Notably, the Uniform Guidance, which governs grants and cooperative agreements, previously only instructed recipients to “provide a preference for the purchase, acquisition, or use of goods, products, or materials produced in the United States.” 2 C.F.R. § 200.322(a) (emphasis added).3 OMB’s new Buy America requirement creates mandatory domestic preference standards and introduces new burdens for all infrastructure grant recipients, subrecipients, and third-party contractors. The comment period closed on March 13, 2023 with more than 2,000 comments received.4
What is an “infrastructure project”?
Under the proposed regulations, the Buy America requirement applies to awards where funds are appropriated or otherwise made available for “infrastructure projects” in the United States, regardless of whether infrastructure is the primary purpose of the award. 88 Fed. Reg. 8377 (Feb. 9, 2023). “Infrastructure” encompasses public infrastructure projects which include at a minimum, the structures, facilities, and equipment for, in the United States, roads, highways, and bridges; public transportation; dams, ports, harbors, and other maritime facilities; intercity passenger and freight railroads; freight and intermodal facilities; airports; water systems, including drinking water and wastewater systems; electrical transmission facilities and systems; utilities; broadband infrastructure; and buildings and real property; and structures, facilities, and equipment that generate, transport, and distribute energy including electric vehicle (EV) charging. Id.
The proposed rule instructs the Federal awarding agency to interpret the term “infrastructure” broadly and to treat these examples as illustrative and not exhaustive. Id.
The Buy America preference generally would flow down to subawards, contracts, and purchase orders under the infrastructure award.
What does it mean to be “produced in the United States”?
The proposed rule defines the “Buy America Preference” to mean “that none of the funds made available for a Federal award for an infrastructure project may be obligated unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.” Id.
“Produced in the United States” has various meanings, depending on the product or material at issue. For “construction materials”5 and “iron and steel products,”6 produced in the United States means that “[a]ll manufacturing processes . . . occurred in the United States.” Id. For “manufactured products,”7 it means that (1) the product was “manufactured in the United States,” and (2) the cost of the components mined, produced, or manufactured in the United States is “greater than 55 percent of the total cost of all components of the manufactured product . . .” Id.
The proposed regulations set out two tests for determining whether the cost of components for manufactured products is greater than 55 percent of the total cost of all components. For components purchased by the manufacturer, the component cost is “the acquisition cost, including transportation costs to the place of incorporation into the end product (whether or not such costs are paid to a domestic firm), and any applicable duty (whether or not a duty-free entry certificate is issued.” 88 Fed. Reg. 8377 (Feb. 9, 2023). For components manufactured by the manufacturer, the component cost includes “all costs associated with the manufacture of the component, including transportation costs . . . plus allocable overhead costs, but excluding profit.” Id. at 8377-8378. While the test for determining the cost of domestic components is the same under Federal procurement contracts under the Federal Acquisition Regulation (FAR) Buy American Act requirements, the threshold under such procurement contracts is higher. Except for a manufactured end product consisting wholly or predominantly of iron or steel or a combination of both, under a Federal procurement contract, the cost of domestic components must exceed 60 percent of the cost of all the components.8 FAR § 25.101.
When does the new Buy America Preference apply to Federal infrastructure awards?
The proposed regulation is difficult to decipher on this point. The Buy America Preference “applies to a Federal award for an infrastructure project to the extent that a Buy America Preference meeting or exceeding the requirements of section 709014 of [BABA] did not apply to iron, steel, manufactured products, and construction materials in the Federal financial assistance program under which the Federal award is provided before November 15, 2021.” Id. at 8377. Accordingly, the applicability of the new Buy America Preference appears to depend on the specific standard in place under a given Federal financial assistance program prior to November 15, 2021. For example, the Federal Transit Administration (FTA) has a stricter requirement for manufactured products – that all components be manufactured in the U.S. – which applied prior to BABA. See 49 C.F.R. §661.5(d). On that basis, it appears that FTA’s more rigorous requirements would supersede OMB’s proposed regulations. OMB also does not address whether and how the new requirements apply to ongoing infrastructure awards, especially those made in the interim between BABA passage and the effective date of the new regulation.
Next Steps
Domestic preference requirements under Federal awards are evolving at a rapid pace. While Federal procurement contractors have long experience with Buy American/Buy America requirements, expansion into Federal financial assistance awards changes the landscape for recipients of Federal grants and cooperative agreements. In recent years, Federal grantees have faced various new supply chain obligations, including restrictions on the purchase of certain telecommunications equipment and services under Section 889 of National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-232), which precipitated updates to the Uniform Guidance. In addition, grantees anticipate even more changes to the Uniform Guidance following OMB’s February 9 release of a Request for Information to inform potential revisions to all of 2 CFR 200.
We have deep experience advising businesses on the challenges and opportunities of the Buy America requirements. Please feel free to reach out to the author if you would like additional information about the proposed rule or other assistance concerning the complex and evolving area of domestic content restrictions.
References
“Construction materials” means articles, materials, or supplies incorporated into an infrastructure project that consist of only one or more of the following materials: non-ferrous metals, plastic and polymer-based products, glass, fiber optic cable, optical fiber, lumber, or drywall. However, for an item that consists only of a combination of one or more of these materials and binding agents, any binding agents will be disregarded, and each construction material must meet the Buy America Preference standard defined in Section 184.6 of the proposed regulation. 88 Fed. Reg. 8377 (Feb. 9, 2023).
