United States: Final Build America, Buy America Guidance Published

On August 23, 2023, the Office of Management and Budget (OMB) published its final guidance implementing the Build America, Buy America (BABA) preference, which requires that all of the iron, steel, manufactured products, and construction materials used in infrastructure projects receiving federal financial assistance be "produced in the United States."

Here are the most significant takeaways between the initial April 2022 guidance and final August 2023 guidance:

• The final guidance provides a new definition of "manufactured products," which provides that they are articles, materials, or supplies that have been: "[p]rocessed into a specific form and shape" or "[c]ombined with other articles, materials, or supplies to create a product with different properties than the individual articles, materials, or supplies." The final guidance also clarifies that an item is not a manufactured product if it meets the definition of an iron or steel product, a construction material, or a "section 70917(c) material" (i.e., aggregate, its additives or binding agents, or cement or similar material).
• The final guidance clarifies that "iron or steel products" are "articles, materials, or supplies that consist wholly or predominantly of iron or steel or a combination of both." In this context, "predominantly of iron or steel or a combination of both" means "that the cost of the iron and steel content exceeds 50 percent of the total cost of all its components."
• The final guidance provides a new definition of "components," which provides that they are an article, material, or supply, whether manufactured or unmanufactured, incorporated directly into a manufactured product, or an iron or steel product.
• The final guidance provides an expanded definition for "construction materials" that adds fiber optic cable (including drop cable), optical fiber, and engineered wood to the list of construction materials.
• The final guidance provides a new definition of "all manufacturing processes" for construction materials, which provides that "all manufacturing processes for the construction material must occur in the United States" and provides detail regarding the stages of the manufacturing process that must occur in the United States for the material to be considered "produced in the United States."

The final guidance creates a new part 184 in Title 2 of the Code of Federal Regulations to provide a common system for federal agencies to distinguish between the product categories included in BABA, and includes key definitions such as the ones discussed above; guidance for determining components and the cost of components of manufactured products; guidance for classifying manufactured products and construction materials; and procedures for requesting and issuing Buy America waivers. These topics are discussed in detail below.

The final guidance will become effective 60 days post-publication on October 23, 2023. Although the BABA statutory requirements have been effective since May 2022, various federal agencies have issued temporary waivers of the requirements to allow recipients and their contractors to prepare to meet them.

It is possible that agencies may extend temporary waivers to allow additional phase-in time, but recipients and contractors supporting public infrastructure projects should review the final guidance carefully and conduct supply chain reviews to ensure future compliance with these requirements in case waivers are not extended. We expect existing general applicability waivers that apply broadly across particular agencies will lapse and that agencies instead will focus on project-specific or item-specific waivers going forward. Accordingly, the onus will be on recipients to request these waivers for items that are not available or where adhering to BABA would increase the cost of the overall project by more than the current waiver threshold of 25 percent. Recipients and contractors should monitor issuance of agency-specific guidance providing additional detail regarding how each agency plans to approach BABA implementation and compliance.

I. Build America, Buy America Background

The Biden administration has prioritized the promotion of domestic preference programs, and its "Buy America" reforms have been met with bipartisan support. BABA was enacted in November 2021 as part of the Infrastructure Investment and Jobs Act to strengthen Made in America requirements and ensure that all federally funded infrastructure projects (not just those funded by the Act) use American-made iron, steel, construction materials, and manufactured products.¹

OMB's final guidance is part of a more than 18-month effort by OMB to adopt government-wide standards for implementation of the BABA requirements. OMB released initial guidance in April 2022 (OMB Memorandum M-22-11, "Initial Implementation Guidance on Application of Buy America Preference in Federal Financial Assistance Programs for Infrastructure,") and published proposed guidance in February 2023. The proposed guidance generated significant interest from stakeholders across industries – OMB received over 1,950 public comments.

