This article provides a brief analysis of the fundamental changes and clarifications to the Buy America requirements for federally-funded infrastructure projects that are currently proposed by the Office of Management and Budget (OMB), Made in America Office in a Federal Register Notice, "Guidance for Grants and Agreements, issued on February 9, 2023 (86 FR 8374).1 The Proposed Rule stems from the Build America, Buy America Act (BABA) under the Infrastructure Investment and Jobs Act (IIJA), and under the direction of Executive Order 14005 ("Ensuring the Future Is Made in America by All of America's Workers") (EO 14005) and OMB Guidance M-22-11 ("Initial Implementation Guidance on Application of Buy America Preference in Federal Financial Assistance Programs for Infrastructure") (OMB Guidance).
The OMB is proposing to revise its Guidance for Grants and Agreements, limited in scope to support implementation of the BABA. These revisions include a new part 184 in 2 CFR chapter I and revisions to 2 CFR 200.322, which will contain new regulations addressing the Buy America Preference for all awards with infrastructure expenditures and provides definitions for the purposes of 2 CFR part 184. The OMB noted that it aims to provide "consistent and clear market requirements" for industry players for determining the cost of components of manufactured products. The OMB solicited numerous comments on the Proposed Rule, which were submitted by March 13, 2023. At the date of publication, we are awaiting publication of the OMB's final rule.
KEY CLARIFYING DEFINITIONS
Infrastructure: The OMB's Proposed Rule adopts the BABA's definition of "Infrastructure" when referring to federal-funded projects that are subject to the Buy America requirements, which a threshold question as to whether the BABA applies to a given government project. The term infrastructure includes:
".. public infrastructure projects which includes at a minimum, the structures, facilities, and equipment for, in the United States, roads, highways, and bridges; public transportation; dams, ports, harbors, and other maritime facilities; intercity passenger and freight railroads; freight and intermodal facilities; airports; water systems, including drinking water and wastewater systems; electrical transmission facilities and systems; utilities; broadband infrastructure; and buildings and real property; and structures, facilities, and equipment that generate, transport, and distribute energy including electric vehicle (EV) charging."2
This definition of infrastructure, which mirrors the BABA, encompasses a wide variety of government-funded projects, including some that previously did not have a "Buy America" domestic preference.
Produced in the United States: If the BABA applies to the government project that you are supplying, then the products that you supply must be "produced in the United States." In the Proposed Rule, "produced in the United States" means the following, depending on the type of product.
"(1) Iron and steel products. All manufacturing processes,
from the initial melting stage through the application of coatings,
occurred in the United States.
(2) Manufactured products.
- The product was 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 is greater than 55 percent of the total cost of all components of the manufactured product, unless another standard for determining the minimum amount of domestic content of the manufactured product has been established under applicable law or regulation. The costs of components of a manufactured product are determined according to § 184.5.
(3) Construction materials. All manufacturing processes for the construction material occurred in the United States. See § 184.6 for more information on the meaning of ''all manufacturing processes'' for specific construction materials."3
Because iron and steel products, manufactured products, and construction materials are legally distinct, it is important to determine which definition your products fall under.
Manufactured Products: The term "manufactured products" is defined under the Proposed Rules as:
"Manufactured products means 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 (as defined in this section)."4
Several parts of the Proposed Rule could be problematic unless better defined. "Manufacturing" is not defined and that leaves an important gap for processes such as assembly or machining that can result in components that comply with the proposed rule but may or may not be considered as "manufactured" so that they fall within the coverage of the proposal.
Another area covered by the Proposed Rule is how to further distinguish between manufactured products and construction materials. The OMB Guidance explained that items that consist of two or more of the listed construction materials "that have been combined together through a manufacturing process, and items that include at least one of the listed construction materials combined through a manufacturing process with a material that is not listed as a construction material, should be treated as manufactured products, rather than as construction materials."5 However, the current proposed language leaves too much up to individual interpretation, which may lead to confusion in practice.
Cost of Components: The Proposed Rule analyzes in depth the term, "cost of components". Specifically, the OMB is proposing to adopt the Federal Acquisition Regulations (FAR) at 48 CFR 25.003,6 which provides:
For components purchased by the contractor, the acquisition cost, including transportation costs to the place of incorporation into the end product or construction material (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); or
For components manufactured by the contractor, all costs associated with the manufacture of the component, including transportation costs as described in item 1., plus allocable overhead costs, but excluding profit. Cost of components does not include any costs associated with the manufacture of the end product.
This definition for "cost of components" at 48 CFR 25.003 uses certain terms defined in the FAR but not in this proposed guidance including "end product" and "component." "End product" is defined in the FAR to mean "those articles, materials, and supplies to be acquired for public use."7 "Component" is defined in the FAR to mean "an article, material, or supply incorporated directly into an end product or construction material."8 The definition for "cost of components" at 48 CFR 25.003 includes a reference to "construction materials." Because the standard proposed in this guidance will only apply to manufactured products, OMB proposes to delete the reference to construction materials. OMB intends to adopt the "cost of components" standard from FAR for manufactured products in this guidance for Federal Financial Assistance with minimal modification to ensure that there are consistent and clear market requirements for industry to meet one standard for determining the cost of components of manufactured products.
