United States: Stimulus Legislation "Buy American" Update: Regulations And Guidance Issued

A recent Foley Legal News Alert (February 2009) discussed the significant implications of the sweeping "Buy American" provision in the American Recovery and Reinvestment Act (ARRA). This update discusses subsequent actions by the Obama administration instructing how the ARRA Buy American provision is to be implemented at the federal, state, and local levels. Fortunately, in several key respects, the Obama administration made salutary decisions to apply the Buy American provision in a restrained manner, thereby reducing its protectionist impact and associated compliance burdens. This may not be the last word, however, as efforts are already underway in Congress to force the Obama administration to enhance the domestic content requirement of the ARRA Buy American provision. Additionally, as agencies are taking different implementation approaches, these may result in a patchwork of Buy American regulations across the federal government.

First, on March 31, 2009, an interim rule amending the Federal Acquisition Regulation (FAR) was issued by the Civilian Agency and Defense Acquisition Councils (FAR Councils) imposing the ARRA's Buy American provision on federal procurement contracts funded with ARRA appropriations. Second, on April 3, 2009, the Office of Management and Budget (OMB) issued guidance to federal agencies as to how the Buy American provision is to be applied to ARRA grant funds. Third, the Federal Transit Administration and Federal Highway Administration (FTA/FHA) have determined to apply the ARRA Buy American provision by simply imposing their existing Buy American regulations to ARRA grants. The U.S. Environmental Protection Agency (EPA) has issued a nationwide waiver of the ARRA Buy American requirement for state revolving fund projects for which debt was incurred between October 1, 2008 and February 17, 2009.

ARRA Procurement Contract Regulation

The ARRA Buy American requirement applies to iron, steel, and manufactured goods acquired by contractors for use in ARRA-funded public buildings and public works, essentially as construction material. Because both the ARRA's Buy American provision and aspects of the 1933 Buy American Act could simultaneously apply to a procurement, the FAR Council resolved this confusion by promulgating a unique FAR provision specifically tailored for ARRA projects, to be published as FAR Subpart 25.6 and associated clauses. (Notably, the amendment exempts direct government acquisition of construction material from the ARRA Buy American requirement by defining direct government purchases as "supplies," not construction material, and the ARRA Buy American provision does not apply to supplies.) This regulation applies only to federal procurement contracts, not stimulus grants to states and localities.

Contract Coverage

As to contract dollar amount, the FAR Council determined to apply Subpart 25.6 to ARRA construction projects at or below the simplified acquisition threshold of $100,000, which means that Subpart 25.6 applies to all ARRA construction projects above the $2,000 micro-purchase threshold. Thanks to the ARRA language that the Buy American provision is to be applied "consistent with" international obligations of the United States, under Subpart 25.6 ARRA construction projects above the $7.433 million threshold of the World Trade Organization Agreement on Government Procurement (GPA) and those of the various Free Trade Agreements (FTA) (except Caribbean Basin countries) enjoy the benefit of those agreements so that GPA and FTA country construction materials will be treated as United States domestic material under FAR Subpart 25.4, and the rules of those agreements such as the "substantial transformation" country of origin test will apply. Thus, in the main, the requirement to use domestic construction material exclusively will apply only to ARRA construction contracts between $2,001 and the GPA threshold of $7.433 million or comparable FTA threshold (covered projects). Above those thresholds, products from GPA and FTA countries are eligible for use in ARRA-funded contracts.

Iron and Steel

As to iron and steel procured by federal contractors for use as construction material in covered projects, Subpart 25.6 requires, consistent with the ARRA, that all manufacturing processes take place in the United States except metallurgical processes related to refining steel additives. This would include melting, pouring, rolling and the like. Subpart 25.6 makes clear, however, that this does not apply to iron and steel used as components or subcomponents of other manufactured construction materials, which markedly limits the impact of the 100-percent domestic iron and steel manufacturing requirement to iron and steel brought to the construction site in those forms, such as rebar and girders.

Unmanufactured Goods

The ARRA does not address unmanufactured construction material (i.e., sand) used in covered projects, but the FAR Council determined to use the 1933 Buy American Act to cover these goods, which are defined as raw materials that are neither processed nor combined with another raw material. Unmanufactured construction materials used in covered projects must be mined or produced entirely in the United States.

Manufactured Goods

As to manufactured construction material used in covered projects, this is defined as all construction material that is not unmanufactured construction material. This effectively means that all construction materials will be deemed "manufactured" when the result of processing into a specific form and shape or combining of raw material into a property different from the individual raw materials.

Manufacturing in United States Not Defined

Subpart 25.6 curiously avoids defining precisely what is required for manufactured construction material to be considered "produced" or "manufactured" in the United States. But given Subpart 25.6's definition of "manufacturing," by implication construction material will be considered "produced/manufactured" in the United States when it results from processing into a specific form and shape or combining of raw material into a property different from the individual raw materials, and that processing/combining occurs in the United States. This would appear to be a low threshold definition for establishing domestic manufacturing status. "Substantial transformation" would likely meet this standard, and for projects above the GPA threshold, the "substantial transformation" test is specifically employed.

