly anything about the Trade Agreements Act, but it did come up every once in a while with the non-manufacturer rule.
There was a case fairly recently, about last year, that I wrote about on my website: Da Vinci Company v. United States. It had everything happening at once: Buy American Act, Trade Agreements Act, and the non-manufacturer rule. It really changed the way small businesses have to think about these domestic sourcing requirements.
The "FAR Loophole" let the Government buy from China. A Federal court just closed it.
In recent years, SBA has received some blame for a “Made in China loophole.” The loophole worked like this: Under most circumstances, agencies cannot contract for products manufactured in China when …
Could you walk us through what happened in that case?
Karri: I was always of the mindset that if a contract is set aside for small business, it’s subject to the Buy American Act and you follow those rules. I actually thought what the government did in the Acetris or Da Vinci case was correct. They said they had the rule of two: two or more small businesses were eligible and could provide the products. They set it aside for small business, making it subject to the Buy American Act. Both companies submitted non-compliant products, so there was no pricing preference, and the government issued a non-availability waiver and awarded to whoever’s price was lowest.
Another company that had a Trade Agreements Act compliant product out of Spain protested, saying this didn’t make sense. From a logical standpoint, why award to a country that is not compliant with either the Buy American Act or the Trade Agreements Act, in lieu of a country that’s at least compliant with the Trade Agreements Act?
The courts flipped the analysis. When you look at the rule of two, if two small businesses are capable of producing a product, but that product doesn’t meet the Buy American Act standards, the Rule of Two is not technically met. Therefore, it’s not set aside for small business. The way they phrased it is that the Trade Agreements Act has a higher order of precedence than the Buy American Act because the Trade Agreements Act statutes also implement treaties.
Sam: It’s very important if the Trade Agreements Act applies because it’s not just a price preference; it’s a prohibition.
Karri: Yes, it’s a prohibition. It can force the competition to be open to large businesses, and it prohibits the government from buying non-compliant products if there is a compliant product available. A large business with a TAA compliant product is more eligible than a small business with a non-compliant product. In this case, the two small businesses that had set up their products out of India were kicked out of the competition.
Sam: So it could be helpful for a small business to also comply with the TAA, because then they might be able to force the set-aside.
Karri: Yes, or at least ensuring there are a couple of small businesses that are fully BAA compliant. This same analysis will apply in those worlds with the executive order on critical minerals. If you have nickel harvested from mines in the United States, a small business can have a product compliant under the critical minerals rules. If you have two small businesses, it’s set aside and all TAA compliant products are gone.
But if you can’t do that, a TAA compliant product is going to be better. It’s a strategy you have to think about. The only way you can be compliant with both is either have a really low price to overcome the BAA pricing preference, or be TAA compliant. Then I use a different manufacturing standard. The BAA standard is lower. It’s really hard to be compliant with both unless you have the cost of components under the BAA or commercial, and then you have the TAA substantial transformation standard. I see that as a very small margin as to where you can be compliant with both measures.
The Substantial Transformation Test Under the TAA
Sam: Let’s get into substantial transformation. The TAA applies to goods, construction, and services, and their thresholds are $174,000 for supplies and services or $6.683 million for construction. There’s a long list of countries in the FAR covered by the Trade Agreements Act. This is a goods test. The test is whether the end product is substantially transformed in the US or a designated country into a new or different article of commerce with a name, character, or use that’s distinct. What does that mean?
Karri: If all your components are from compliant countries, you fall within the first definition. Substantial transformation is the more common discussion because companies try to keep prices down by sourcing from non-compliant countries. Under the TAA, the sourcing of the components is immaterial. There are no cost tradeoffs. It’s only a matter of the process used to bring those components into the end item.
Manufacturing isn’t even part of the test; they use “substantial transformation,” which isn’t defined other than transforming the name, character, and use. Name doesn’t really matter, as Shakespeare wrote, “a rose by any other name is still a rose.”
But for lawyers, this is a head-scratcher because it’s hard to find case law that makes sense.
