The White House Office of Management and Budget (OMB) issued a Proposed Rule and Notification of Proposed Guidance to federal agencies earlier this year regarding the implementation of the Build America, Buy America Act (BABA), which imposes a government-wide preference for domestically produced iron and steel, manufactured products, and construction materials in federal infrastructure projects. The Proposed Rule builds upon the White House guidance for BABA released in April 2022. Although confusingly styled as “guidance,” the Proposed Rule proposes definitions and standards that will be binding on all federal agencies, with the exception of independent regulatory agencies.

In the Proposed Rule, OMB solicited feedback on a laundry list of issues from a wide range of stakeholders. Common themes in the comments include criticism about the expansive scope of the Proposed Rule, ambiguities and internal inconsistencies in the proposed standards, and possible deviations from the parameters established by Congress.

The Proposed Rule still appears to be a work in progress and leaves open a number of important questions. Contractors and state and local authorities continue to face regulatory uncertainty about how the BABA restrictions apply to their infrastructure projects.

How We Got Here

BABA and the Proposed Rule build upon a complex patchwork of Buy America restrictions that vary depending on which federal authority provides the infrastructure funding. (“Buy America” restrictions apply to domestic infrastructure funding, whereas “Buy American” restrictions, such as the Buy American Act, apply to federal procurements.) At times, these domestic preference restrictions vary even at the sub-agency level.

Critically, although federal regulations that apply Buy America domestic content restrictions may be similar across federal agencies (such as the two-part test for manufactured products), the availability of waivers for specific products and classes of products varies and is specific to each funding authority. In addition, the Made In America Office (MIAO) within OMB aims to limit the use and impact of waivers by increasing consistency and public transparency of waivers through publication on a public web site.

BABA was enacted as Title IX of the 2021 bipartisan Infrastructure Investment and Jobs Act (IIJA). On the one hand, IIJA provided over $1.2 trillion for a broad range of infrastructure projects. On the other hand, BABA imposed, for the first time, government-wide domestic preference restrictions that generally apply to all federally-funded infrastructure projects, regardless of whether they are funded by IIJA. Preceding domestic preference restrictions, by contrast were specific to particular appropriations and the federal entities that managed them.

BABA generally requires covered federal agencies to ensure that “none of the federal funds made available for a Federal financial assistance program for infrastructure may be obligated for a project unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.” BABA, in theory, does not supplant existing domestic preference restrictions but creates a government-wide baseline that applies only to the extent the existing standards fail to “meet or exceed” the new BABA requirements.

However, BABA expands the current domestic preference regime, which applies only to iron and steel and to manufactured products, by extending Buy America restrictions to a new category of inputs: construction materials. BABA lists several “common construction materials” that are “not adequately covered by a domestic content procurement preference” but exempts “cement and cementitious materials, aggregates such as stone, sand or gravel, or aggregate binding agents or aggregates.”

OMB’s implementing regulations will be codified in a new part 184 in 2 C.F.R. chapter I and in revisions to 2 CFR 200.322. Notably, the Proposed Rule applies the BABA restrictions very broadly – proposed section 184.4 defines “infrastructure projects” as “any activity related to the construction, alteration, maintenance, or repair of infrastructure in the United States, regardless of whether infrastructure is the primary purpose of the project.” This definition potentially sweeps in any federally-funded program that is tangentially related to “infrastructure.” In this regard, the Proposed Rule directs federal agencies to “interpret the term ‘infrastructure’ broadly” for purposes of deciding whether a project that is not identified in the list of examples should be covered by these restrictions. BABA restrictions flow down to sub-awards and to sub-recipients unless a specific exemption applies.

Varying Standards

To be considered “produced in the United States” under the Proposed Rule, materials must meet varying standards, depending on whether the material constitutes (i) iron/steel, (ii) a manufactured product, or (iii) construction material:

• Iron/Steel: The use of iron and streel is compliant if “all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.”
• Manufactured Products: The use of manufactured products is compliant if they are: (i) “manufactured in the United States”; and (ii) contain greater than 55% domestic components, as measured by the total cost of components (“unless another standard for determining the minimum amount of domestic content of the manufactured product has been established under applicable law or regulation”). In effect, the Proposed Rule incorporates the “cost of components” test used under the Buy American Act (BAA) and codified at Federal Acquisition Regulation (FAR) 25.003.
• Construction Materials: The use of construction materials is compliant if “all manufacturing processes for the construction material occurred in the United States.” Section 184.6 of the Proposed Rule sets forth how the phrase “all manufacturing processes” applies to specific construction materials. The Proposed Rule outlines standards for eight discrete categories of “construction materials,” including: non-ferrous materials, plastic and polymer-based products, composite building materials, glass, fiber optic cable, optical fiber, lumber and drywall.