No Component/Subcomponent Requirement

Even more important, Subpart 25.6 specifically provides that there is no component or subcomponent origin requirement for domestic "manufacturing" status. This is in sharp contrast to the 1933 Buy American Act, which imposes the 51-percent domestic component requirement for end products to qualify for domestic status, and the 100-percent domestic component requirement of the 1964 Buy America law applicable to FTA/FHA grants. Thus, for purposes of the ARRA, construction material will acquire domestic origin status when manufactured in the United States without regard to the origin of its components, thereby alleviating the need to establish country-of-origin below the prime contractor level. With this, the Obama administration addressed perhaps industry's greatest fear about ARRA compliance, and concomitantly expedites the rollout of ARRA projects.

Exceptions Available, but Challenging to Secure

Subpart 25.6 takes a literalist position that the ARRA's requirement that "all" iron, steel, and manufactured construction material used shall be made in the United States to mean just that — all. Consequently, an offeror's use of any foreign construction material in an ARRA project requires a formal pre-award exception. The existing exception list of non-available goods in FAR 25.104(a) is adopted, and other goods can be deemed non-available under the FAR 25.103(b) (1). The "unreasonable cost" exception can be employed only if the use of domestic construction material results in an increase in the cost of the entire project by more than 25 percent. If this waiver is granted, foreign construction materials may be used, but offers using foreign goods will be subject to a fixed 25-percent price add-on for evaluation purposes, and again, unlike the 1933 Buy American Act, this will apply to the total offer price, not just the foreign material. Post-award waivers are provided for, but the government can demand consideration for the post-award waiver, and the indicated consideration amount is the 25 percent of the total project offered price used for the unreasonable cost exception — a very serious penalty indeed for non-compliance.

Certifications Uncertain; Sanctions for Violations Likely

Subpart 25.6 requires ARRA contractors to disclose the quantity and cost of foreign and domestic construction material in their proposal. Subpart 25.6 does not impose a certification requirement, but it remains to be seen whether one will be imposed considering that current Buy American Act contract disclosures are required to be certified. The regulation does list a host of potential sanctions for violations, ranging from removal and replacement to default termination to suspension and debarment.

OMB Guidance for Agency Grants

OMB's guidance for ARRA grants to states and localities, which will be the major portion of stimulus funds, will be codified at 2 C.F.R. Part 176 and generally follows the same approach as FAR Subpart 25.6. Part 176 will be implemented by federal agencies imposing Part 176 grant terms or conditions on ARRA grant recipients.

International Agreements by States and Localities Can Be Honored

Perhaps the most significant point in Part 176 is that the ARRA Buy American requirement will not apply to iron, steel, and manufactured goods from a "Party to an international agreement" such as countries that are signatories of the GPA and the FTAs, provided the ARRA grant recipient (states and localities) also is required under an international agreement to treat such party's goods and services the same as domestic goods and services. This effectively permits ARRA grant recipients to abide by their obligations under their international agreements. This is important because the GPA generally exempts federal grants from GPA coverage, making it an open question whether the United States will apply GPA exemptions to grants on a case-by-case basis. (FTA/FHA grants are specifically exempt from GPA coverage under all circumstances.) Moreover, the ARRA created some doubt that the "international obligations of the United States" exception extended to the international obligations of the individual states and localities. Commendably, OMB has clarified this confusing situation and avoided having ARRA grant recipients being caught between conflicting ARRA grant conditions and their international obligations. This provision may be the subject of litigation, however, as it is unclear whether the ARRA actually authorizes OMB to extend this exception beyond the United States government itself. Assuming it applies, it keeps much of the state and local government procurement market open for GPA and FTA countries, while closing the market for goods from ineligible countries such as Brazil, China and India.

Initial Agency Actions

FTA/FHA

FTA/FHA determined, prior to issuance of the OMB grant guidance, that they would apply existing Buy American regulations to ARRA grants. While designed to expedite getting ARRA grants funds to states and localities, this position will now have to be squared with the OMB guidance. For example, the FTA/FHA approach treats many infrastructure projects themselves as the "manufactured good" for Buy America law purposes, and imposes a 100-percent domestic component requirement, essentially at the construction material level. By contrast, the OMB guidance considers construction material to be the relevant "manufactured good" and imposes no domestic component requirement. The outcome could be the same under both tests, but the conflict needs to be resolved so grant recipients have a clear understanding of their ARRA compliance requirements.

EPA Waiver

The EPA has taken a different approach, using the "public interest" exception to issue a nationwide waiver of the ARRA Buy American requirement for state revolving fund projects for which debt was incurred between October 1, 2008 and February 17, 2009. This smart approach will permit the flow of ARRA funds to state and local clean water and wastewater revolving fund projects that are "shovel-ready," or nearly so, while the agency gets in place the regulatory regime for later projects. Hopefully more agencies will follow the EPA's lead so that stimulus funds can be deployed now, when most needed, rather than await publication and implementation of Buy American regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions