On Aug. 14, 2023, the White House, acting through the Office of Management and Budget (OMB), issued final guidance to federal agencies implementing the Build America, Buy America Act (BABA), enacted as part of the Infrastructure Investment and Jobs Act (IIJA), Pub. L. 117-58, 135 Stat 429, 70901-70927, Nov. 15, 2021. The BABA required that OMB provide federal agencies guidance about how to apply the domestic content procurement preference as set forth in the BABA to federal awards for infrastructure projects.

While the BABA’s predecessor, the Buy America Act, imposed domestic preferences only on contracts related to rail or road transportation — such as the construction of highways, railways, or rapid transit systems — the BABA now expands application of domestic preferences to include federal financial assistance programs for infrastructure. Accordingly, the BABA requires companies to use iron, steel, manufactured products and construction materials produced in the United States on all federally funded infrastructure projects.

This final guidance supplements the guidance OMB issued on April 18, 2022, Memorandum M-22-11, “Initial Implementation Guidance on Application of Buy America Preference in Federal Financial Assistance Programs for Infrastructure.” This memorandum provided preliminary guidance to federal agencies on the application of the “Buy America” preferences to federal financial assistance programs for infrastructure, as well as the process to waive such preferences. The final guidance is also largely consistent with proposed guidance OMB issued on Feb. 9, 2023. However, among other changes, the final guidance provides new definitions for the terms “manufactured products” and “construction materials,” and clarifies the waiver process for applying the BABA to international agreements.

The BABA establishes “Buy America” sourcing requirements for three types of key products and materials that are used in infrastructure projects (as defined in the IIJA):

• Iron and Steel — requiring that “all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.”
• Manufactured Products — requiring that “(i) the manufactured product was manufactured in the United States; and (ii) the cost of the components of the manufactured product that are mined, produced, or manufactured in the United States is greater than 55 percent of the total cost of all components of the manufactured product.”
• Construction Materials — requiring that “all manufacturing processes for the construction material occurred in the United States.”

The final guidance amends the supplemental definitions considered in the proposed guidance. These revised definitions, particularly the definitions of “construction materials” and “manufactured products,” generally can be construed as positive developments from the perspective of recipients and contractors because they obviate the need to consider whether and when an item has been “incorporated into an infrastructure project.” For example, the definition of construction materials disposes of the previously contemplated concept of such materials being “incorporated into an infrastructure project” and instead provides a list of “articles, materials, or supplies that [constitute construction materials when they] consist of only one of the items.” The OMB also added drop cable, optical fiber and engineered wood to the definition of construction materials.

Moreover, OMB deleted the previously negatively defined catch-all definition in the proposed rule providing that manufactured products include any article, material or supply incorporated into an infrastructure project that is: (1) not an iron or steel product, and (2) not a construction material. Rather, the final guidance defines a manufactured product as one that is (1) processed into a specific form and shape; or (2) combined with other articles, materials or supplies to create a product with different properties than the individual articles, materials or supplies.

The final guidance also includes new guidance on the BABA waiver process. First, the final guidance provides a formal structure for the process federal agencies must use to request a BABA waiver. It also clarifies the waiver process for international agreements and provides specific criteria for when such waivers should be granted.

Most importantly, the final guidance changes the entity that may request a waiver from a “non-Federal entity” to a “Recipient.” Under the Uniform Federal Guidance, a Recipient is “an entity, usually but not limited to non-Federal entities that receives a Federal award directly from a Federal awarding agency,” and expressly excludes “subrecipients or individuals that are beneficiaries of the award.” 2 CFR § 200.0. This change appears to considerably limit the entities that may submit waiver requests to only those entities that actually received federal award funding, as opposed to subrecipients or their contractors. Similar requirements have posed a significant hurdle for the contracting community historically in connection with project-specific waivers.

Finally, OMB noted that “Federal financial assistance awards are generally not subject to international trade agreements because these international obligations only apply to direct federal procurement activities by signatories to such agreements.” Nonetheless, OMB recognized that “a number of states have opted to obligate their procurement activities to the terms of one or more international trade agreements, and as such, are included in schedules to the international trade agreements.” Recognizing questions about the application of these requirements, the final guidance provides that “the head of a Federal agency that applies a BABA preference to Federal awards [may] propose to waive BABA requirements by following the [OMB waiver provisions]” to the extent that the state receiving federal funds is subject to certain international trade obligations.

Many states and some local entities therefore may have a basis for requesting public interest waivers to the extent that the governmental entity has opted to obligate its procurement activities to the terms of the World Trade Organization Agreement on Government Procurement (WTO-GPA), or other international agreement. At this point, it is unknown how freely agencies will issue public interest waivers for international trade agreements in applicable states following the issuance of this clarification.

Moreover, the fact that such waivers are permissible does not necessarily permit contractors, manufacturers or other entities involved in the supply chain process to offshore their manufacturing activities in a GPA signatory nation as a general matter, unless (1) the relevant funding agreement is subject to the GPA, (2) the relevant state seeks a corresponding waiver, and (3) OMB grants that waiver. Still, this is the first instance where OMB has formally recognized the applicability of these international obligations, which can be recognized as at least a minor win for industry.