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

FSS Contracting and the Trade Agreements Act

Country of Origin Framework: The Trade Agreements Act

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FAR 52.225-5, 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 52.212-3

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 TAA-compliant

Certification requirement is ongoing

Trade Agreements Act

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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

What Countries are“Designated Countries”

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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.)

TAA Rule of Origin

Substantial transformation

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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

TAA Substantial Transformation Analysis

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Exceptions Non-availability Determination: Applies where no equivalent product is available from a

designated country (FAR 25.502(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 225.403(ii))

TAA Exceptions

Past Policy

GSA/VA’s Approach to TAA Non-Compliant Covered Drugs

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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 non-availability; 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

2005 Procurement Information Bulletin (PIB)

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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

Approach to COO on National Contracts

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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

Conflict with Veterans Health Care Act of 1992

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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

Dear Manufacturer Letter (Sept. 25, 2012)

New Policy

GSA/VA’s Approach to TAA Non-Compliant Covered Drugs

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• 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 VHCA-based Interim Agreement (IA) to bridge the gap while negotiating a VA Schedule contract

• (http://www.va.gov/oal/business/fss/taa.asp)

New Policy: April 2016 Guidance

“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.”

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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.

TAA — Non-Availability Determination

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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

TAA — Non-Availability Determination

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Impact on Generics

Not included in the 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

TAA-New Policy

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

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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 52.225-5 Trade Agreements Act Clause and Reps

and Certs regarding non-compliant VHCA covered drugs and non-availability 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 52.212-3(g)(5)(ii)

Mass Modification 0004

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TAA Non-Availability Determination Request Letter

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RFM: TAA Representations

Compliance Considerations Associated with new VA TAA Policy

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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

COO Still Matters

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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. 8126 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 non-availability determination at the base FSS contract level . . . based upon statements in this letter as well as my representations in SAM.gov”

TAA Request Letter: Non-Availability Determination Process

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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

TAA Request Letter: Non-Availability Determination Process

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Request Letter and the Product Addition Request for Modification form

Require a company to represent that it has “revised” its “SAM.gov representations under 52.212-3(g)(5) and 52.225-6 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 non-compliant end product under its Federal contract(s)

SAM.gov Representations

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Contact Information

Allison Pugsley

CounselGovernment ContractsHogan Lovellsallison.pugsley@hoganlovells.com