AMERICAN RECOVERY AND REINVESTMENT ACT’S
BUY AMERICA MANDATE
WHAT DOES THE LAW SAY?
The Buy America provision of the ARRA mandates that “none of the funds appropriated or
otherwise made available by this Act may be used for a project for the construction,
alteration, maintenance, or repair of a public building or public work unless all of the iron,
steel, and manufactured goods used in the project are produced in the United States.”
WHAT DOES THIS MEAN?
Generally speaking, the ARRA Buy America requirement provides that:
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2)
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No foreign iron, steel, and manufactured goods are permitted;
For use in a project for the construction, alteration, maintenance, or repair of any
public building or public work;
If the funding for the project is made available by the ARRA.
WHAT ARE A PUBLIC BUILDING AND PUBLIC WORK?
The Department of Defense (DOD), the General Services Administration (GSA), and the
National Aeronautics and Space Administration (NASA) through the Civilian Agency
Acquisition Council and the Defense Acquisition Regulations Council (Councils) published an
interim final rule amending the Federal Acquisition Regulation (FAR) to implement the ARRA’s
Buy America provision. The FAR change applies to direct federal procurement using funds
appropriated by the ARRA and does not apply to procurement funded by federal grants to states
or direct federal procurement funded by other appropriations.
The interim final rule provides a cross-reference to the definition of “public work” at FAR
22.401, which defines “public building or public work” to mean “building or work, the
construction, prosecution, completion, or repair of which …is carried on directly by authority of,
or with funds of, a federal agency to serve the interest of the general public regardless of whether
title thereof is in a federal agency.”
Guidance issued by the Office of Management and Budget (OMB) released on April 3, 2009,
applies to procurements funded by federal assistance, such as grants to states, and defines
“public building” and “public work” to be “a public building of, and a public work of, a
governmental entity (the United States; the District of Columbia; commonwealths, territories,
and minor outlying islands of the United States; State and local governments; and multi-State,
regional, or interstate entities which have governmental functions). These buildings and works
may include, without limitation, bridges, dams, plants, highways, parkways, streets, subways,
tunnels, sewers, mains, power lines, pumping stations, heavy generators, railways, airports,
terminals, docks, piers, wharves, ways, lighthouses, buoys, jetties, breakwaters, levees, and
canals, and the construction, alteration, maintenance, or repair of such buildings and works.”
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WHAT ARE MANUFACTURED GOODS?
Congress’s inclusion of the term “manufactured good” in the ARRA’s Buy America provision
was deliberate and intended to require that monies appropriated or otherwise made available by
the 2009 Act on the construction, alteration, maintenance, or repair of a public building or public
work be spent on “manufactured goods” produced in the United States.
With respect to the interim final rule, the Councils abandoned the term “manufactured good” and
used the terms “manufactured construction material” and “unmanufactured construction
material.” As defined by the interim final rule, manufactured construction material means any
construction material that is not unmanufactured construction material. For purposes of the
interim final rule, unmanufactured construction material is raw material brought to the
construction site for incorporation into the building or work that has not been (1) processed into a
specific form and shape or (2) combined with other raw material to create a material that has
different properties than the properties of the individual raw materials.
The guidance issued by OMB sticks to the term “manufactured good” and similarly defines it as
a good brought to the construction site for incorporation into the building or work that has been
(1) processed into a specific form and shape or (2) combined with other raw material to create a
material that has different properties than the properties of the individual raw materials.
WHAT DOES PRODUCED IN THE UNITED STATES MEAN?
It is longstanding precedent of the Federal Highway Administration (FHWA) Buy America
provision – upon which the Stimulus Act’s Buy America provision is based – that with respect to
iron and steel, “produced in the United States” means that “all manufacturing processes must
take place domestically.” FHWA has stated that with respect to iron and steel, “[m]anufacturing
begins with the initial melting and mixing, and continues through the coating stage. Any process
which modifies the chemical content, the physical size or shape, or the final finish is considered
a manufacturing process. These processes include rolling, extruding, machining, bending,
grinding, drilling and coating. ‘Coating’ includes epoxy coating, galvanizing, painting, or any
other coating that protects or enhances the value of the material.”
In addition, the FHWA has confirmed that grants made by it for federal aid highway projects
using ARRA funds will be subject to the existing FHWA Buy America requirements. The
FHWA has ruled that a de minimis amount of foreign steel may be incorporated into a federal
aid highway project. 23 CFR 635.410(b)(4). This amount is defined as one-tenth of one percent
(0.1 percent) of the total contract cost or $2,500, whichever is greater. The cost of the foreign
steel is defined as its value delivered to the project.
In a May 22, 2009, letter the Environmental Protection Agency granted a nationwide waiver for
incidental components of water infrastructure projects. EPA’s national waiver from the ARRA's
Buy America requirements applies to incidental, or de minimis, components where such
components comprise no more than five percent of the total cost of the materials used in and
incorporated into a project. EPA expressly stated that the only materials covered by the De
Minimis Waiver are those incidental, secondary, minor, low-cost materials that are not described
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in the technical specifications for the project, and whose country of manufacture and the
availability of alternatives are not readily or reasonably identifiable prior to procurement in the
normal course of business. As an additional limitation, the cost of any component deemed
incidental must be assessed in relation to the aggregate cost of all incidental items, the total value
of which may not exceed five percent of the project. In short, the use of foreign fittings is only
allowed after considering the actual cost, importance of function, and practicality of the
materials.