II. Scope of Application of the Final OMB Guidance

BABA establishes a domestic content procurement preference (Buy America Preference) for infrastructure projects in the United States that receive federal financial assistance.² Specifically, BABA requires federal agencies to ensure that all of the iron, steel, manufactured products, and construction materials used in construction, alteration, maintenance, or repair of such projects are produced in the United States.³ This requirement applies to the entire project, even if it is funded by both federal and non-federal funds and even if the infrastructure project is not the primary purpose of a financial assistance award.

The final guidance defines infrastructure broadly to encompass:

public infrastructure projects in the United States, which includes, at a minimum, the structures, facilities, and equipment 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; and structures, facilities, and equipment that generate, transport, and distribute energy including electric vehicle (EV) charging.

In assessing whether a project is an "infrastructure project," federal agencies are directed to consider whether the project will serve a public function, including whether the project is publicly owned and operated, privately operated on behalf of the public, or is a place of public accommodation, as opposed to a project that is privately owned and not open to the public. Projects with the former qualities are likely infrastructure subject to BABA's requirements.

As explained in more detail below, the final guidance divides articles, materials, and supplies into four categories:

• iron or steel products;
• manufactured products;
• construction materials; and
• section 70917(c) materials, which include aggregate, its additives and binding agents, and cement and similar material.

An item can only fall into one of these categories (e.g., if an item is classified as an iron or steel product, a construction material, or a section 70917(c) material, then it is not a manufactured product). However, an item may also not fall within any of the categories, such as topsoil, which would not be an iron or steel product, manufactured product, or construction material. In addition, BABA requirements only apply to items that are "consumed in, incorporated into, or affixed to" an infrastructure project. They do not apply to tools, equipment, and supplies that are brought to a construction site and removed at or before the completion of the project (e.g., temporary scaffolding), and equipment or furnishings that are used at or within the finished project (e.g., chairs or computer equipment).

III. Timing of the Final Guidance and Application to Projects Obligated or Awarded After the Effective Date

The final guidance updates OMB's interim guidance issued on April 18, 2022 and the proposed guidance that OMB published in the Federal Register on February 9, 2023. The final guidance will become effective 60 days after being published in the Federal Register on October 23 and will be added to Title 2 of the Code of Federal Regulations.

OMB considered but declined commenters' requests to delay implementation or implement a phased or incremental approach to phase-in the guidance over time. Certain agencies, such as the Department of Transportation, however, have provided public interest waivers to allow recipients time to transition to the new rules. Although it is possible that agencies may issue waivers for certain programs or extend temporary waivers for certain categories of items (e.g., construction materials), these waivers are only intended to be temporary. Accordingly, financial assistance recipients and contractors should not delay assessment of their supply chains to ensure compliance with the final guidance.

The final guidance only applies to federal awards obligated on or after the effective date; projects under awards obligated on or after May 14, 2022, but before the effective date, are still subject to the April 2022 interim guidance. The final guidance also has a phase-in mechanism under which these types of prior awards can have additional federal funds obligated to the same infrastructure project for up to one year after the effective date and still only be subject to the April 2022 interim guidance unless an agency determines that the new requirements should apply when significant design or planning changes are involved.

IV. New Standards for When Iron and Steel Products, Manufactured Products, and Construction Materials Are Deemed to Be Produced in the United States

A. Iron and Steel Products

The final guidance defines "iron or steel products" to mean "articles, materials, or supplies that consist wholly or predominantly of iron or steel or a combination of both." In this context, predominantly of iron or steel or a combination of both" means "that the cost of the iron and steel content exceeds 50 percent of the total cost of all its components." The final guidance explains that "the cost of iron and steel is the cost of the iron or steel mill products (such as bar, billet, slab, wire, plate, or sheet), castings, or forgings utilized in the manufacture of the product and a good faith estimate of the cost of iron or steel components."

This definition is consistent with the definition in the Federal Acquisition Regulation (FAR) for procurements subject to the separate Buy American Act. However, the definition adopted by OMB does not incorporate FAR-specific waivers or exemptions, such as the language related to commercial-off-the-shelf (COTS) fasteners or electronic information technology.

