Following President Biden’s State of the Union address highlighting increased enforcement of Buy America requirements for federally funded infrastructure projects and new standards for construction materials, the White House Office of Management and Budget (OMB) issued a proposed rule and notice of proposed guidance to implement the Build America, Buy America Act (the “Act”) requirements in the Infrastructure Investment and Jobs Act (IIJA) on February 9. OMB is seeking comments on the proposed rule and proposed guidance by March 13.
Of note, the Buy America requirements in the Act became applicable to recipients of federal funds and contractors performing infrastructure projects more than nine months ago on May 14, 2022. While waiting for these new rules to take effect, recipients and contractors should be guided by the language in the Act as well as the initial implementing guidance that OMB issued on April 18, 2022.1 Contractors should carefully review the clauses and certifications in their contracts to ascertain their contractual obligations. There can be serious ramifications for violating the Buy America requirements in the Act, including having to incur substantial costs and delays to re-procure compliant products, facing liability under the False Claims Act and, for contractors, being debarred or suspended—thereby precluding future opportunities to contract with federal, state or local governments.
Background
The Act requires that, not later than 180 days after enactment (May 14, 2022), the head of each federal agency shall ensure that none of the funds made available for a federal financial assistance program for infrastructure may be used for a project unless “all of the iron, steel, manufactured products, and construction materials used in the project is produced in the United States.”2 These Buy America Preferences apply to all infrastructure projects that receive financial assistance directly or indirectly from the federal government (including grants and loans) regardless of whether the financial assistance was provided in the IIJA or through other federal laws—making the impact of the Act significant.
The Act defines infrastructure broadly to include, “at a minimum, the structures, facilities, and equipment for, in the United States—(A) roads, highways, and bridges; (B) public transportation; (C) dams, ports, harbors, and other maritime facilities; (D) intercity passenger and freight railroads; (E) freight and intermodal facilities; (F) airports; (G) water systems, including drinking water and wastewater systems; (H) electrical transmission facilities and systems; (I) utilities; (J) broadband infrastructure; and (K) buildings and real property.”3
While Department of Transportation (DOT) and Environmental Protection Agency (EPA)-funded infrastructure projects historically have been subject to Buy America requirements, the Act expands the scope of Buy America requirements to all federally funded infrastructure, adds new requirements for construction materials and imposes a new test for manufactured products.4 For construction materials, all manufacturing processes for the construction material must occur in the United States. For iron and steel products, all manufacturing processes, from the initial melting stage, through the application of coatings, must occur in the United States. And for manufactured products, the Act requires that (1) the product be manufactured in the United States and (2) the cost of the components 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 domestic content has been established in law or regulation.5
The Act charged OMB with implementing the Buy America requirements while seeking input from the federal agencies that provide financial assistance for infrastructure projects. We reported on OMB’s initial implementing guidance in an earlier client alert dated April 25, 2022, including the directive that federal agencies interpret the term infrastructure broadly and consider whether the 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. OMB stated in the initial guidance that it would issue additional guidance after seeking comment on which manufacturing processes for construction materials must occur in the United States.6
Proposed Rule
The proposed rule adds a new Part 184 to title 2 of the Code of Federal Regulations titled “Buy America Preferences for Infrastructure Projects.”7 The proposed rule also adds a new section to 2 C.F.R. § 200.322, known as the uniform grant rules, clarifying that federal awarding agencies that provide federal financial assistance for infrastructure projects must comply with the Buy America Preferences in 2 C.F.R. Part 184.
The proposed Part 184 is comprised of eight sections addressing purpose, applicability, definitions, applying the Buy America preferences to a federal award, determining the cost of components for manufactured products, construction material standards and the process for obtaining waivers and exemptions.
Manufactured Products
The proposed rule defines “manufactured products” as “articles, materials, or supplies incorporated into an infrastructure project that: (1) Do not consist wholly or predominantly of iron or steel or both; and (2) Are not categorized as a construction material.” To qualify as produced in the United States, a defined manufactured product must be manufactured in the United States and the cost of the components of the manufactured product that are mined, produced or manufactured in the U.S. must be greater than 55 percent of the total cost of all components of the manufactured product.
Section 184.5 specifies how to determine whether the cost of components for manufactured products produced in the U.S. is greater than 55 percent of the total cost of all components relying on the definition in the Federal Acquisition Regulation (FAR) (48 C.F.R. 25.003). Under the proposed provision, the cost of a component purchased by the manufacturer would include the acquisition cost, including transportation costs to the place of incorporation into the end product (whether or not such costs are paid to a domestic firm) and any applicable duty (whether or not a duty-free entry certificate is issued). For components manufactured by the manufacturer, all costs associated with the manufacture of the component, including transportation costs, plus allocable overhead costs, but excluding profit, should be considered. The section further states that the cost of components does not include any costs associated with the manufacture of the end product.
Construction Materials.
The proposed rule defines a construction material as “articles, materials, or supplies incorporated into an infrastructure project that consist of only one or more of the following materials . . . (1)(i) Non-ferrous metals; (ii) Plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables); (iii) Glass (including optic glass); (iv) Fiber optic cable; (v) Optical fiber; (vi) Lumber; or (vii) Drywall.” The definition of construction material, which tracks the definition in the Act, is notably different than the existing definition for federal construction contractors, which must comply with Buy American requirements for any “article, material, or supply brought to the construction site by the Contractor or a subcontractor for incorporation into the building or work” FAR 52.225-9.
