FSS Contracting and the Trade Agreements Act A L L I S O N P U G S L E Y, H O G A N L O V E L L S S C O T T S P E N C E R, P F I Z E R

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1 FSS Contracting and the Trade Agreements Act A L L I S O N P U G S L E Y, H O G A N L O V E L L S S C O T T S P E N C E R, P F I Z E R

2 Country of Origin Framework: The Trade Agreements Act

3 FAR , Trade Agreements Act... [p]roducts offered under this solicitation that are end products of countries other than the United States or Designated Countries will not be considered for award FAR Representations and certification made as part of contract proposal Trade Agreements Certificate Offeror certifies that each end product, except those listed [in the TAA certificate in the contract proposal document], is a U.S.-made or designated country end product Offeror list any end products that are not U.S. or designated country end products Leaving lines blank effectively certifies all products delivered under the contract are TAAcompliant Certification requirement is ongoing Trade Agreements Act Hogan Lovells 3

4 What Countries are Designated Countries Members of World Trade Organization (WTO) Agreement on Government Procurement (GPA) or have a bilateral Free Trade Agreement (FTA) with the U.S. Non-Designated countries include China, India, Indonesia, Malaysia, Philippines, Thailand, Vietnam, Brazil, South Africa, Turkey, and certain developing countries Hogan Lovells 4

5 TAA Rule of Origin Substantial transformation Country of Origin Country in which product was grown, produced, or substantially transformed If materials are sources from more than one country, the COO is that country where the ingredients are substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed (19 U.S.C. 2518(4)(B)) This rule is the same as that applied in various Customs contexts (including product entry, marking, and tariff rate determination) Customs and Border Protection (CBP) issues decisions on Customs and procurement COO matters (see 19 CFR 177, et seq.) Hogan Lovells 5

6 TAA Substantial Transformation Analysis Analyze the totality of circumstances: Cost and origin of various components Extent of manufacturing Changes made to ingredients Cost of manufacturing steps Often Active Pharmaceutical Ingredient (API) origin is controlling No substantial transformation when Process pharmaceutical products from bulk to doses Alter the delivery rate of the drug Purify an active ingredient Hogan Lovells 6

7 TAA Exceptions Exceptions Non-availability Determination: Applies where no equivalent product is available from a designated country (FAR (b)(3)) DoD National Interest Waiver: Applies to a purchase by an overseas purchasing activity of products critical to the support of U.S. forces stationed abroad (DFARS (ii)) Hogan Lovells 7

8 GSA/VA s Approach to TAA Non-Compliant Covered Drugs Past Policy

9 2005 Procurement Information Bulletin (PIB) GSA clarified the policies and procedures governing the award of FSS contracts with respect to the TAA GSA concluded that non-availability determinations may not be made for items on an MAS contract since these contracts are indefinite-delivery, indefinite-quantity contracts GSA believed that non-availability must be made on an acquisition by acquisition basis and not for indefinite periods such as is applicable to a MAS contract Bottom line: GSA policy prohibits determinations of nonavailability; procurement was limited to U.S.-made or designated country end products Thus, under VA FSS contracts: TAA non-compliant products were not awarded on the FSS contract Products that became TAA non-compliant during contract performance were required to be removed from the FSS contract Hogan Lovells 9

10 Approach to COO on National Contracts VA makes non-availability determinations on National Contracts (NCs) Text in NC solicitations for generic drugs allows for award to an offeror who will supply a drug from a country that does not qualify as a TAA designated country if no designated country product is offered Recognition of the fact that often VA would receive no offers of product from designated countries (FDA approved plants) Non-availability determination can be made prior to contract or, if necessary, mid-contract Hogan Lovells 10

11 Conflict with Veterans Health Care Act of 1992 The inability to grant non-availability determinations for FSS contracts resulted in tension between TAA requirements and the intent of the Veterans Health Care Act of 1992 (VHCA) Under VHCA 603, as a pre-condition to Federal payment for their VHCA covered drugs (innovator drugs and biologics SIN 42-2A), manufacturers are required to sign Master Agreements with VA, under which they pledge to make their covered drugs available for procurement on FSS contracts (at statutorily capped prices) Without the ability to make non-availability determinations, VA has had no choice but to no award all drugs including VHCA covered drugs that originated from countries other than the U.S. and designated countries This result is inconsistent with the intent of the VHCA program... Hardship for VA, which needs ready access to innovator drugs and biologics Hogan Lovells 11

