TAKEAWAYS

• The Build America, Buy America Act generally requires that non-federal government infrastructure projects that benefit from federal government funding impose requirements for the use of domestic iron and steel and construction materials, as well as that “manufactured products” have more than 55% of their total component cost consist of domestic content, although it does not supplant prior domestic content regulations that are stricter.
• The Office of Management and Budget has issued Final Guidance on implementation of the Build America, Buy America Act rules, clarifying certain issues that arose from prior versions of the guidance, including by providing more precise definitions.
• Products that are predominantly iron and steel, as well as certain types of construction materials, must have all their manufacturing processes occur in the United States.

On August 14, the White House Office of Management and Budget (OMB) published its final guidance (Final Guidance) on the implementation of the Bipartisan Infrastructure Law (BIL), which includes domestic content requirements reflected in the Build America, Buy America Act (BABA). The pre-publication version is currently available here.

The Final Guidance will become effective 60 days after publication in the Federal Register but provides a wind-down period for ongoing or previously planned products. The Final Guidance applies to federal grants issued after its effective date. For grants issued between May 14, 2022 (the effective date of BABA), and the effective date of the final guidance (60 days after publication), previously published guidance in Memorandum M-22-11 (Initial Guidance) may still apply.

Background
Enacted on November 15, 2021, BABA establishes a requirement to use domestic materials for infrastructure projects that benefit from federal funding. BABA applies to three categories of items: (i) iron or steel products; (ii) manufactured products; and (iii) construction materials. In April 2022, the OMB published the Initial Guidance, which was accompanied by a request for information and public comments. In February 2023, the OMB published “Interim Guidance,” which also underwent public comment and review. Our update on the Interim Guidance is here. The Final Guidance is informed by nearly 2,000 public comments.

Among other key elements, BABA requires that when federal grants are used for infrastructure projects, all iron and steel products and “construction materials” must be of U.S. origin, and “manufactured products” must have greater than 55% U.S. content.

Importantly, and as affirmed in the Final Guidance, BABA domestic content requirements only apply to non-federal projects that are funded (in part or in whole) with federal grants. BABA does not apply to federal government direct procurement or override pre-existing Buy America rules of other agencies where they are at least as strict. The Final Guidance clarifies that BABA requirements apply to all federal finance assistance programs for infrastructure, even if they are not funded through the BIL specifically.

Final Guidance
The Final Guidance adds a new section of Title 2 of the Code of Federal Regulations to contain the OMB’s guidance, including the applicable requirements for manufactured products, construction materials and iron and steel to be considered of U.S. origin. The OMB emphasized that the rules are guidance and not regulations, and that it remains the responsibility of other government agencies to implement the rules.

The Final Guidance clarifies a number of issues raised by commenters, although not every ambiguity has been resolved.

Key Definitions

• Manufactured Products. The Final Guidance defines “manufactured products” as articles, materials or supplies that have been: “(i) Processed into a specific form and shape; or (ii) Combined with other articles, materials, or supplies to create a product with different properties than the individual articles, materials, or supplies.” The Final Guidance confirms that agencies should follow the “cost of components test” from the Federal Acquisition Regulation (FAR) to determine the domestic content of manufactured products under BABA.
• Iron and Steel. BABA’s iron and steel requirements apply to products that are “predominantly” iron and steel. The Final Guidance states that “predominantly” means that the cost of the iron and steel exceeds 50% of the total cost of all components. For iron and steel products, all manufacturing processes, from the initial melting stage through the application of coatings, must occur in the United States.
• Construction Materials. BABA’s requirements for construction materials are particularly important because prior domestic content laws generally have not addressed such materials. The Final Guidance defines construction materials as the following: “(i) Non-ferrous metals; (ii) Plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables); (iii) Glass (including optic glass); (iv) Fiber optic cable (including drop cable); (v) Optical fiber; (vi) Lumber; (vii) Engineered wood; and (viii) Drywall.” This list includes three new categories not previously covered: fiber optic cable, optical fiber and engineered wood. The Final Guidance also confirms that “all manufacturing processes” for construction materials must take place in the United States. This is an important clarification since the Initial Guidance required that only the final and immediately preceding manufacturing processes were to occur in the United States. (Note that non-listed construction materials, such as wet cement and hot mix asphalt brought to the work site for incorporation, are not restricted; on the other hand, precast concrete may be considered a manufactured product.)

In this regard, the Final Guidance in Section 184.6 explains how the “all manufacturing processes” standard should be fulfilled for each construction material listed. For example, for non-ferrous metals, all manufacturing processes from initial smelting or melting through final shaping, coating and assembly, must occur in the United States. For glass, initial batching and melting of raw materials through annealing, cooling and cutting must occur in the United States.

Compliance with International Agreements
Some commenters had asked the OMB to clarify the relationship between the BABA rules and U.S. obligations under international trade agreements not to discriminate against foreign products in government procurement. The OMB noted that the U.S. federal government obligations under international agreements generally extend only to direct federal procurement and not to obligations imposed on sub-federal (state and local) governments through conditions on grants. The OMB stated that some state governments previously signed on to obligations under international procurement agreements, but that they will have to request permission for waivers to comply with such obligations; in other words, there is not an automatic exemption.

Waivers
The Final Guidance elaborates on the circumstances in which waivers from BABA requirements may be granted. As stated in BABA, these include: (1) public interest, (2) unreasonable cost, and (3) nonavailability. Specifically, an agency may find that a waiver is needed due to unreasonable cost if compliance would increase the price of the overall infrastructure project by more than 25%. The Final Guidance notes that federal agencies will be responsible for publishing details on how to apply for a waiver under their respective guidelines. Agencies must publicly state why a waiver should be granted and, except in circumstances of general applicability, provide a public comment period of at least 15 days before submitting the waiver to the OMB for a final determination. Proposed waivers of general applicability must allow at least 30 days for public comment.

Some agencies have previously issued waivers of general applicability; for example, the Federal Highway Administration of the Department of Transportation has a general waiver for manufactured products, although in March 2023 it requested public comments on whether to maintain or modify that waiver. The Department of Transportation, which has several agencies with their own domestic content regulations, finalized a waiver on August 16 (available here) establishing a Department-wide de minimis exemption that applies where (i) the total value of the non-compliant products is no more than the lesser of $1,000,000 or 5% of total applicable costs for the project; or (ii) the total amount of federal financial assistance applied to the project, through awards or subawards, is below $500,000.

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Notwithstanding the significance of the Final Guidance in establishing baseline rules, contractors should continue to consult and follow the requirements of the specific government agency that is providing the funding for the particular project on which they are bidding.

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