EPA
With respect to iron and steel, the new interim regulation and the OMB guidance specify that
“production in the United States of the iron or steel used as construction material requires that all
manufacturing processes must take place in the United States, except metallurgical processes
involving refinement of steel additives.” This provision appears to reflect similar Buy America
provisions in the U.S. transportation laws.
WHAT ARE THE EXCEPTIONS IN U.S. DOMESTIC LAW TO THE BUY AMERICA
MANDATE?
There are three principal exceptions under U.S. domestic law to the Buy America requirement.
They are:
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•
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Where applying the Buy America requirement would be inconsistent with the
public interest;
Where the iron, steel, and the relevant manufactured goods are not produced in
the United States in sufficient and reasonably available quantities and of a
satisfactory quality; and
Where inclusion of iron, steel, and manufactured goods produced in the United
States would increase the cost of the overall project by more than 25 percent.
THE TWENTY-FIVE PERCENT COST WAIVER
The ARRA contains an exception allowing a project to use foreign products only if the use of
products produced in the United States will increase the cost of the “overall project” by more
than 25%. This does not mean that the exception applies if the cost of the product will be 25%
greater than foreign products; rather the cost of U.S. made product must increase the cost of the
entire project by more that 25%. Indeed, it is longstanding precedent of the FHWA’s Buy
America provision – upon which the ARRA’s Buy America provision is based – that “[t]he 25
percent differential applies to the total bid for the entire project, not just the bid prices for the
steel or iron products.” Both the interim regulation and the OMB guidance replicate this
requirement and apply the 25 percent differential to the entire project.
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BUY AMERICA WAIVER PROCESS
Both the interim regulation and the OMB guidance provide for pre-award determinations
concerning the applicability of the Buy America requirement to an ARRA funded project. Both
require that the contracting officer or award official evaluate the requests before the award.
Moreover, both the interim regulations and the OMB guidance provide contract terms requiring
that offerors disclose the foreign materials that have been requested for use.
It is instructive to follow FHWA’s Buy America certification procedures. FHWA’s existing Buy
America requirements apply to all ARRA funded highway projects. The FHWA Division
Offices are required to identify and coordinate any Buy America waiver issues with FHWA
headquarters as early as possible. Generally speaking, there is a materials certification process
for determining Buy America compliance. Both the interim regulation and the OMB guidance
provide similar contract terms. The contract provisions require the contractor to provide a
definitive statement about the origin of all products covered under the Buy America provisions.
FHWA also permits “step certification” of Buy America compliance. Under step certification,
each handler of the product (supplier, fabricator, manufacturer, processor, etc.) certifies that its
step in the process was domestically performed.
How frequently and under what specific circumstances these waivers will be granted by federal
agencies remain to be seen. The final interim rule vests waiver determinations with the
contracting officers, relative to direct federal procurement. The OMB guidance vests such
authority with the “award official.” An “award official” is defined by the interim final rule to be
a person with the authority to enter into, administer, and/or terminate finance assistance awards
and make related determinations and findings. The ARRA provides that the head of a federal
department or agency shall publish in the "Federal Register" a detailed written justification as to
any waiver of the ARRA’s Buy America requirement.
The transparency of notice in the "Federal Register" will be helpful if a waiver is granted and
should improve the chances that a waiver will not be granted on inaccurate grounds, but that
required notice will be after the fact. A bid challenge by a supplier not awarded a contract can
still be brought to contest a waiver, probably in a timely enough way to allow for reversal of an
award before performance, but certainly it will be better if at all possible to be aware that a
waiver has been requested and is being considered so that information to contest and refute the
basis for the claim of a waiver can be submitted. One way to attempt the tracking of possible
waivers is through monitoring and daily review of the notices that are required by the
international agreements to which the United States is a party. These international agreements
identify which publications have been designated by the United States to publish information for
covered government procurement so that foreign and domestic suppliers are aware of what
contracts are being let. Close coordination with the federal and state departments and agencies
also should be valuable in keeping abreast of developments while a request for a waiver is still
being considered.
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WHAT DOES IT MEAN THAT THE BUY AMERICA SECTION SHALL BE APPLIED IN A
MANNER CONSISTENT WITH U.S. OBLIGATIONS UNDER INTERNATIONAL
AGREEMENTS?
U.S. domestic law on government procurement is consistent with the provisions of the
international agreements to which the United States is a party as set forth in Attachment D. In
these circumstances, the ARRA’s Buy America section presumably will be applied under U.S.
domestic law in a manner that is consistent with U.S. international legal obligations.
The Buy America mandate in the ARRA is far-reaching, and whether an exception under that
statute applies in a given instance will require careful and detailed legal analysis. For example,
the United States is under no obligation to give non-discriminatory national treatment to the
goods and services of countries such as Brazil, China, India, and Russia, which are not parties to
the WTO’s Agreement on Government Procurement or to any other international agreement on
government procurement with the United States.
Similarly, the North American Free Trade Agreement only compels the United States to extend
equal procurement at the federal level to goods and services from Canada and Mexico that have
values at or above specified threshold levels. Also importantly, state, municipal, and other nonfederal projects, which comprise the bulk of the ARRA’s funding, are not covered by the
NAFTA, so that the Buy America requirements under the ARRA apply fully to goods and
services of Canada and Mexico in these situations.
Again, unless an international agreement that the United States has signed provides affirmatively
otherwise, the Buy America section of the ARRA will govern in favor of U.S. suppliers of goods
and services in government procurement.
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