Sam: There’s no overarching principle, and very frustrating.
Karri: I was working on this with a friend of mine, Andy Liu, and thank him because he helped come up with some kind of answer. It is very dependent on the specific manufacturing process. I’ve had to go to clients’ factories, tour the facilities, and ask questions of the individuals on the product line to figure out what kind of training they went through. It depends on the products.
My paper coffee mug might not be complicated, but others are extremely complicated. Software is a completely different situation too. The key question they look at is the essential character.
For example, if a cup comes into the country squeezable and they electroplate the metal in the US to make it stronger, the courts have said it’s still just a cup. The treatment didn’t change the essential character, which is holding hot liquids.
Sam: The term is name, character, or use, and you’re just drinking from a cup.
Karri: In this case, the character wasn’t enough of a change for its intended use. It really is fact-specific, making it hard to advise clients on exactly how much manufacturing has to be done in a designated country.
Sam: One of the big cases in this field is the Energizer Battery case.
Karri: Yes. In that case, it was a complicated flashlight with all sorts of features being resold to the government. All the components came from overseas. Multiple people touched the parts on the manufacturing line, but the components had been designed specifically for this flashlight and couldn’t be used in anything else.
The judge at the Court of International Trade ruled that because the components had a predetermined use, the use factor was already predisposed. The manufacturing outside the country was more complicated than the simple assembly in the United States, so there was no substantial transformation. This decision meant that if you bring in components from other countries with a predetermined use, it’s not substantial transformation.
A subsequent case, Cyber Power, involved a foreign AC adapter, and the court specifically noted that interpreting Energizer Battery that way leads to ridiculous answers. They didn’t overrule it, though, so it comes down to clever lawyering based on your specific manufacturing process.
Sam: In Energizer Battery, there were 50 components. Putting those together seems like a substantial change.
Karri: To me, it’s a substantial change because none of those components could be used on their own. But the whole assembly process took less than 20 minutes, which is why they deemed it simple assembly.
Bid Protests vs. Customs Cases: The Acetris Decision
Sam: In this area of law, you’re taking cases from bid protests, the Court of Federal Claims, and also customs cases.
Karri: Under the Trade Agreements Act, Customs and Border Protection makes the interpretations because they also do the same for tariffs and duties. You have to look at whether you’re focusing on the bid protest line, which focuses on the FAR, or the customs line, which focuses on trade agreement statutes.
Sam: Sometimes they conflict. Let’s talk about the Acetris case, which had everything happening at once.
Karri: Acetris had smart lawyers. The contract was for a drug where the active ingredient was from India. It was brought to the United States and incorporated with inactive ingredients to make a tablet. The VA raised questions during contract performance, arguing that Customs case law states the active ingredient determines the country of origin for drugs. The parties agreed to terminate for convenience, and the VA re-competed it.
During the draft solicitation, Acetris deliberately asked how the TAA would be applied and got a written determination that the VA would follow Customs and Border Protection cases. Acetris submitted their offer and, when they lost, filed a protest in the federal courts and protested the Customs ruling. Customs Border Protection said they were following their active ingredient line of cases, but the Court of Federal Claims ruled there was substantial transformation under the FAR definition because the active ingredient is useless in its raw form.
Then government appealed. The protest decision went to the Court of Appeals for the Federal Circuit, which is the only commonality between the two lines.
The Court of Appeals asked the government what they were buying. The contract wasn’t for the active ingredient; it was for the tablet. The tablet wasn’t produced or transformed in India, so calling India the country of origin didn’t make sense.
They also pointed out that while the Trade Agreement statute says Customs interprets it, the FAR says the contracting officer makes the determination. The contracting officer cannot just rely on Customs; they have to make their own independent determination.
Sam: I heard someone say their organization has 8,000 contracting officers, so that’s a lot of different determinations.
Karri: I have a lot of sympathy for contracting officers, but putting this decision on their shoulders doesn’t seem fair. There is a consistency issue. It may require a regulation change.
