Finally—A De Minimis Exemption for Buy America

Cohen Seglias Pallas Greenhall & Furman PC
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In November 2021, Congress passed the bipartisan Infrastructure Investment and Jobs Act (IIJA), pledging to invest $1 trillion into new infrastructure nationwide.
 

For more than 40 years, the Build America Buy America Act (“Buy America”) has required contractors to domestically source iron, steel and other manufactured products incorporated into certain federal-aid highway and transit projects. When the IIJA was passed, one key question remained unanswered: how would domestic sourcing requirements, such as Buy America, be incorporated? Finally, in August 2023, the Made in America Office (MIAO), a component of the White House Office of Management and Budget, provided clarity on the issue. The new guidance from MIAO explains that the IIJA expands traditional Buy America requirements and also provides new insight into the exceptions and exemptions available to contractors.

One critical aspect of the IIJA is that it expands domestic sourcing requirements to “construction materials.” Until the latest MIAO guidance, it was unclear which types of construction materials are subject to the requirements. Now, we have the answer. For purposes of the IIJA, “construction materials” means articles, materials or supplies that consist of one or more of the following:

  1. Non-ferrous metals;
  2. Plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables);
  3. Glass (including optic glass);
  4. Fiber optic cable (including drop cable);
  5. Optical fiber;
  6. Lumber;
  7. Engineered wood; and
  8. Drywall

The expansion of domestic sourcing requirements will undoubtedly cause contractors concern. Having to source each of these materials can be both onerous and expensive, or in some cases, nearly impossible.

One criticism from the industry has been that domestic sourcing requirements can delay projects. This is especially frustrating when the quantity of product is quite small (i.e. a change order that requires a few hundred dollars’ worth of lumber that might take weeks or months to procure domestically, but the lumber is otherwise widely available at hardware stores and suppliers). Thankfully, the MIAO’s new guidance provides for a de minimis exemption that completely relieves contractors from domestic sourcing requirements in two instances.

De Minimis Exemption

The non-discretionary de minimis exemption absolutely excuses contractors from domestic sourcing requirements on IIJA projects under two circumstances: (1) when total federal funding on the project does not exceed $500,000; and (2) when “non-compliant” products total $1,000,000 or 5% of the project’s total applicable costs, whichever is less. For exemption purposes, a project’s “total applicable costs” includes the cost of all materials and manufactured products subject to Buy America requirements, minus iron and steel.

While not perfect, the de minimis exemption is helpful. It allows contractors to evaluate and prioritize aspects of procurement that will provide the most financial benefit or acceleration of the project schedule. It will also help prevent major delays for negligible quantity additions or additional work. However, the formula to determine if the material meets the second definition of de minimis is complex, and contractors will have to take care in calculating it.

Conclusion

Unfortunately, Buy America remains a complicated obligation to fulfill, with large implications for non-compliance, such as delayed or denied payments or, in the most severe circumstances, allegations regarding false claims, which may lead to debarment.

Capitalizing on the de minimis exemption will help relieve costs and schedule concerns. As always, Cohen Seglias will continue to keep you updated on any developments in the future and can help navigate any tricky Buy America questions.

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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