The White House issued final guidance this week governing the procurement preferences required by the Build America, Buy America Act, or BABA, for infrastructure projects. In addition to providing definitions for key terms and finalizing the test Federal agencies and award recipients must use to determine the cost of components of manufactured products, the guidance confirms the procedures for requesting and obtaining BABA waivers. The guidance will be effective sixty days from the date the guidance is published in the Federal Register.
Build America, Buy America Act Obligations
The Build America, Buy America Act1 ("BABA"), enacted as part of the Infrastructure Investment and Jobs Act on November 15, 2021, maximizes the Federal government's use of services, goods, products, and materials produced and offered in the United States. To this end, BABA requires that three separate product categories: (i) Iron or Steel Products; (ii) Manufactured Products; and (iii) Construction Materials, be produced in the United States when used in covered infrastructure projects.
BABA provisions apply to Federal financial assistance awards (e.g., grants and loans) made after May 14, 2022, that are used to construct, alter, maintain, or repair infrastructure in the United States. Infrastructure as contemplated by BABA includes projects with public functions, such as roads, highways, bridges, public transportation facilities, dams, ports, harbors, railroads, freight and intermodal facilities, airports, water systems, electrical transmission facilities and systems (including structures, facilities, and equipment that generate, transport, and distribute energy, including electric vehicle charging facilities).
The new guidance2 issued by the Office of Management and Budget ("OMB") is intended to be high-level coordinating guidance for Federal agencies to use in their own direct implementation of BABA and will impact all companies who have or receive BABA covered awards.
BABA's Applicability to For-Profit Organizations
Many commenters to OMB's draft BABA guidance sought clarification of when and how BABA's domestic preference requirements applied to for-profit entities. The final guidance confirmed the OMB's previously asserted position in Memorandum M-22-11 that for-profit organizations are not directly subject to BABA's Buy American preferences if they are a prime award recipient, unless a Federal agency specifically includes domestic content requirements in their award of Federal financial assistance. Importantly, the Buy America obligations are also applicable to for-profit entities that are a sub-recipient or sub-awardee under an award that contains the Buy America Requirement term and condition, or that voluntarily agree to comply with Buy America obligations in their proposal or agreement with a Federal agency.
BABA Definitions of Covered Products or Materials
Under BABA, the new guidance makes clear that "[a]n article, material, or supply should only be classified into one of the following categories: (1) iron or steel products; (2) manufactured products; (3) construction materials; or (4) section 70917(c) materials."3 As such, the guidance updates and revises the definitions of these different categories with the objective of providing clear direction for Federal agencies and award recipients, thus ensuring compliant projects.
- Iron or Steel Products means "articles, materials, or supplies that consist wholly or predominantly of iron or steel or a combination of both."4 OMB declined to offer a specific definition of what it means by predominantly, which many commenters to the draft guidance had sought. Instead, BABA's definition aligns generally with the definition used in Federal Acquisition Regulation ("FAR") 25.003 and uses the same predominantly language. OMB believes this symmetry between BABA and the FAR enables a clear differentiation between Iron or Steel Products and other product categories, while simultaneously providing consistency and predictability between Federal procurement projects covered by the FAR and Federal financial assistance projects subject to BABA.
- Construction Materials means articles, materials, or supplies that consist of only one of the following: (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 (including drop cable); (v) optical fiber; (vi) lumber; (vii) engineered wood; and (viii) drywall.5 The definition also notes that "minor additions of articles, materials, supplies, or binding agents to a construction material do not change the categorization of the construction material."6 In reaching its final list of Construction Materials, OMB used the list provided by Congress as guidance for the list of items included as Construction Materials, and noted that the items it added to the definition – fiber optic cable (including drop cable) and engineered wood – "represent a clear-cut logical extension of materials specifically mentioned in the Findings at section 70911(5) of BABA should also be treated as construction materials."7
- Section 70917(c) of BABA specifically excludes certain materials from the term "Construction Materials." Known as Section 70917(c) Materials, under the final guidance, these exclusions include "cement and cementitious materials; aggregates such as stone, sand, or gravel; or aggregate binding agents or additives."8
- Manufactured Products means "articles, materials, or supplies that have been: (i) processed into a specific form and shape; or (ii) combined with other articles, materials, or supplies to create a product with different properties than the individual articles, materials, or supplies."9 Unlike the preliminary guidance OMB issued last February, this definition was revised to provide an affirmative definition for the term Manufactured Products instead of just explaining what it did not include. Importantly, the definition also allows a Manufactured Product to include components that are Construction Materials, Iron or Steel Products, or Section 70917(c) materials.