To be considered produced in the United States, all manufacturing processes for the iron or steel, from the initial melting stage through the application of coatings, must occur in the United States. This definition of production is consistent with OMB's initial guidance in April 2022 and the proposed guidance in February 2023.

B. Manufactured Products

To be "produced in the United States," a manufactured 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." This definition has an exception for other domestic preference requirements applicable to a project that have an equivalent or higher cost of components threshold.

The proposed guidance left open significant questions about the definitions of "manufactured product" and "component." Fortunately, the final guidance provides welcome clarity and defines "manufactured product" as:

By including the language on "different properties," in subsection (1)(ii) of the definition, OMB acknowledged that not just any combination of materials produces a manufactured product. OMB provided an example that "a mixture of raw materials in an unprocessed or minimally processed state, such as minimally-processed fill dirt, should not be classified as a manufactured product." Under this definition, BABA requirements do not apply to unprocessed or minimally processed materials such as natural resources, which serve as the basic materials used in manufacturing processes (such as topsoil, compost, and seed).

In addition, the revised guidance explains that the classification of an article, material, or supply as falling into one of the four categories must be made based on its status at the time it is brought to the work site for incorporation into an infrastructure project. The term "work site," generally refers to the location of the infrastructure project at which the iron, steel, manufactured products, and construction materials will be incorporated.

OMB relied on the FAR definition for its definition of cost of components, and provided additional discussion of the cost of components test in the final guidance. To define component, OMB adopted a definition that is a modified form of the definition in FAR 25.0003. OMB defines "component" to mean an "article, material, or supply, whether manufactured or unmanufactured, incorporated directly into: (i) a manufactured product; or, where applicable, (ii) an iron or steel product." To determine whether the cost of components is greater than 55 percent of the total cost of all components, for components purchased by the manufacturer, the cost is the acquisition cost (including transportation costs and any applicable duty), and for components manufactured by the manufacturer, the cost includes all costs associated with manufacturing (including transportation and overhead costs, but excluding profit).

Therefore, there are four steps to determine whether the cost of the US components is greater than 55 percent of the total cost of all components, including: (1) determining the components of the item that are manufactured in the United States; (2) determining the cost of the components manufactured in the United States; (3) determining the cost of all components; and (4) dividing step 2 by step 3.

OMB recognized that some items may be acquired from a manufacturer or supplier as a kit intended for final assembly or installation on the work site and evaluated as a single manufactured product for purposes of the 55 percent cost of components test. In such cases, the items comprising the kit should be treated the same with regard to the cost of components test instead of regarding each item as a manufactured product. Even in the case of a kit, for the purposes of applying the cost of components test, the manufacturer should be considered the entity that manufactured the elements of the kit, not the recipient or contractor that acquires the kit or the contractor that assembles or installs the kit on the work site. In certain cases, a manufactured product purchased from a single manufacturer or supplier as a "kit" may be classified as a manufactured product even if its components are brought to the site separately or at different times. OMB does not define the term kit, but leaves federal agencies with reasonable discretion on how this concept should be applied in practice.

However, the guidance provides that when determining if products brought to a work site constitute a kit or separate end products, federal agencies should generally interpret the term kit as limited to discrete products, machines, or devices performing a unified function. A more wide-ranging system of interconnected products, machines, or devices (such as a heating, ventilation, and air conditioning system for an entire building) should not be considered a kit. OMB rejected an approach that would have applied the manufactured products 55 percent domestic content test "to the system as a whole." The revised guidance also instructs agencies that a kit should not include an entire infrastructure project.

