As federal agencies begin to roll out the funding and solicitations for infrastructure grants under the provisions of the Infrastructure Investment and Jobs Act (IIJA), one of the lingering questions for manufacturers has been the manner in which the Biden Administration would implement the “Buy America” sourcing requirements of the IIJA, requirements due to take effect on May 14, 2022. On Monday, the Biden Administration began to answer some of those questions, in the form of guidance from the Office of Management and Budget (OMB) to all Executive Departments and Agencies regarding the implementation and requirements of the Build America, Buy America (BABA) provisions of the IIJA.
As discussed below, the new OMB Guidance addresses several key questions regarding the Buy America requirements that will apply, starting May 14, 2022, to all infrastructure projects receiving federal funding, such as:
- To what articles, materials, and supplies does the Buy America requirement apply, and what tests apply to different types of articles?
- What is a “construction material,” and how is it different from “manufactured products”?
- What is “infrastructure”?
- Can agencies issue “de minimis” waivers or “minor component” waivers of the Buy America requirements?
Background on IIJA Buy America Requirements
The BABA provisions of the IIJA require federal agencies to ensure that, for any infrastructure project receiving federal financial assistance on or after May 14, 2022, “all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.”
The OMB Guidance provides initial direction to federal agencies on (i) how to implement a “Buy America” preference in Federal financial assistance programs for infrastructure and (ii) the process to follow when considering or issuing a waiver of the “Buy America” preference. The OMB Guidance makes clear that this is initial implementation guidance, and that additional guidance will be forthcoming. Despite the preliminary nature of the OMB Guidance, there are several key takeaways for manufacturers interested in supplying products on federally funded infrastructure projects.
Key Takeaways from OMB Guidance
- Scope of “Buy American” Requirement. The OMB Guidance clarifies that the Buy America preference applies only to articles, materials, and supplies that are consumed in, incorporated into, or affixed to an infrastructure project. Accordingly, the Buy America requirement will not apply to tools, scaffolding, or equipment used in the construction of a project, nor will it apply to furnishings or equipment that are used in, but not permanently affixed to, the structure.
- Three Types of Material; Three Buy America Tests. There are three Buy America tests for three different types of materials: (1) iron or steel; (2) manufactured products; and (3) construction materials. Each article, material, or supply is to be classified into only one of the three categories, such that it will be subject to only one of the three tests.
- Iron or Steel: All manufacturing processes, from the initial melting stage through the application of coatings, must occur in the United States. The OMB Guidance instructs agencies to apply the iron or steel test to “items that are predominantly iron or steel,” though it does not define the standard for determining an item containing non-ferrous material is “predominantly iron or steel.”
- Manufactured Products: All manufactured products must be manufactured in the United States, and domestic components must account for greater than 55 percent of the total cost of the components of the manufactured product. The OMB Guidance does not discuss, and therefore does not appear to contemplate, a waiver of this cost-of-components test for commercially available off-the-shelf (COTS) items, marking a key distinction between the IIJA Buy America requirements and the current requirements under the Buy American Act clauses applicable to construction projects issued by federal agencies themselves.
- Construction Materials: All manufacturing processes for the construction material must occur in the United States.
- Preliminary Definition of “Construction Materials.” One of the biggest mysteries of the new BABA requirement is how OMB would define the term “construction materials,” and how (or whether) it would distinguish between “construction materials” and “manufactured products.” The OMB Guidance provides “preliminary and non-binding” guidance on the definition of “construction material,” while seeking additional stakeholder guidance on potential refinement of that definition. The following items are excluded from the definition of “construction material”: items predominantly of iron or steel; manufactured products; cement and cementitious materials; aggregates such as stone, sand, or gravel; and aggregate binding agents or additives. Items not falling within one of those exclusions would qualify as “construction material” if they consist primarily of: (i) non-ferrous metals; (ii) plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables); (iii) glass (including optic glass); (iv) lumber; or (v) drywall. The OMB Guidance also states that items that include at least one of those five categories of “construction material” that is combined with some other material through a manufacturing process should be considered a “manufactured product” rather than a “construction material.” For example, a plastic-framed sliding window would be treated as a “manufactured product,” but plate glass would be treated as a “construction material.”
- Definition of “Infrastructure.” The Buy America preference applies to “infrastructure,” and the OMB Guidance directs agencies to interpret that term broadly, and to view as indicia of “infrastructure” status the fact that the construction will involve facilities that are either publicly owned and operated, privately operated on behalf of the public, or a place of public accommodation. “Infrastructure” includes, at a minimum, the structures, facilities, and equipment, in the United States, for 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. The OMB Guidance expressly notes that electric vehicle charging stations are considered “infrastructure” subject to the Buy America requirements.
- Framework for “De Minimis” and “Minor Components” Waivers. The OMB Guidance addresses several categories of public interest waivers of the Buy America requirement that agencies can consider. Two of the examples cited by OMB are ones that may prove useful in reducing compliance headaches for agencies and manufacturers alike: a “de minimis” waiver and a “minor components” waiver. The OMB Guidance gives the Biden Administration’s imprimatur to agency consideration and adoption of such waivers as a means to ensure that the administrative burden of processing individual waivers does not overwhelm the value of the items for which a waiver is sought. In describing these waivers, the OMB Guidance provides examples of potential thresholds for these waivers that agencies may interpret as thresholds OMB views as appropriate.
- “De Minimis” Waiver: A “de minimis” waiver would be one that would apply at the project level, permitting agencies to permit the use of non-domestic products up to a certain de minimis threshold. The Federal Highway Administration currently includes a similar de minimis exception permitting use of small amounts of foreign steel on a FHWA-funded project. The OMB Guidance gives agencies permission to consider adopting an agency-wide public interest waiver set at a certain de minimis threshold, and it uses the example of a threshold of up to 5 percent of total project costs up to a maximum of $1 million.
- Minor Components Waiver: A minor components waiver would exempt from the rigorous iron/steel requirements the miscellaneous minor components within iron and steel products—typically items like fasteners, washers, and screws. The OMB Guidance suggests that agencies may wish to consider a public waiver permitting non-domestically produced minor miscellaneous components comprising no more than 5 percent of the total material cost of an otherwise domestically produced iron and steel product. The OMB Guidance does not define “miscellaneous minor components,” but indicates that the term would not extend to “the primary iron or steel components of the product.”
The OMB Guidance will be particularly instructive for agencies that do not have existing Buy America requirements or whose existing Buy America requirements are not as extensive as the ones required by the IIJA. It remains to be seen whether and how agencies with existing Buy America requirements will adjust those requirements in light of the OMB Guidance.
As the May 14, 2022 effective date approaches, manufacturers should play close attention to the specific Buy America requirements imposed by the agencies providing funding to infrastructure projects, as the requirements—and the public interest waivers—may well vary from agency to agency. If you have questions about the OMB Guidance or about Buy America or Buy American requirements applicable to federal and federally funded projects generally, contact Frank Murray ([email protected]).