While materials under BABA cannot fall within more than one of the four categories or products or materials outlined above, the guidance does emphasize that, in "some cases, an article, material, or supply may not fall under any of the above-listed categories."10 Examples of such non-categorized materials would include temporary items brought to a work site and not permanently incorporated into a project, or non-manufactured raw materials that do not meet the definition of "manufactured products."11
Determination of the Cost of Components of Manufactured Products
For Manufactured Products under BABA to qualify as "produced in the United States," the end-product must be manufactured in the United States and more than 55% of the total cost of all components of the manufactured product must also be of U.S. origin. The final guidance outlines which costs Federal agencies and award recipients can count when determining if a Manufactured Product satisfies this 55% test.
- For components purchased by the manufacturer, the following costs should be included in the 55% calculation: the acquisition cost, including transportation costs to the place of incorporation into the manufactured product, regardless of whether or not such costs are paid to a domestic firm, and any applicable duty, regardless of whether or not a duty-free entry certificate is issued.12
- For components manufactured by the manufacturer, the following costs should be included in the 55% calculation: all costs associated with the manufacture of the component, including transportation costs, plus allocable overhead costs. Importantly, all costs related to profit must be excluded along with any costs associated with the manufacture of the manufactured product.13
Similar to aligning definitions with the FAR where possible, OMB believes using the similar test for determining the cost of components will promote uniformity and predictability across Federal procurement contracts and financial assistance awards.
BABA Waivers
OMB made some editorial changes to BABA waiver protocol, but the material components of Section 184.7 remain unchanged.13 Under BABA, the following circumstances would justify such a waiver:
- Applying the Buy America Preference would be inconsistent with the public interest, referenced as a Public Interest Waiver;
- Types of iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality, referenced as a Nonavailability Waiver; or
- The inclusion of iron, steel, manufactured products, or construction materials produced in the United States will increase the cost of the overall infrastructure project by more than 25 percent, referenced as an Unreasonable Cost Waiver.15
The final guidance tracks the same broad requirements that were outlined in the draft guidance and delegates to Federal agencies the responsibility of providing specific instructions to award recipients on the format, content and supporting material for wavier requests. The guidance specifies, however, that award recipients are required to make waiver requests in writing and identify which of the three available wavier types is being asserted. Once the waiver request is submitted, but before the proposed waiver is issued, the agency is required to issue a detailed written explanation, including identifying which justification it is relying on in granting a waiver request; and then the agency must:
- Make the proposed waiver and the detailed written explanation publicly available in an easily accessible location on a website designated by the Federal awarding agency and OMB;
- Post the proposed waiver online for 15 days to allow the public to review it and submit comments, and
- Submit the waiver determination to the Made in America Office in OMB for final review pursuant to Executive Order 14005 and section 70923(b) of the Build America, Buy America Act, unless the Director of OMB provides otherwise.16
The Buy America Act & BABA
It is important for companies to ensure that they are following the correct set of regulations when it comes to using services, goods, products, and materials produced and offered in the United States. The Buy America requirements Congress issued under BABA are not identical to the Buy American Act ("BAA") requirements implemented in the FAR.17 The BAA applies to direct Federal procurement, meaning the contracts that Federal agencies enter to buy materials for their own use. By contrast, BABA applies to Federal financial assistance for infrastructure projects, meaning grants, cooperative agreements, and other Federal awards provided to recipients. While OMB, who oversees BABA guidance, has tried to minimize inconsistencies with the FAR, there are meaningful differences between the BAA, and its FAR implementing regulations, and BABA. These differences include the applicable product categories that the Buy America preferences apply to and the standards that apply to the categories.
Next Steps
Companies who are BABA award recipients should review their supply chain, sourcing, and manufacturing processes to ensure domestic sourcing is compliant under the final guidance. Similarly, award recipients should update and revise all supply chain management governance documents, such as policies, procedures, and work instructions, to reflect the new definitions and finalized waiver protocols. Lastly, OMB made clear that BABA implementation will be iterative, meaning that further guidance and revisions will likely continue. As such, companies should continue to monitor developments in this area, as compliance with these changing requirements may necessitate further updates or modifications to supply chain management.
1 Pub. L. No. 117-58, §§ 70901 to 52, 135 Stat 429, 1294 to 1313 (Nov. 15, 2021).
2 CFR Guidance - Pre-publication version (whitehouse.gov)
3 Id. at 85.
4 Id. at 153.
5 Id. at 152-53.
6 Id. at 153.
7 Id. at 35.
8 Id. at 155.
9 Id. at 77.
10 Id. at 157.
11 Id. at 102.
12 Id. at 157.
13 Id. at 157-58.
14 Id. at 9.
15 Id. at 159.
16 Id. at 159-60.
17 Id. at 14; see also generally Buy American v. Buy America Fact Sheet.