Curiously, the Proposed Rule provides no guidance at all about how the interplay between these restrictions and the principle of non-discrimination enshrined under the World Trade Organization’s Government Procurement Agreement and other free trade agreements despite a specific statutory requirement to apply the Buy America preference “in a manner consistent with United States obligations under international agreements.”

Stakeholder Response

The Proposed Rule elicited nearly 2,000 comments from a wide range of stakeholders, including small contractors, large construction companies and manufacturers, trade groups and state transportation and transit authorities, as well as some foreign entities. Several common areas of concern emerged.

State and local transit authorities that manage federally funded infrastructure projects criticized the adoption of definitions and standards from the FAR.

Although harmonizing restrictions that apply to infrastructure and to FAR procurements may be appealing on a superficial level, the definitions in the FAR are targeted toward the acquisition of items and commodities and cannot be extended neatly to cover infrastructure projects. The New York Metropolitan Transportation Authority (MTA), for instance, urges OMB to rethink adopting the FAR definitions of “end product” and “component.” MTA notes that the FAR defines “component” as “an article material or supply incorporated directly into an end product or construction material.” However, construction materials under BABA generally do not contain separately manufactured components “in any meaningful sense.”

In particular, MTA notes that the FAR’s definition of “end product” contradicts the longstanding definition applied by the FTA. The Proposed Rule also defines “manufactured products” as articles, materials, or supplies that “(1) [d]o not consist wholly or predominantly of iron or steel or both; and (2) [a]re not categorized as a construction material.” The word “predominantly” does not appear in BABA.

MTA expresses concern that items that happen to contain iron or steel and that are properly treated as manufactured items under existing agency rules would be treated as iron/steel under the Proposed Rule. For instance, track controls housed in a steel cabinet would be considered a manufactured item under agency rules, but might be classified as steel under the Proposed Rule if the steel accounts for more than 50% of the cost of the device. These concerns were echoed by other state transportation authorities.

The Proposed Rule’s definition of “construction materials.”

Confusingly, the proposed definition of “construction materials” could include items that contain a combination of construction materials that otherwise would be understood as falling under the category of “manufactured products.”

• Under the Proposed Rule, “Construction materials means articles, materials or supplies . . . that consist of only one or more of[seven categories of enumerated construction materials].”
• In contrast, the WH Guidance defined construction material as material that “is or consists primarily of: non-ferrous metals, plastic and polymer products…, glass, lumber, or drywall.”

As several comments point out, the window resulting from glass within a plastic frame would be considered a manufactured product under the WH Guidance and under existing agency regulations but would be classified as a construction material under the Proposed Rule.

OMB’s suggestion that a combination of products that are excluded by BABA from the construction material categories (e.g., cement and other aggregates) be subject to domestic preference restrictions.

Numerous comments argue that such an approach circumvents the statutory exclusion and is contrary to the language and intent of BABA.

BABA section 70911 requires that restrictions contained therein be “applied in a manner consistent with the United States’ international obligations.”

As the European Union points out, the Proposed Rule does not even refer to this requirement, much less provide guidance about how BABA restrictions should be harmonized with international treaty obligations.

Concern about the timeframe of BABA implementation, uncertainty about the waiver process, and the survival of existing waivers.

Many comments requested that OMB require that waivers be considered and processed within a specified timeframe.

What’s Next

The range of materials covered by BABA along with the additional materials referenced in the Proposed Rule are very broad and, in many cases, covers niche materials that are not required in sufficient quantities to spur significant expansion of American industries. Further, recipients of federal infrastructure funding need to evaluate thousands of standard work items for Buy America coverage compliance. Therefore, ongoing uncertainty over the classification of materials and products (particularly at the component and subcomponent level, in the case of manufactured items) threatens to delay the progress of infrastructure projects.

Nonetheless, the move toward tightening domestic preferences is one of the few policy areas of bipartisan agreement and is likely to continue for the foreseeable future. In the context of FAR procurements, both the Trump and Biden administrations have issued executive orders that increased the domestic requirement under the BAA and introduced a centralized review process to reduce the use of BAA waivers by federal agencies. (These developments are addressed in previous blog posts here and here). The enactment of the bipartisan BABA in 2021 emerged out of the same public policy dynamic. Therefore, as BABA implementation continues, the fate of existing waivers and the implementation of centralized waiver review at OMB will be of critical importance.

Although the Biden Administration introduced centralized review of waivers to add another level of scrutiny, OMB oversight could accelerate waiver review – for instance, by prescribing a definite timeframe for agency consideration of waiver requests, and by creating a more uniform waiver application system, as suggested by numerous comments.

For more information about current and developing domestic preference requirements, please contact any of our Government Contracts lawyers.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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