Approximately 15 months ago, on November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act (IIJA), commonly known as the Bipartisan Infrastructure Law. The IIJA is one of the Biden administration’s signature legislative achievements to date and provides $1.2 trillion in funding for a broad range of infrastructure projects. A key part of the IIJA is the Build America, Buy America (BABA) Act, which requires that the head of each covered federal agency ensure that “none of the federal funds made available for a Federal financial assistance program for infrastructure may be obligated for a project unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.” BABA Act at § 70914. The BABA Act required agencies to implement these requirements by May 14, 2022; however, as that deadline came and went, contractors eagerly awaiting opportunities to build the nation’s infrastructure were left wondering how (and when) these requirements would be applied to affected projects.
Following President Biden’s State of the Union speech on February 7, 2023, in which he touted the long-awaited issuance of new standards to require all construction materials used in federal infrastructure to be “made in America,” the Office of Management and Budget (OMB) on February 9, 2023, at last issued a Proposed Rule that would revise the OMB Guidance for Grants and Agreements to implement the BABA Act requirements. Specifically, this Proposed Rule would create a new part 184 in 2 CFR chapter I and revise 2 CFR 200.322, Domestic preferences for procurements, to implement the requirements in Section 70914 of the BABA Act. This guidance generally aligns with OMB Memorandum M-22-11 of April 18, 2022 (the OMB Memorandum), which set forth initial implementation guidance to federal agencies on the BABA Act requirements and brings contractors and agencies one step closer to unraveling the mystery of BABA Act compliance.
The Proposed Rule would revise 2 CFR part 200, the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, amending 2 CFR 200.322 to require federal awarding agencies providing federal financial assistance for infrastructure projects to comply with the Buy America Preference set forth in 2 CFR part 184. The new 2 CFR part 184 “provides guidance to Federal awarding agencies on the implementation of the Buy America Preference [defined as the ‘domestic content procurement preference’ set forth in Section 70914 of the BABA Act] applicable to Federal financial assistance” set forth in the BABA Act. 88 Fed. Reg. 8376. Consistent with the BABA Act, these requirements will apply only to the extent that a Buy America Preference meeting or exceeding the requirements of Section 70914 of the BABA Act did not already apply to the iron, steel, manufactured products, or construction materials in the federal financial assistance award program under which the federal award is provided prior to November 15, 2021. 88 Fed. Reg. 8377.
The Proposed Rule incorporates some critical general guidance to aid agencies in their implementation of the Buy America Preference, including detail regarding when agencies are to apply the Buy America Preference to a federal award. Notably, the Proposed Rule specifies that the Buy America Preference will apply to “awards where funds are appropriated or otherwise made available for infrastructure projects in the United States, regardless of whether infrastructure is the primary purpose of the award.” 88 Fed. Reg. 8377 (emphasis added). The Proposed Rule also indicates that federal awarding agencies “should interpret the term ‘infrastructure’ broadly and consider the description provided in paragraph (c) [of proposed 2 CFR § 184.4] as illustrative and not exhaustive.” Id. This language makes clear that the already broad definition of infrastructure set forth in the IIJA/BABA Act and the Proposed Rule does not limit agencies’ ability to impose BABA Act requirements on contractors, and it gives agencies significant discretion to implement the Buy America Preference across a wide variety of federal financial assistance awards. Thus, even contractors that do not consider themselves “traditional” infrastructure contractors should take note of these requirements if they are or intend to become involved in the federal supply chain on a project covered by the Buy America Preference.
The Proposed Rule also incorporates some significant parallels to existing Buy American Act requirements imposed on contractors through Federal Acquisition Regulation (FAR) contract clauses. As veteran contractors know, the federal government’s domestic preference regulatory regime is notoriously complex; different requirements apply to contractors depending on whether they are entering into a FAR-based contract directly with the federal government or they are working with the federal government through an intermediary state or local government agency receiving a federal financial assistance award from a federal agency (for example, an agency of the Department of Transportation). As such, contractors have struggled for years to comply with the different standards applicable under different awards. The Proposed Rule aims to alleviate at least part of that confusion by incorporating the FAR 25.003 definition of “cost of components” for manufactured products in proposed 2 CFR § 184.5. While this provides some welcome consistency across the variety of potentially applicable domestic preference standards, it remains the case that the requirements imposed by the BABA Act—and these proposed regulations—differ from the Buy American Act requirements imposed by the FAR. Under the BABA Act, for a manufactured product to be considered “produced in the United States,” the 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 United States must be greater than 55 percent of the total cost of all components of the manufactured product. However, the current Buy American Act requirement, as set forth in FAR 52.225-1, requires the cost of the components of the manufactured product to exceed 60 percent of the total cost of all components, to be escalated to 65 percent in calendar year 2024 and 75 percent in calendar year 2029. Therefore, while the parallel standards to determine the cost of components will be a welcome relief to contractors that work with both FAR-based procurements and federal financial assistance awards, contractors must still remain vigilant and ensure that they are compliant with the domestic preference requirement applicable to their specific award.
