Proposed "Buy American" Regulations Complicate Doing Business with the State of Maryland

by Baker Donelson

On July 11, 2014, the Maryland Board of Public Works issued a Notice of Proposed Action that proposed new regulations concerning the preference for American-manufactured goods on most public contracts. The regulations, as proposed, may adversely impact certain bidders on public construction contracts and other entities involved in the procurement process. The regulations are open for public comment until August 11, 2014.

By way of background, in 2013 the Maryland General Assembly amended the General Procurement Law to expand the existing preference for American steel products in public contracts to nearly all American-manufactured goods. The preference for American-manufactured goods, which went into effect on October 1, 2013, contains certain statutory exceptions, including if the head of the public body determines that: (1) the American-manufactured good is not manufactured or available for purchase in “reasonably available quantities”; (2) the quality of the American-manufactured good is “substantially less” than the quality of a comparably priced, similar, and available foreign-manufactured good; or (3) the price of the American-manufactured good exceeds the price of a foreign-manufactured good by an “unreasonable amount.”

The General Assembly directed the Board of Public Works to adopt regulations defining “reasonably available quantities,” substantially less quality,” and “unreasonable amount.” The July 11, 2014 Notice of Proposed Action offers such definitions.

Apparently borrowing language from a regulation concerning a preference for American-made uniforms and safety equipment applicable to public employers, the Board of Public Works has proposed to define: (1) “reasonably available quantities” as meaning “at least 90 percent of the goods procured by the public body are available within the public body’s delivery schedule”; (2) “substantially less quality” as meaning “not in compliance with applicable safety and durability standards including warranty terms”; and (3) “unreasonable amount” as meaning “more than 5 percent over the lowest financial proposal or bid offering goods manufactured outside the United States.”

These proposed definitions raise several potential concerns. For example, the proposed definition of “reasonably available quantities,” which sets a 90-percent threshold for timely availability, may be a concern for public bidders. The statute and regulations are not entirely clear as to who is responsible to track and demonstrate reasonable availability, at what point in the process reasonable availability is to be determined, and what happens if the availability of American-manufactured goods changes during a project. Further, while a 90-percent threshold for timely availability may be appropriate for the purchase of uniforms in public employment, it is likely to be problematic in construction of public projects. If, for example, the goods are necessary for a task early on the critical path, the Board’s regulations may force a contractor into a delay while it waits for the remaining 10 percent of the goods to become available.

In addition, the proposed definition of “unreasonable amount,” which limits the preference to circumstances in which the price of American-manufactured good is not more than five percent over the lowest bid for a foreign-manufactured good, is also potentially problematic for U.S. manufacturers and suppliers of construction materials. The five-percent threshold is considerably lower than the figure initially proposed by the bill’s sponsors. The bill, as originally proposed in the General Assembly, would have allowed a price differential as high as 30 percent in certain circumstances. The regulations proposed by the Board of Public Works therefore render the American-manufactured-good preference less robust than might have been expected.

As stated above, the proposed regulations are open for public comment until August 11, 2014.

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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