TAKEAWAYS

• Funding provided under the Infrastructure Investment and Jobs Act (IIJA) is conditioned on complying with domestic content requirements.
• The Office of Management and Budget (OMB) has proposed new regulations to implement the requirement to use domestic construction materials, which among other things identify what items will be considered construction materials and the process for determining whether they are of U.S. origin.
• Public comments on the proposed regulations are due by March 13, 2023.

As anticipated, following President Biden’s State of the Union Address, the Office of Management and Budget (OMB) issued additional guidance to implement the Build America, Buy America Act provisions of the IIJA. Published on February 9, 2023, the proposed guidance seeks to implement consistent government-wide Buy America requirements for infrastructure projects, and includes guidance to determine the cost of manufactured products and when a variety of types of construction materials can be treated as U.S.-made.

As we have previously noted, the Biden Administration is focused on increasing domestic manufacturing in support of the U.S. supply chain base. Shortly after taking office, for example, on January 21, 2021, President Biden issued Executive Order 14005, which required the U.S. government to review existing rules and begin to procure goods, products, materials and services from sources that will help American businesses. President Biden later signed into law the IIJA, which includes the Build America, Buy America Act. The Act required federal agencies, by May 2022, to ensure “none of the 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.” In April 2022, OMB issued initial guidance for federal agencies on the application of the domestic content requirements to federal financial assistance programs for infrastructure, and a process for handling waivers, when appropriate. The guidance also provided preliminary and nonbinding advice on the definition of “construction materials.” In its latest action, OMB has proposed new regulations to codify its prior guidance with certain modifications and to add further detail.

The Act focuses on projects to be carried out at the state or local levels for which the federal government is providing funding, rather than on direct purchases by the federal government (which are administered separately under the Federal Acquisition Regulation). Such federal funding comes with conditions that include requirements to incorporate the relevant “buy American” provisions into awards, contracts and purchase orders issued by state or local entities. The requirements for domestically produced iron and steel products, manufactured products and construction materials can raise complex and nuanced questions, which the proposed regulations seek to clarify.

For example, a manufactured product qualifies as manufactured in the United States if 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. The OMB notice proposes to use the definition of “cost of components” from the Federal Acquisition Regulation that is used for federal procurement, and accordingly differentiates between components purchased by the manufacturer and components produced by the manufacturer itself:

- For components purchased by the manufacturer, total cost includes the acquisition cost, including transportation costs to the place of incorporation into the end product, and any applicable duty.

- For components produced by the manufacturer, total cost includes all costs associated with the production of the component, including transportation costs as described above, plus allocable overhead costs, but excluding profit. The cost of components does not include any costs associated with the manufacture of the end product.

Similarly, the proposed regulations define what materials are being treated as “construction materials” and the processes that must take place in the United States for them to be considered produced in the United States. Under the proposed regulations, the following are construction materials:

• Non-ferrous metals
• Plastic and polymer-based products
• Composite building materials
• Glass
• Fiber optic cable
• Optical fiber
• Lumber
• Drywall

The Act’s domestic content requirements are imposing new burdens on contractors and will result in extensive recordkeeping requirements, as suppliers will need to be able to trace their sources of materials and certify compliance.

Comments on this proposed rule are due by March 13, 2023.