Overview
On April 18, 2022, the Office of Management and Budget (OMB) published new guidance related to the implementation of the Build America, Buy America (BABA) provisions in the Infrastructure Investment and Jobs Act (IIJA). The BABA provisions, which passed in November 2021, require that any infrastructure projects receiving federal assistance – not only those infrastructure projects funded by the IIJA – must use iron, steel, manufactured products, and construction materials that are produced in the US. The new guidance describes how federal executive departments and agencies should implement the “Buy America” preference for federally-financed infrastructure projects and a “transparent process to waive” the preference, when necessary. Although the OMB guidance reflects an “initial” approach to implementation, and additional guidance may follow, there are several important takeaways for companies interested in pursuing or currently performing federally-funded infrastructure projects.
Material Definitions and Sourcing Requirements
The guidance provides several definitions and related sourcing requirements for materials that may be used in federally-funded infrastructure projects:
Iron and Steel – “All iron and steel used in the project are produced in the United States. This means all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.”
Manufactured Products – “All manufactured products used in the project. This means the manufactured product was manufactured in the United States, and 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, unless another standard for determining the minimum amount of domestic content of the manufactured product has been established under applicable law or regulation.” Notably, the guidance does not provide a definition of a “manufactured product,” nor does it provide guidance on what constitutes a “component” versus a “manufactured end product.”
Construction Materials – “All construction materials are manufactured in the United States. This means that all manufacturing processes for the construction material occurred in the United States.” The new guidance goes on further to describe “construction materials” as: an article, material, or supply— other than an item of primarily iron or steel; a manufactured product; cement and cementitious materials; aggregates such as stone, sand, or gravel; or aggregate binding agents or additives— that is or consists primarily of: non-ferrous metals; plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables); glass (including optic glass); lumber; or drywall.”
The OMB guidance also clarifies that the Buy America preferences only apply to articles, materials and supplies that are incorporated into an infrastructure project. This means that “tools, equipment and supplies such as temporary scaffolding, brought to the construction site and removed at or before the completion” of the project, are not subject to the Buy America preference. Also excluded from the Buy America preferences are “equipment and furnishings, such as movable chairs, desks, and portable computer equipment, that are used at or within the finished infrastructure project, but are not an integral part of or permanently affixed to the structure.”
“Infrastructure Project”
The OMB guidance broadly defines “infrastructure,” as “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. Agencies should treat structures, facilities, and equipment that generate, transport, and distribute energy -including electric vehicle (EV) charging -as infrastructure.” The guidance further provides that “Project” means the “construction, alteration, maintenance, or repair of infrastructure in the United States.”
The guidance emphasizes that the list of “infrastructure” examples is illustrative and is “not exhaustive.” The guidance instructs agencies to adopt a broad approach to the definition of “infrastructure,” with a view toward whether a particular project will serve a public function, “including whether the project is publicly owned and operated, privately operated on behalf of the public, or is a place of public accommodation, as opposed to a project that is privately owned and not open to the public.” In recognition of the novelty and expansive nature of this definition, the OMB guidance “strongly encourage{s}” Federal agencies to consult with OMB when making determinations as to whether specific projects involve “infrastructure” expenditures. It remains to be seen how Federal agencies will coordinate with OMB in interpreting the definition of “infrastructure” and whether implementation will be inconsistent across agencies.
Waivers
The OMB guidance addresses potential waivers of the Buy America preference that federal agencies may issue upon request. The guidance provides three circumstances where a waiver may be permitted:
“(1) applying the domestic content procurement preface would be inconsistent with the public interest (a “public interest waiver”);
(2) types of iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient and reasonably available quantities or a satisfactory quality (a “nonavailability waiver”); or
(3) the inclusion of iron, steel, manufactured products, or construction materials produced in the United States will increase the cost of the overall project by more than 25 percent (an “unreasonable cost waiver”)” (emphasis added)
The guidance sets forth several specific examples that would support a “public interest waiver.” These are:
- International Trade Obligations: A waiver may be granted if a recipient is a State government that has assumed procurement obligations pursuant to the WTO Government Procurement Agreement or any other trade agreement and a waiver is necessary to ensure compliance with such obligations.
- De Minimis: An agency may consider a de minimis public interest waiver that ensures the cost of processing a waiver does not exceed that of the items waived. The guidance suggests an agency-wide de minimis threshold of 5 percent of project costs up to a maximum of $1,000,000.
- Minor Components: A minor components waiver may include “non-domestically produced miscellaneous minor components comprising no more than 5 percent of the total material cost of an otherwise domestically produced iron and steel product to be used.”
Before a waiver is issued, the issuing Federal agency must publish a detailed explanation for the proposed determination to issue a waiver on its website. The proposed waiver must be subject to a 15-day public comment period. The guidance suggests that waivers be issued to “the greatest extent practicable” at the “project level and be product specific.” However, the guidance also suggests that a broader waiver may be issued that applies beyond a single project.
Conclusion
The new OMB guidance must be applied by Federal agencies no later than May 14, 2022. Companies performing federally-funded infrastructure projects after this date must ensure that they comply with these new requirements, and must carefully review any requested certifications of compliance. While the guidance does not indicate that these requirements are applicable retroactively, it does state that any renewal of awards or amendments obligating new funds to existing awards that occur after May 14, 2022, will be subject to the new Buy America preference.
Companies should familiarize themselves with the Buy America preference and this new guidance if they intend to perform federally-funded infrastructure projects. In addition, companies should be cognizant that implementation of these requirements may not be consistent across all federal agencies, requiring companies to pay close attention to the particularities of specific Federal agency criteria, processes, and procedures for applying a Buy America preference and issuing waivers.