C. Construction Materials

The final guidance limits the definition of "construction materials" to the following standalone items:

An item will be considered construction material if it falls into one of the listed categories even if another listed item is used as an input for the item at issue (e.g., fiber optic cable constitutes construction material even though it is produced with optical fiber, which is itself produced with listed plastic or glass). However, a substantive combination of listed items, such as a plastic-framed sliding window, would become a manufactured product instead of a construction material. In contrast, minor additions of articles, other materials, supplies, or binding agents does not change an item's status as a construction material. Notably the list of construction materials includes engineered wood, which OMB indicated that it was considering in the proposed guidance, and it includes fiber optic cable and optical fiber as separate materials.

The preliminary standards in the interim guidance were less stringent than the standards now provided in the final guidance. Specifically, the preliminary construction material standards in the April 2022 interim guidance only covered "the final manufacturing process and the immediately preceding manufacturing stage." Now, the final guidance confirms that "all manufacturing processes for the construction material must occur in the United States" and provides detail regarding the stages of the manufacturing process for specific materials that must occur in the United States.

For example, for fiber optic cable "[a]ll manufacturing processes, from the initial ribboning (if applicable), through buffering, fiber stranding and jacketing" must occur in the United States. Notably, the standard for fiber optic cable production was revised to clarify that it incorporates the standards for glass and optical fiber: "[a]ll manufacturing processes also include the standards for glass and optical fiber, but not for non-ferrous metals, plastic and polymer-based products, or any others." For plastic and polymer-based products, "[a]ll manufacturing processes, from initial combination of constituent plastic or polymer-based inputs, or, where applicable, constituent composite materials, until the item is in its final form, [must] occur[] in the United States."

The exception for minor additions of articles, other materials, supplies, or binding agents provides some relief for recipients and contractors because minor additions do not need to be sourced domestically. OMB did not provide a definition for minor additions, but indicated that some coatings and paints would qualify.

D. Section 70917(c) Materials

In BABA section 70917(c), Congress carved out several materials from the category of "construction materials," including cement and cementitious materials; aggregates such as stone, sand, or gravel; or aggregate binding agents or additives. In implementing this exclusion, OMB created a fourth category of items "section 70917(c) materials" that are treated as neither construction materials nor manufactured products in isolation. Therefore, these items by themselves do not need to be produced in the United States.

However, if a section 70917(c) material is combined with another section 70917(c) material before arriving at a work site, such as precast concrete, the combination is considered a manufactured product or iron or steel product and must be produced in the United States and meet domestic content requirements. In contrast, wet concrete or hot mix asphalt that has not settled into a particular shape or form can be brought to a site and incorporated into a project without being considered a combination of 70917(c) materials.

E. Distinguishing Between Categories of Items

The final guidance confirms that an article, material, or supply should only be classified into one of the four categories and that in some cases an article, material, or supply may not fall under any of the categories.

The key distinction between a construction material and manufactured product is whether the item consists only of one of the listed construction materials (with minor additions permitted), rendering the item a construction material, or whether the "construction material," following completion of all manufacturing processes, is combined with other items that are not considered minor additions, rendering it a manufactured product.

The classification of an article, material, or supply as falling into one of the above categories must be made based on its status at the time it is brought to the work site for incorporation into an infrastructure project. The term "work site" refers to the location of the infrastructure project at which the iron, steel, manufactured products, and construction materials will be incorporated. OMB noted that federal agencies have some flexibility when evaluating whether a location constitutes a "work site," noting that some environmentally sensitive projects may have items delivered offsite before incorporation into the project and that assembly may similarly occur offsite before incorporation in other projects.

The language aims to clarify when categorization occurs — not when compliance with BABA requirements is required. In other words, an item is categorized based on its status when it is brought to a work site and not when it is incorporated into a project. OMB noted that without this timing consideration, recipients of federal financial assistance may try to evaluate compliance based on "wide-ranging systems assembled on site" from various items delivered to a site, leading to many different products being categorized as one larger manufactured product, or even the entire infrastructure project as a manufactured product.

V. Waivers

The final guidance includes guidance on proposing and issuing BABA waivers and reiterates the availability of three kinds of waivers.