The Proposed Rule also provides much-needed clarity with respect to the standards that define “all manufacturing processes” in the case of construction materials. While the OMB Memorandum provided “preliminary and non-binding guidance” on the application of the Buy America Preference to construction materials, the Proposed Rule details proposed standards for “all manufacturing processes” for the manufacture of specified construction materials, informed by feedback from industry, consultation with agencies, and market research. The Proposed Rule provides long-awaited explanations of the manufacturing processes that must occur in the United States for certain construction materials (defined to include nonferrous metals, plastic and polymer-based products, glass, fiber optic cable, optical fiber, lumber, and drywall) to be considered “produced in the United States” and therefore meet the Buy America Preference.
The Proposed Rule also provides some limited guidance to agencies regarding when waiver of the BABA Act requirements may be appropriate. The OMB Memorandum contained detailed guidance for agencies grappling with when, whether, and how to waive the BABA Act requirements. Many agencies have seized on this guidance to issue general applicability public interest waivers, to include temporary “adjustment period” waivers meant to buy time for agencies and their stakeholders to adapt to the new BABA Act requirements. The Proposed Rule sets forth the steps a federal awarding agency must take before issuing a waiver, but leaves it to federal awarding agencies to “provide waiver request submission instructions and guidance on the format, contents, and supporting materials required for waiver requests from non-Federal entities.” 88 Fed. Reg. 8378. Practically speaking, this means that while there will be some consistency across agencies with respect to waiver determinations, in that agencies are required to submit waiver determinations to the OMB Made in America Office prior to finalizing such determinations, contractors will still be required to comply with agency-specific requirements in preparing waiver requests. Many agencies have yet to prepare their waiver request submission instructions and guidance, and such guidance will be critical as contractors struggle to comply with the BABA Act requirements in situations where waivers may be appropriate (i.e., where compliant products may not yet exist in the United States).
While the Proposed Rule is a welcome step toward solving the mystery of how the BABA Act requirements will apply to infrastructure projects, it raises many more questions that OMB is hoping contractors and other stakeholders can help answer. Comments on the Proposed Rule are due March 13, 2023, and interested parties should not hesitate to make their voices heard with respect to the implementation of these critical requirements. As the BABA Act requirements will apply to all federal financial assistance programs for infrastructure, not only those funded by the IIJA, these requirements, once finalized, will be here to stay. Specifically, OMB is seeking comments on the following topics:
- Should OMB adopt a definition for “cost of components” based on the definition in FAR 25.003?
- Notably, the FAR definition of “cost of components,” and the definition set forth in the Proposed Rule, includes terms defined in the FAR but not in the Proposed Rule (i.e., “end products” and “components”). OMB is seeking feedback on whether it should use these FAR definitions and/or make any changes to the Proposed Rule to provide additional clarity.
- What, if any, additional construction materials should be included in the proposed guidance?
- OMB requests specific feedback on the inclusion of additional construction materials (e.g., coatings, brick, engineered wood products) and the proposed standards for manufacturing processes for those construction materials to determine whether they are produced in the United States.
- Is additional guidance needed on the proposed definition of “construction materials”?
- Should OMB adopt a definition of “predominantly iron or steel” items, consistent with other existing Buy American and Buy America laws and policies?
- OMB is specifically interested in feedback on whether it should adopt the definition of the term “predominantly of iron or steel or a combination of both” in FAR 25.003.
- Is further guidance needed on how to distinguish between steel or iron products, manufactured products, and construction materials?
- Is further guidance needed with respect to “composite building materials”?
- Is further guidance needed on the meaning of the terms “fiber optic cable” and “optical fibers”?
- Is additional guidance needed on the standards applicable to “optical fiber” and “optic glass”?
- How should OMB treat aggregates and other “excluded materials” in the context of the manufactured product BABA Act requirement?
Finally, OMB is specifically seeking suggestions on each specific section of the proposed guidance as well as “suggestions for reducing burden for recipients.” Therefore, contractors that are participating or intend to participate in infrastructure projects in the future should not hesitate to provide feedback to OMB to ensure that the regulations appropriately navigate the critical balance between promoting American industry and ensuring that contractors can meaningfully participate in and accomplish these projects.