12 Dear Manufacturer Letter (Sept. 25, 2012) To reconcile the FSS TAA policy with the obligations of the VHCA, VA issued guidance in its 2012 Dear Manufacturer Letter Manufacturers were required to continue to report statutory pricing ( Non-FAMPs ) for TAA non-compliant products VA would continue to calculate statutory pricing (Federal Ceiling Prices or FCPs ) for TAA non-compliant products Pricing to Big 4 agencies for direct emergency purchases of TAA non-compliant products were to be capped at FCP Manufacturers were required to pay FCP-based rebates under the Tricare Retail Pharmacy Program for TAA non-compliant products Hogan Lovells 12

13 GSA/VA s Approach to TAA Non-Compliant Covered Drugs New Policy

14 New Policy: April 2016 Guidance Companies are required to add TAA non-compliant covered drugs to the FSS Covered drug manufacturers who do not currently have a 65 I B FSS contract in place are required to establish a VHCAbased Interim Agreement (IA) to bridge the gap while negotiating a VA Schedule contract ( ess/fss/taa.asp) We are now requiring that all covered drugs, regardless of country of substantial transformation, be available on a 65 I B FSS contract. In other words, we now accept covered drugs that were formally excluded due to their TAA non-compliant nature. Hogan Lovells 14

15 TAA Non-Availability Determination The Head of the contracting activity may make an individual non-availability determination pursuant to Information that neither the offered 42-2A product items nor similar items are mined, produced, or manufactured in the United States or a designated country in sufficient quantity to fulfill the requirements, and Manufacturers shall make available for procurement on the FSS each covered drug of the manufacturer (38 U.S.C. Section 8126(a)(1)) VA has stated that the nonavailability determinations have already been made for all TAA non-compliant covered drugs that VA has identified. Hogan Lovells 15

16 TAA Non-Availability Determination Non-availability determination is for VA only Other agencies must make their own determinations as to non-availability of product purchased off of FSS contracts Agencies may not use the same process and/or reach the same conclusions regarding availability TAA non-compliant products may be available to some agencies but not others Not clear how this new structure can/will be administered and monitored, though we understand VA Prime Vendor will manage which agencies can purchase TAA non-compliant product Hogan Lovells 16

17 Impact on Generics Not included in the policy TAA-New Policy VA will make non-availability determinations for covered drugs only Need to continue to ensure correct COO determinations Communication between manufacturing and government contracts team Keep an eye on competitor products Is VA making non-availability for covered drugs that are in fact available Hogan Lovells 17

18 Implementation: Mass Modification 0004 and the Product Addition Modification Request Form

19 Mass Modification 0004 Updates the terms and conditions of the FSS 65 I B contract Read Me First: Requires covered drug manufacturers to place their covered drugs on the FSS contract, regardless of their COO Adds note to FAR Trade Agreements Act Clause and Reps and Certs regarding non-compliant VHCA covered drugs and nonavailability determinations Includes a copy of the TAA Non-Availability Determination Request Letter Requires contractors to update their records in the System for Award Management (SAM.gov) Non-compliant covered drugs being added to Schedule now need to be listed as other end products as required by FAR (g)(5)(ii) Hogan Lovells 19

20 TAA Non-Availability Determination Request Letter Hogan Lovells 20

21 RFM: TAA Representations Hogan Lovells 21

22 Compliance Considerations Associated with new VA TAA Policy

23 COO Still Matters Companies still must accurately represent the COO of its products, At time of addition to the FSS contract, and During performance of the contract While VA will be listing both compliant and non-compliant products on FSS contracts, accurate representations still matter, because VA and other agencies must make a non-availability determinations with respect to non-compliant products Hogan Lovells 23

24 TAA Request Letter: Non-Availability Determination Process Based on two factors: Neither the product items nor similar items are manufactured in the United States or a designated country in sufficient quantity to fulfill the requirements Offered product is covered drug under 38 U.S.C Seems to require both factors to be present, but VA stated all covered drugs would be determined non-available Information is provided by the offeror in the template letter of the Mass Modification 0004 and the Product Addition Request for Modification Form Request Letter states that the VA contracting officer may make a nonavailability determination at the base FSS contract level... based upon statements in this letter as well as my representations in SAM.gov Hogan Lovells 24

25 TAA Request Letter: Non-Availability Determination Process Companies must verify that the offered product has no TAA compliant versions, including authorized generics. VA does not define versions or similar or like items Pharmaceutical Equivalent? Therapeutical Equivalent? Same drug class? Thus, it is unclear how VA will make a non-availability determination Also, unclear how manufacturers can make a representation regarding other companies products Hogan Lovells 25

26 SAM.gov Representations Request Letter and the Product Addition Request for Modification form Require a company to represent that it has revised its SAM.gov representations under (g)(5) and to reflect that the items being offered are not U.S.- made or designated country end products The relevant question in SAM, however, does not ask whether the company is providing a TAA noncompliant end product under its Federal contract(s) Hogan Lovells 26

27 Contact Information Allison Pugsley Counsel Government Contracts Hogan Lovells Hogan Lovells 27