• A public interest waiver, is available when an agency concludes that applying the Buy America Preference would be inconsistent with the public interest.
• A nonvavailability waiver is available when an agency concludes that specific types of iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality.
• An unreasonable cost waiver is available when an agency concludes that applying the requirements to iron, steel, or manufactured products, or construction materials, will increase the cost of the overall infrastructure project by more than 25 percent.

OMB specifically considered and rejected an exemption or waiver for COTS products. However, OMB noted that COTS items may fall within various public interest waivers that agencies have issued such as de minimis or minor component waivers. The revised guidance did not provide specific examples of minor component public interest waivers, but the interim guidance stated that "[a] minor components waiver in the public interest may allow non-domestically produced miscellaneous minor components comprising no more than 5 percent of the total material cost of an otherwise domestically produced iron and steel product to be used." The interim guidance further noted that "[i]t would not be in the public interest to use a minor components waiver to exempt a whole product from the iron and steel requirements, or to allow the primary iron or steel components of the product to be produced other than domestically."⁴

Recipients may request waivers from a federal awarding agency in writing. Before issuing a waiver, the federal awarding agency must make the proposed waiver and justification publicly available for not less than 15 days for public comment and submit the waiver to OMB for review. If the waiver is one of general applicability (i.e., applying to multiple awards), the public comment period must be at least 30 days.

VI. What's Next?

The final guidance is not the last word on the BABA requirements. OMB still intends to issue a revised Memorandum updating the prior April 2022 M-22-11 Memorandum, which continues to apply except to the extent that it is inconsistent with the final guidance. Further, we expect to see agencies, such as the Federal Highway Administration and Federal Transit Administration, grapple with potential conflicts and gaps between the final guidance and existing domestic content regimes. Agencies may update existing policies to reflect the new BABA standards in the final OMB guidance, or rely on some combination of existing requirements and BABA. Agencies may also go above and beyond minimum BABA compliance and broadly apply the requirements to for-profit recipients that receive federal financial assistance awards directly.

Although stakeholders are still in the process of reviewing and adjusting their supply chains to the new requirements, we expect to see a significant uptick in waiver applications, particularly from industries that rely on manufactured products and components with a limited domestic supply. The OMB Made in America Office's approach to reviewing waiver requests remains to be seen. What is clear is that the transition from general applicability waivers to project- or item-specific waivers will put increased administrative burdens on recipients to request waivers in time to obtain relief from BABA requirements when needed.

Footnotes

1. The BABA requirements differ from the "Buy American" requirements that apply to federal procurement (e.g., what the federal government buys for its own use). BABA applies to federal financial assistance for infrastructure projects, including grants, cooperative agreements, and other federal awards that federal agencies provide to recipients constructing such projects. Although OMB "aimed for a reasonable degree of consistency on certain specific provisions," recipients and contractors should be sure to carefully review the relevant requirements so as to not conflate the distinct obligations.

2. BABA requirements do not apply to certain disaster relief and emergency assistance awards or pre- and post- disaster or emergency response expenditures.

BABA requirements also do not automatically apply to federal awards made directly to for-profit recipients. However, agencies are free to make the requirements applicable to such awards on a case-by-case basis. Also, for-profit subrecipients and contractors performing work under a federal award made directly to a state, local government, Indian tribe, institution of higher education, or non-profit organization need to comply with the requirements in order to satisfy the terms of the direct federal award.

3. The final guidance applies government-wide, but federal agencies may also issue further supplemental requirements. Notably, the final guidance does not replace those existing Buy America preferences that already complied with BABA by meeting or exceeding its requirements and defers to agencies to update their own existing regulations as needed (e.g., to incorporate standards for construction materials, which were newly created under BABA).

4. The Department of Transportation, for example, recently finalized its limited public interest waiver of the Buy America preference for de minimis costs and small grants. See 88 Fed. Reg. 5,5817 (Aug. 16, 2023). The final August 2023 waiver is narrower than the original waiver as proposed in November 2022.

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