The proposed rule notes that it does not include construction materials in the definition of manufactured product since the term construction materials is defined in the Act. The proposed rule requires that all manufacturing processes for defined “construction materials” occur in the U.S. Section 184.6 describes the specific manufacturing process required for each of the construction materials to be considered produced in the U.S. This includes non-ferrous metals, plastic and polymer-based products, composite building materials, glass, fiber optic cable, optical fiber, lumber and drywall.
Questions for Which OMB is Seeking Comment
OMB is seeking comments on the following aspects of the proposed rule as well as comments more broadly.
(1) Manufactured Products
- OMB is seeking comments on whether to adopt the definition of “cost of components” for manufactured product in the FAR (“manufactured product” is not used in the FAR and OMB appears to be borrowing from the definitions used for the domestic content requirements for the purchase of supplies that are “manufactured end products” in the FAR). OMB notes that the definition in the FAR refers to components purchased by the contractor and components manufactured by the contractor and seeks comment on whether it should refer to contractors or manufacturers (as it does in the proposed rule) or some other entity.
- OMB notes that the FAR defines end products as “those articles, materials and supplies to be acquired for public use” and component as “an article, material or supply incorporated directly into an end product or construction material.” OMB is seeking comment on whether to use the FAR definitions or some other definition.8
- OMB is seeking comment on whether there is any reason not to use the FAR standard for cost of components.
(2) Other Construction Material Standards
- OMB is seeking comment on whether to add any additional construction materials, including, paint, brink and wood products to the proposed guidance and if included, the manufacturing process that should be required.
(3) Proposed Definition of Construction Materials
- OMB is seeking guidance on whether additional guidance is needed on the proposed definition of construction materials and specifically whether to clarify that de minimus additions of non-construction materials that do not add significant value or substantially transform the otherwise qualifying construction material do not change the characterization of an otherwise qualifying material as a construction material.
(4) Definition of “Predominantly” Iron or Steel Items
- OMB is asking for comment on whether it should define the term predominantly iron or steel items to mean that the cost of the iron and steel content exceeds 50 percent of the total cost of all the components.
(5) How to Distinguish Between Categories of Products
- OMB is seeking comment on whether additional guidance is needed on how to distinguish between steel or iron products, manufactured products and construction materials. In particular, OMB is seeking comment on its proposed clarification in section 184.3 that if binding agents are added to construction materials, it would not change the characterization of the material as a construction material.
(6) Meaning of Composite Building Materials
- OMB is seeking comment on whether composite building materials should be a subcategory of plastic and polymer-based products or a stand-alone category and whether further guidance is needed on the meaning of the term to distinguish it from plastic and polymer-based products in general.
(7) Fiber Optic Cables and Optical Fibers
- OMB notes that sections 184.3 and 184.6 include “fiber optic cable” and “optical fibers” as two stand-alone categories of “construction materials.” OMB is seeking comment on whether the standards in section 184.6 should be applied differently for optical fibers that include both plastic and polymer-based components and glass components and whether further guidance is needed on the meaning of the terms “fiber optic cable” and “optical fibers.”
(8) Standards Applicable to Optical Fiber and Optical Glass
- OMB notes that the definition of “construction materials” in section 184.3 includes “optic glass” as an example of “glass products” and that section 184.6 does not include a stand-alone category for “optic glass,” but does include a stand-alone category for “optical fiber.” OMB is seeking guidance on whether additional guidance is needed.
(9) Aggregates
- OMB notes that the Act excludes cement and cementitious materials; aggregates such as stone, sand or gravel and aggregate binding agents or additives from the definition of construction material, but does not specify whether these materials are subject to Buy America requirements if they are a component of a manufactured product. OMB, therefore, asks for comment on how the guidance should treat materials made of a combination of raw materials or combined with other raw materials to create a material that has different properties than the properties of the individual raw materials. In defining manufactured products in section 184.3, OMB is asking for comment on whether it should supplement the proposed definition by adding the standard under 2 C.F.R. 176.140(a)(1), which defines a “manufactured good” as “a good brought to the construction site for incorporation into the building or work that has been—(i) processed into a specific form and shape; or (ii) combined with other raw material to create a material that has different properties than the properties of the individual raw materials.” OMB is seeking comment on whether it should exclude raw aggregates (such as stone, sand or gravel) unless they have been processed into a specific form or shape or combined with other raw materials, such as combining them with cement powder and water to produce precast concrete products. OMB also is seeking comment on how it should treat cement and cementitious materials before they are processed into a specific form and shape.
1 There are certain waivers in effect that may also impact compliance obligations.
2 Infrastructure Investment and Jobs Act, Pub. L. No. 117–58, 117th Cong. § 70911-70917 (2021).
3 Id.
4The Act establishes a new test for manufactured products, except that it does not apply where a federal agency has a requirement in place through law or regulation that meets or exceeds the standard in the Act. The Federal Transit Administration has a more stringent requirement—that all components of a manufactured product must be manufactured in the U.S. See 49 C.F.R. §661.5(d).
5Infrastructure Investment and Jobs Act, Pub. L. No. 117–58, 117th Cong. § 70911-70917 (2021).
6 OMB stated in its initial guidance that pending OMB’s issuance of final standards on construction materials, and absent any existing applicable standard in law or regulation that meets or exceeds these preliminary standards, agencies should consider “all manufacturing processes” for construction materials to include at least the final manufacturing process and the immediately preceding manufacturing stage for the construction material. OMB is seeking additional stakeholder input before issuing further guidance identifying initial manufacturing processes for construction materials that should be considered as part of “all manufacturing processes.”
7Note that while Part 184 is a proposed rule, the purpose of the part states that it its intended to provide guidance.
8 OMB noted that it proposes to delete the reference to construction materials since that term is separately defined in the Act.
