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President-elect Joe Biden has outlined several policy objectives that have the potential to fundamentally change procurement in the United States. These policy objectives will inevitably evolve and change as the president-elect encounters new political realities, including what increasingly appears to be a divided congress and a weakened majority of Democrats in the House of Representatives. This article aims to outline potential policy directives under a Biden administration that procurement professionals should keep a close eye on.

CLIMATE

Biden proposes to leverage $400-500 billion in annual spending to buy sustainable and American-made products: Biden has signaled that he will direct the federal government to purchase products and services that are sourced domestically and are climate-friendly. Biden is likely to carry out this policy directive, which would require cabinet-level secretaries to reduce their emissions through the means of procurement, via an executive order and without the need of congressional approval.

This policy would have massive implications for the larger procurement industry in the United States, including an overnight surge in demand for American-made and sustainable products. Massive reallocations of government spending to prioritize domestic production and a reduction of corporate emissions would drive investment and the development of new US manufacturing companies and a wider range of sustainable products and solutions.

The President-elect has also pledged to rejoin the Paris Agreement, the global framework to tackle greenhouse emissions, which highlights President-elect Joe Biden’s interest in international collaboration to address climate challenges.

FINANCE

Biden may pressure the federal financial system to mandate the disclosure of climate risk: Biden has advocated changing some of the financial market rules to prioritize climate disclosures without the need for congressional approval. For example, the President has the authority to appoint new chairs of the Securities and Exchange Commission (SEC), Office of Management and Budget (OMB) and the Council on Environmental Quality (CEQ). This policy is focused on directing the federal financial system to begin factoring the climate as a systemic risk similar to trade or currency risk.

Changes to financial reporting requirements would likely result in additional regulatory compliance costs for US companies, including investments in technology, software and emissions reporting. These policies would also likely speed up the multi-decade discussions and development of new domestic carbon markets. Biden has also outlined policies to create additional market incentives for large companies to trade emission units once carbon reporting is centralized in an effort to reduce greenhouse gas.

INFRASTRUCTURE

Biden plans to leverage environmental and infrastructure policies to promote energy and manufacturing investments: The president-elect has stated that the United States is in need of a long-term $1.5 trillion infrastructure bill to revamp domestic infrastructure. Biden has indicated he would like to refocus this infrastructure spending around environmental sustainability, which would benefit green-energy industries such as electric vehicles, batteries, wind and solar in the form of new investments and tax subsidies.

President-elect Joe Biden’s green infrastructure proposals aim to create market incentives for the growth of the green-energy sector in the form of large government contracts to incentivize green purchases, which would foster growth in domestic manufacturing infrastructure and a multitude of green-energy investments. However, Congress maintains the power to pass federal funding for public infrastructure spending.

TRADE

Biden plans to prioritize the stabilization of domestic markets, then turn to trade negotiations: President-elect Biden’s transition team is emphasizing that Biden wants economic recovery and stabilization in US markets before engaging in new trade negotiations. The Biden campaign wants to first address the steady rise in foreign procurement and continued outsourcing of jobs by US corporations. However, the President-elect is still keen on addressing the ongoing pandemic, systemic climate risks and ongoing procurement-related trade barriers through the means of global cooperation and by improving the flow of international supplies.

Biden has indicated he will renegotiate the Agreement on Government Procurement: The Agreement on Government Procurement is a plurilateral agreement under the World Trade Organization (WTO) that regulates the procurement of goods and services by public authorities and is based on the principles of openness, transparency and non-discrimination. Renegotiations would seek to establish new international trade rules and domestic regulations regarding government procurement that would enable the US to slow the attrition rate of American jobs moving overseas and save taxpayer dollars for domestic investment.

These policy changes would likely translate into higher regulatory compliance costs for procurement departments as new regulations require additional technology and regulatory reporting investments, such as software and hiring of regulatory compliance officers. This policy may also promote greater levels of competition and price transparency in the US procurement market for the purpose of stabilizing prices and expanding domestic manufacturing processes.

PHARMA

The president-elect plans to rebuild domestic pharmaceutical supply chains: Biden has avoided discussions of direct intervention in the pharmaceutical market and drug prices. Instead, Biden has outlined policies that take a more market-centric approach. The Biden transition team has discussed plans to create a market for American pharmaceutical manufacturing by leveraging the purchasing power of Medicare, Medicaid and the Department of Veterans Affairs.

The President-elect plans to direct these federally funded programs to prioritize the purchase of drugs manufactured domestically and that have active pharmaceutical ingredients (APIs) made within the United States. Although the US would still purchase some foreign-produced pharmaceuticals, this policy would help to create more competition in the domestic market by creating tax incentives and the opportunity to win large government contracts to spur new domestic manufacturing investments. Additional competition in domestic markets may also have a stabilizing effect on rising pharmaceutical drug prices.

 

Key Takeaways:

  • Despite the prospect of a divided congress, President-elect Biden appears to have the authority to dramatically change the procurement landscape in the United States via Executive Actions, international trade negotiations and intervention in financial markets.
  • The green-energy markets, specifically the electric vehicle, solar, wind and battery markets, are poised to experience robust growth in size and range of offerings on the back of newly proposed government procurement policies.
  • Biden is expected to prioritize the stabilization of domestic markets by directing the federal government to purchase sustainable and American-made purchases before negotiating new international trade deals.

 

By: Riley Mallon

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