Battling back from the Great Depression, the Hoover administration passed the “Buy American Act” in 1933. The basic premise of the law was to revive and bolster the economy by requiring U.S.-sourced iron and steel mined or produced in the U.S. to be used in projects for the federal government.
In 1982 Congress passed the “Buy America Act,” which expanded the requirement that contractors utilize only U.S.-sourced iron and steel on state transportation projects receiving federal funding. The Buy America Act also expanded the items that must be U.S.-sourced to include manufactured items.
More recently, a further expansion, called the “Build America, Buy America Act” (BABA), was passed in 2021 as part of the Infrastructure and Investment Jobs Act (IIJA). Contractors need to be aware of how the law has changed and how it could affect their businesses in new ways.
Most significantly, BABA material requirements apply to all infrastructure projects receiving federal funding — not just IIJA projects — and not only where the federal government is the contracting party, but also on projects where a state or local government entity is the contracting party. Further, “infrastructure” projects are broadly defined to include:
- Roads, tunnels and bridges
- Railways (both passenger and freight)
- Dams, ports, harbors and other maritime facilities
- Water systems
- Electrical transmission facilities and systems
- Broadband infrastructure
- Buildings appurtenant to all of the above, including train and bus stations, toll facilities and even office facilities
Here are some other facts you should know about BABA:
- Along with iron, steel and manufactured products, BABA’s requirements extend for the first time to construction materials, which must also be U.S.-sourced. Construction materials are defined to include commodities such as glass, drywall, fiber-optic cable, nonferrous metals like copper and aluminum, and PVC and other plastic or polymer-based products. Aggregates and cement are excluded.
- BABA incrementally increases the required domestic content threshold (by cost) of manufactured goods from 55% to 60% effective October 2022, up to 65% by 2024, and will top out at 75% in 2029. In certain instances, increases have been delayed pending review.
- Commercially available off-the-shelf items made abroad can be used if they are not modified.
Can an item fall into more than one category among iron and steel, manufactured products and construction materials?
No. The guidance suggests that all items incorporated into an infrastructure project fall into one of the three categories. For example, an item combining a construction material, like glass, with another material or a manufactured product (such as a window unit) will be considered a manufactured product.
What exactly is a COTS item?
Under the Federal Acquisition Regulations, a commercially available off-the-shelf (COTS) item is any supply item (including a construction material) that is sold in substantial quantities in the commercial marketplace and used without modification in the same form in which it is sold.
Are waivers available for BABA requirements under the IIJA?
Yes. A waiver may be available if it’s found that the mandate is contrary to the public interest or if the materials are unavailable or unreasonably priced. Waivers issued by a particular government agency can apply to that agency or be project specific. Further, under international treaty obligations, products from certain preferred trade partners are treated as made in America for contracts of $7,804,000 or more with certain exceptions, such as Small Business Administration contracts, which fall under Buy American mandates regardless of the project amount.
Best Practices for Contractors
If you’re working on a project that’s federally funded in any respect, compliance with applicable Buy American requirements is critical to your bottom line. Stay on top of the regulations with these best practices:
- Get certification from your suppliers. Obtain supplier certification confirming that the construction materials or manufactured products comply with BABA requirements.
- Share liability. Construction contracts with subcontractors and suppliers should include language making these parties responsible for the cost of non-compliance with BABA.
- Stay current with requirement changes. Laws change frequently. Pay close attention to bulletins issued by federal agencies such as the Office of Management and Budget. Conditions for waivers could change along with the types of construction materials subject to BABA. Exceptions to the rule may also change. While cement and aggregates are not currently included in BABA, that could change.
- Don’t count on a waiver. BABA is in place for a reason, so waivers will not be easy to obtain and are likely to be project or even product specific. Perform your due diligence, be aware that the timing to implement BABA requirements is not uniform for all federally funded infrastructure projects, and make sure BABA requirements applicable to the project are met.
- Consider dedicating a person to BABA oversight. Documentation is key, so make sure you record all facts surrounding the job and BABA compliance. Task someone in your organization with tracking documentation or consider having a dedicated person in charge of compliance with BABA. Whenever in doubt, seek legal advice.
Failure to comply with applicable BABA requirements can result in the need for removing and replacing completed work at your cost, termination from the contract and potentially even debarment from performing federally funded work. In addition, knowingly failing to comply with Buy American requirements can lead to liability under the False Claims Act, penalties under which includes treble damages.
Note: This article should not be used as legal advice. All parties should consult legal counsel of their choice and seek expert advice on legal and compliance issues.