FHWA Clarifies Broad Reach of Buy America Requirements

by Nossaman LLP
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The Federal Highway Administration (FHWA) released two guidance memoranda in December 2012 relating to Buy America, largely in light of the amendments made by MAP-21.  On December 20, FHWA clarified the Buy America requirements applicable to utility work on Federal-aid projects.  The December 21 memorandum provided additional amplification on FHWA’s position regarding Buy America requirements applicable to manufactured products.

FHWA’s December 20, 2012 Guidance

FHWA was in the process of evaluating the applicability of Buy America requirements to utility work on Federal-aid highway projects when President Obama signed the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, July 6, 2012.  Section 1518 of MAP-21, amending 23 U.S.C. §313, “substantially broadened” the application of Buy America requirements to any contract eligible for Federal highway funding “carried out within the scope of the applicable finding, determination, or decision under the National Environmental Policy Act [NEPA], regardless of the funding source of such contracts if at least one contract for the project is funded with Federal-aid highway funds.”  In a letter to the American Association of State Highway and Transportation Officials (AASHTO), FHWA concludes that, in light of the amendments to 23 U.S.C. §313, “the application of Buy America cannot be narrowed to exclude utility work, even if such utility work is not reimbursed with Federal-aid highway funds.”  The sole case in which Buy America requirements would not apply to utility work is if such utility work cannot legally be reimbursed by the State.

Under the federal-aid highway program, Buy America applies to iron and steel projects used in federal-aid highway project.  Such products must meet the requirements for being American made, unless their use increases the total project cost by at least 25%, suitable American made products are not reasonably available, or it is not in the public interest.  These determinations or waivers are made by FHWA upon application of the state department of transportation.  Exceptions to the Buy America requirement are closely reviewed and have become increasingly difficult to obtain. 

Prior to the enactment of MAP-21, Buy America only applied to contracts actually funded at least in part with federal-aid highway funds.  Since it is typical that the project described in a NEPA document might be constructed with funds from a variety of sources, this substantially expanded the reach of Buy America provisions.  This is particularly true of utility relocation projects, which might be paid for with state funds or even by the utility by itself.  If such work is eligible for federal assistance, whether or not federal funds are used, Buy America applies.

FHWA’s December 21, 2012 Memorandum

FHWA’s current Buy America policy is based on the statutory provisions in the Surface Transportation Assistance Act of 1982, as implemented with a November 25, 1983, final rule.  The 1983 final rule, along with a 1997 clarifying memo, conclude that Buy America does not apply to all manufactured products; Buy America applies only to components made predominately of steel or iron.  FHWA deems a product to be manufactured predominantly of steel or iron if the product consists of at least 90% steel or iron content when it is delivered to the job site for installation. 

While FHWA’s general policy in this regard has not changed, the primary purpose of the December 21 Memorandum is to explain the change in view of FHWA towards waivers of the Buy America requirements.  Upon passage of the American Recovery and Reinvestment Act in 2009 (ARRA), FHWA formed national review teams to analyze the use of ARRA funding and provide recommendations for improvements.  This analysis brought up some questions, such as, does the scope of the 1983 waiver apply to off-the-shelf products?  FHWA states its concern in the memorandum that a broad reading of the statute to include off-the-shelf products “is not cost-effective to administer.”  However, FHWA ultimately concludes that “the scope of the waiver was intended to encompass miscellaneous steel or iron components and subcomponents that are commonly available as off-the-shelf products such as faucets, door hardware, and light bulbs.” 

This reflects a decision by FHWA that even when purchasing or specifying off-the-shelf iron and steel products for use in projects funded with federal aid highway funds, the state or other grantee must require that such products be manufactured in the United States.  The more expansive reading of the statute is policy based and follows the enactment of MAP-21.  It reflects both the Obama Administration’s focus on strengthening Buy America requirements and the broadening of Buy America in the new statute.  Although the MAP-21 amendment does not address the types of products to which Buy America applies, it clearly reflects a desire by Congress to expand the reach of the statute. 

The December 21 Memorandum may be found at the FHWA website

Conclusion

What does this mean for transportation projects?  Previously contractors could get around the Buy America requirements by splitting up contracts into pieces that would or would not be reimbursed by federal funding depending on whether or not the work involved non-compliant materials.  This work-around is no longer available.  FHWA has made clear that a broader reading of the Buy America requirements will now be followed. 

For additional Buy America information please see the FHWA website.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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