Compliance Tips for Prime Contractors and Subcontractors
Sam: Let’s talk about some tips and tricks of the trade. In terms of prime and sub relationships, primes really have to pay attention here.
Karri: As the prime, you’re always responsible for contract implementation and compliance. A common question is whether primes can advise subs. Most lawyers would say you shouldn’t. You should get the information from your supply chain and make the decision for yourself. If you advise a supplier on how to set up their compliance, you pick up the liability for that, and lawyers don’t like that.
Sam: What is the best practice there to get that information?
Karri: For supply chain due diligence, you should be asking them for their sourcing. This is where the bill of materials for critical minerals comes in. Ask them what their components are, where they source them from, and what part of the manufacturing process occurs where. A blanket statement that they are TAA compliant is a good first step, but not the only one.
You need to know what’s happening globally, as some of these manufacturing processes are very complicated and involve shipping components all over the world for different stages of assembly.
Knowing Your Competition and Pricing Trade-offs
Sam: This idea of knowing your competition. What tips do you have for businesses there?
Karri: Go research them. There’s so much public information available on catalog websites, or revealed when contracts are awarded, allowing you to figure out unit prices. You want your price to be competitive for the Buy American Act pricing preference or the Trade Agreements Act.
If you find out competitors aren’t compliant, you can protest their awards. Make sure the government knows during industry days if competitors are sourcing out of non-compliant countries like China.
I had a company ask if being 100% American meant they automatically get the award, and the answer was no. The BAA is just a pricing preference. The government does not give extra credit for a higher percentage beyond the required 65%.
Sam: Understand how this price preference works before making changes for the federal government.
Karri: Exactly. Their price difference was too high even with the preference, and they were losing competitions.
SBIR Contracts and Foreign Ownership, Control, or Influence (FOCI)
Sam: I couldn’t have you on without asking about SBIR. You were involved in a major legal case involving the SBIR program that came out right around reauthorization, which implemented new national security requirements. Tell me what happened in that case.
Karri: I’ll only discuss the public information on this COFC case, the Kayhan case. It broke my heart because I love the company. The individuals were naturalized US citizens who were determined under the FOCI rules of the 2022 SBIR reauthorization to have too much risk. We followed the protest procedures. And I brought in friends—Anuj Volta was one of them.
What we learned is the extensive process the Air Force and Space Force use for reviewing SBIR awards. They have panels involving groups like the Office of Special Investigations (OSI) that do detailed background checks. They don’t just take the certification of compliance; they do their own research. The sad part was the company was never given a chance to mitigate the risk.
The government just said it was too high risk and wouldn’t allow mitigation. The courts right now aren’t going to override national security.
Sam: If they had found against the government, that would be precedent, not just for SBIR.
Karri: Then you combine that with the critical minerals FOCI reporting requirement. You had an episode a few weeks ago about constraints on new contracts. Foreign ownership, control, and influence came out of the classified world and is being brought into the unclassified world with all of these other contracts.
It’s not going away. We want to know who we are relying upon. The SBIR program is supposed to incentivize the US economy, so if you promote innovation controlled by a foreign government, you’re funding foreign R&D.
As a former JAG, I understand the need for national security and protecting our data. The balance line is tilting more and more toward US sourcing or friendly countries so we aren’t at risk of losing access.
Sam: So for small businesses, they may need to be overcautious.
Karri: You can’t just get a determination from OSI ahead of time on how they’ll interpret your FOCI risk. You don’t know until you submit.
Conclusion and Contact Information
Sam: Karri, thanks so much for walking us through this. How do people find you?
Karri: It’s just karri@palmetierlaw.com. Website is www.palmetierlaw.com. I’m also on LinkedIn. You can also call me at 303-697-8914. I answer the phone myself.
Sam: Wonderful. Thanks so much for being on the show.
Karri: Thank you.
With over 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. Sam received his law degree from the University of Virginia and formerly served as SBA’s director of procurement policy. His website is http://www.samlelaw.com.
This video is for informational purposes only and does not constitute legal advice.