The questions asked by OMB reflect the ambiguity of the standards and the potentially exclusory nature of the relatively narrow definition. For example, should "manufacturing" include a range of processes, including but not limited to, assembly, machining, simple tolling processes like punching or drilling, or other processes that can be applied to produce a component with sufficient domestic content to satisfy the definitions? Another question concerns the exclusion of words such as "parts" that are obviously related to the production of components. Should OMB add such normal business terms to the definitions to assist components producers with compliance? It will be interesting to analyze the comments provided and to see what OMB concludes after all comments are considered.
Construction Materials: Construction materials are integral to infrastructure projects. Construction materials are defined by the OMB Proposed Rules as articles, materials, or supplies incorporated into an infrastructure project that consist of only one or more materials that are listed under the regulations:
- Non-ferrous metals;
- Plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables);
- Glass (including optic glass);
- Fiber optic cable;
- Optical fiber;
- Lumber; or
The Proposed Rule provides further definitions for "produced in the United States" for each classification of construction material. In other words, so long as all of the prescribed manufacturing processes occur in the United States for each type of construction material, that material will be considered "produced in the United States" for BABA purposes. Those explicitly defined "produced in the United States" manufacturing processes are:
Non-ferrous metals. All manufacturing processes, from initial smelting or melting through final shaping, coating, and assembly, occurred in the United States.
Plastic and polymer-based products. All manufacturing processes, from initial combination of constituent, plastic or polymer-based inputs until the item is in a form in which it is delivered to the work site and incorporated into the project, occurred in the United States.
Composite building materials. All manufacturing processes, from initial combination of constituent materials until the composite material is in a form in which it is delivered to the work site and incorporated into the project, occurred in the United States.
Glass. All manufacturing processes, from initial batching and melting of raw materials through annealing, cooling, and cutting, occurred in the United States.
Fiber optic cable. All manufacturing processes, from the initial preform fabrication stage through fiber stranding and jacketing, occurred in the United States.
Optical fiber. All manufacturing processes, from the initial preform fabrication stage through fiber stranding, occurred in the United States.
Lumber. All manufacturing processes, from initial debarking through treatment and planing, occurred in the United States.
Drywall. All manufacturing processes, from initial blending of mined or synthetic gypsum plaster and additives through cutting and drying of sandwiched panels, occurred in the United States.
Notice that the OMB included plastics and polymer-based products, as well as fiber optic cable and optical fiber products under the definition of construction materials, which will inevitably lead to the requirement that all of these types of products must be produced in the United States. The OMB justified this explicit addition into the definition of construction materials in the Proposed Rule:
"(7) Fiber optic cables and optical fibers. Congress identified the elements of a completed fiber optic cable as construction materials for which all manufacturing processes must occur in the United States. The definition of "construction materials" in §?184.3 of this proposed guidance includes "polymers used in fiber optic cables" as an example of "plastic and polymer-based products." This is based on the congressional findings on "common construction materials" in section 70911(5) of the Act. OMB also proposes in this guidance that the final fiber optic cable and optical fibers be treated as construction materials. Sections 184.3 and 184.6 of the proposed guidance include "fiber optic cable" and "optical fibers" as two stand-alone categories of "construction materials."9
Most fiber optic cable and optical glass are manufactured outside of the United States. The proposed rule may be aimed at "reshoring" such manufacturing back to the United States. That is not explicitly stated in the OMB proposal, but come close in the following quote:
". . . consistent with Executive Order 14005, Ensuring the Future Is Made in All of America by All of America's Workers ("the Executive order"), this Administration's priority to "use terms and conditions of Federal financial assistance awards to maximize the use of goods, products, and materials produced in, and services offered in, the United States."10
When the government classifies a product under construction materials, rather than as a manufactured product, it is an indication that the government desires that specific manufacturing processes occur in the United States. This is a way for the government to pressure certain manufacturing sectors to re-shore and to cut out foreign competition that may have previously competed with domestic industries in the past under the prior waiver-friendly Buy America regime. The expansion of domestic preferences in the Proposed Rule may cause some significant concerns among U.S. trading partners and signatories of the WTO Government Procurement Code. This issue is beyond the scope of this article, but is worthy of further analysis.
These proposed rules stem from the recent political federal policies of increasing the Buy America requirements for infrastructure projects. The reshoring efforts of Congress and the federal government agencies implicate further than the first tiers of the supply chain to an infrastructure project. Rather, the entire supply chain is implicated and each contractor, subcontractor, etc. must be aware of their requirements for supplying government projects. Whether the OMB adopts its Proposed Rule word-for-word or further clarifies the BABA requirements remains to be seen. However, we can expect a Final Rule similar to the OMB's proposed rule, and companies supplying products to government infrastructure projects should focus efforts in procurement, logistics, finance and accounting, legal, marketing, and other strategic areas to work together to comply with Buy America rules in the face of layered and complex preference requirements. Some companies may realize that they are in compliance with these new Buy America preferences, but others must face a shift in supply chain, potential shortfalls in key areas of domestic manufacturing, or procurement practices to meet these stringent "produced in the United States" requirements. If you are unsure whether the Buy America requirements apply to you, or are experiencing difficulty navigating the myriad of requirements, you should contact outside counsel immediately.
1. Guidance for Grants and Agreements, Office of Management and Budget, Proposed Rule, 86 FR 8374 (February 9, 2023) (hereinafter "Proposed Rule").
2. Proposed Rule, 86 FR at 8377.
6. Proposed Rule, 86 FR at 8377-8378.
7. 48 CFR 25.003.
8. 48 CFR 25.003.
10. Proposed Rule, 86 FR at 8374.
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