Editor’s note: This page provides background research for the January 19, 2022 webinar “Buy American and the New Infrastructure Legislation”
Under the “Build America, Buy America” Act (BABA), which is Title IX of the Infrastructure Investment and Jobs Act (IIJA), Public Law 117-58 (Nov. 15, 2021), a new domestic preference is to apply generally to federal financial assistance (grants) for infrastructure provided by federal agencies to non-federal entities. This preference applies beyond infrastructure projects funded by the IIJA, to reach presumptively all infrastructure projects supported with federal financial assistance to non-federal entities.
Infrastructure Under the BABA: The BABA defines “infrastructure” to include, “at a minimum, the structures, facilities, and equipment for,” in the United States –
(A) roads, highways, and bridges;
(B) public transportation;
(C) dams, ports, harbors, and other maritime facilities;
(D) intercity passenger and freight railroads;
(E) freight and intermodal facilities;
(F) airports;
(G) water systems, including drinking water and wastewater
systems;
(H) electrical transmission facilities and systems;
(I) utilities;
(J) broadband infrastructure; and
(K) buildings and real property.
The U.S. Office of Management & Budget (OMB) has issued a data call to federal agencies for information on infrastructure projects that they fund, and in doing so has urged agencies to “err on the side of inclusiveness and consider programs for which funds may be obligated for infrastructure under any award.”
Non-Federal Entities: Under the Office of Management & Budget’s Uniform Grants Guidance, 2 CFR 200.1, “non-federal entities” mean a “State, local government, Indian tribe, Institution of Higher Education (IHE), or nonprofit organization that carries out a Federal award as a recipient or subrecipient.”
Core Requirements Under the BABA: The domestic content procurement preference imposed by the BABA “means a requirement that no amounts made available through a program for Federal financial assistance may be obligated for a project unless . . . (A) all iron and steel used in the project are produced in the United States; (B) the manufactured products used in the project are produced in the United States; or (C) the construction materials used in the project are produced in the United States.” Thus, under the BABA all covered iron and steel products and construction materials must be produced in the United States. Manufactured products will need to be manufactured in the United States, and at least 55 % of their component costs will need to be U.S.-origin. Specifically, Section 70912 of the BABA defines “produced in the United States” to mean:
- For iron and steel products, “that all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.”
- For manufactured products, that the (i) “product was manufactured in the United States,” and (ii) “the cost of the components of the manufactured product that are mined, produced, or manufactured in the United States is greater than 55 percent of the total cost of all components of the manufactured product, unless another standard for determining the minimum amount of domestic content of the manufactured product has been established under applicable law or regulation.”
- For construction materials, that “all manufacturing processes for the construction material occurred in the United States.”
Possible Regulatory Approaches
Regulators implementing the BABA will have several possible approaches to choose from, including those developed in the Federal Acquisition Regulation (FAR) Part 25 under the Buy American Act (1933) and the American Recovery and Reinvestment Act (2009). The final definitions and approaches that regulators will choose cannot be predicted with certainty; what follows are some of the salient issues, and a review of some of the existing provisions and clauses.
Manufactured Products versus Construction Materials: The BABA imposes different domestic content requirements for “manufactured products” and “construction materials.” This could create confusion among manufacturers and resellers providing goods for covered infrastructure projects because, as is discussed below, construction materials can include manufactured products. Regulators may choose to follow an approach similar to FAR 25.1101(f), which applies domestic preference rules for manufactured products in “solicitations that are predominantly for the acquisition of manufactured end products (i.e., the estimated value of the manufactured end products exceeds the estimated value of other items to be acquired as a result of the solicitation).”
Definition of Construction Materials: Another possible focus will be the definition of “construction materials.” Under the definition of covered “infrastructure” noted above, it is likely that much of the federal grants spending covered by the BABA will involve construction. Regulators may therefore look to the clause at FAR 52.225-9, Buy American-Construction Materials, in implementing the BABA. That clause (like its companion clause, FAR 52.225-11, which is used where free trade agreements apply) defines “construction materials” as follows:
Construction material means an article, material, or supply brought to the construction site by the Contractor or subcontractor for incorporation into the building or work. The term also includes an item brought to the site preassembled from articles, materials, or supplies. However, emergency life safety systems, such as emergency lighting, fire alarm, and audio evacuation systems, that are discrete systems incorporated into a public building or work and that are produced as complete systems, are evaluated as a single and distinct construction material regardless of when or how the individual parts or components of those systems are delivered to the construction site. Materials purchased directly by the Government are supplies, not construction material.
Under this definition, “construction material” is an “article, material, or supply brought to the construction site by the Contractor or subcontractor for incorporation into the building or work.”
Construction Material Includes Preassembled Items: The term “construction material” also “includes an item brought to the site preassembled from articles, materials, or supplies.” Thus, if a preassembled unit is brought to a construction site, regulators may conclude that only the preassembled unit – not each of its component articles, materials, or supplies – must qualify as “domestic.”
Under this same FAR clause, to qualify as a “domestic construction material,” if the material does not “consist wholly or predominantly of iron or steel or a combination of both,” and is not an “unmanufactured construction material,” then the construction material must be “manufactured in the United States.”
Place of Manufacture: To determine whether construction material is “manufactured in the United States,” regulators may look to a different clause promulgated under FAR Part 25, the clause at FAR 52.225-18, Place of Manufacture, which states that the “[p]lace of manufacture means the place where an end product is assembled out of components, or otherwise made or processed from raw materials into the finished product that is to be provided to the Government.” Under that clause, if a product is simply disassembled and reassembled, the place of reassembly is not considered the place of manufacture.
To Qualify As Domestic Construction Material: If the material does qualify as U.S.-manufactured, under the Buy American – Construction Materials clause to qualify as a domestic construction material:
- The cost of its components mined, produced, or manufactured in the United States must be 55 percent of the cost of all of the material’s components. Components of foreign origin of the same class or kind for which nonavailability determinations have been made – i.e., for which a determination has been made that such items are not readily available in the United States – “are treated as domestic,” though components of unknown origin are treated as foreign;
or
(B) The construction material must be a Commercial Off-the-Shelf (COTS) item. To qualify as COTS, an item (which can include “any item of supply (including construction material),” but does not include bulk cargo), must be a “commercial product” per FAR 2.101, sold “in substantial quantities in the commercial marketplace,” and offered “to the Government . . . without modification, in the same form in which it is sold in the commercial marketplace.”
This COTS exception from the Buy American Act requirements for federal government procurements was done as part of a broader effort to identify regulatory requirements that would not apply to COTS items under FAR Part 12 (commercial items), pursuant to the Clinger-Cohen Act of 1996. Federal regulators concluded that, so long as construction materials are manufactured in the United States, the components will not be subject to the Buy American Act’s domestic origin requirements. The regulators pointed to the costs and potential adverse economic impacts of applying the domestic content requirement to components of constructions materials. The detailed regulatory explanation appears at 74 FR 2713, 2715 (Jan. 15, 2009).
If regulators now implementing the BABA borrow this COTS exception from the FAR’s Buy American-Construction Materials clause, they may also apply the same clause’s exception for information technology which qualifies as a commercial product. “Commercial products” under FAR 2.101 form a broad category which includes, among other things, a product “of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes.”
It should be stressed that all of this is merely hypothetical, and that regulators may interpret the BABA differently in implementing the new statute.
Editor’s Update: On April 18, 2022, OMB issued initial guidance on implementing the Buy America provisions of the infrastructure act. Issues presented by that initial guidance are discussed in these slides. On April 22, 2022, OMB announced “listening sessions” to discuss implementation issues and how the FAR Council should define “end product manufactured in the United States” under the infrastructure act.