- On April 18, the Office of Management and Budget published a memorandum supplementing the Build America, Buy America provisions of the Infrastructure Investment and Jobs Act.
- Starting May 14, federal agencies administering federal financial assistance programs must implement a “Buy America preference” for infrastructure projects.
- Additional OMB regulations under the IIJA are expected soon.
On April 18, the Office of Management and Budget (OMB) issued OMB Memorandum M-22-11, “Initial Implementation Guidance on Application of Buy America Preference in Federal Financial Assistance Programs for Infrastructure,” (“OMB Guidance”), which supplements the Build America, Buy America (BABA) provisions of the Infrastructure Investment and Jobs Act (IIJA) enacted in November 2021. In addition, OMB issued a Notice of Listening Sessions and Request for Information (RFI) on April 21 seeking public comment on BABA implementation. Public comments are due by May 23.
The OMB Guidance provides initial direction to federal agencies on the application of “Buy America” sourcing requirements for infrastructure programs (applying broadly to all federally funded infrastructure projects, not just IIJA- funded projects) and on processes for issuing Buy America waivers. As discussed below, the OMB Guidance addresses several key questions regarding the Buy America requirements that apply beginning May 14 to all infrastructure projects receiving federal funding, such as:
- To what articles, materials, and supplies do the Buy America requirements apply, and what tests apply to different types of articles?
- What is a “construction material” and how is it different from a “manufactured product”?
- What constitutes “infrastructure”?
- Can agencies issue waivers of the Buy America requirements? If so, what waivers are available?
Key Takeaways from the OMB Guidance
The OMB Guidance makes clear that this is an 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 and suppliers interested in supplying products to federally funded infrastructure projects.
Expanded Application of Buy America Preferences to Federal Infrastructure Programs
Pursuant to the IIJA, starting May 14, federal agencies administering federal financial assistance programs (i.e., grants, cooperative agreements, non-cash contributions or donations of property, direct assistance, loans, loan guarantees, and other financial assistance) must implement a “Buy America preference” for infrastructure projects. The IIJA dramatically expanded the applicability of Buy America requirements. Buy America laws previously only covered certain transit-related financial assistance programs, such as the Federal Transit Administration and Federal Highway Administration. The new Buy America preference applies to all federal infrastructure projects, whether or not the project is funded by the IIJA.
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. The IIJA and OMB Guidance define “infrastructure projects” broadly to include not just structures, facilities, and equipment for traditional infrastructure (e.g., roads, bridges, and public transportation), but also water systems, electrical transmission facilities, utilities, broadband infrastructure, and facilities related to the generation, distribution, and transportation of energy (e.g., electric vehicle charging). Accordingly, the Buy America preference 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 Materials and Buy America Tests
There are three Buy America tests for three different types of materials: iron or steel, manufactured products, and 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 if 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% of the total cost of the components of the manufactured product. “Manufactured products” are explained in the OMB Guidance as “items that consist of two or more of the listed materials [construction materials in the OMB Guidance] that have been combined together through a manufacturing process, and items that include at least one of [those] listed materials combined with a material that is not listed through a manufacturing process, should be treated as manufactured products, rather than as construction materials.” 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 construction materials must occur in the United States.
New Buy America Requirements for Construction Materials
The inclusion of construction materials in the IIJA is also an expansion of prior Buy America laws. “Construction materials” are defined as articles, materials, or supplies that are (or 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 definition expressly excludes cement and cementitious materials, aggregates such as stone, sand, or gravel, and aggregate binding agents or additives.
The OMB Guidance provides “preliminary and non-binding” guidance on the definition of construction materials, while seeking additional stakeholder guidance on potential refinement of that definition. The OMB Guidance also states that items that include at least one of five categories of construction materials listed above, combined with some other material through a manufacturing process, should be considered manufactured products rather than construction materials. For example, a plastic-framed sliding window would be treated as a manufactured product, but plate glass would be treated as a construction material.
Waivers of Buy America Requirements
Finally, the IIJA and OMB Guidance modify the process for securing a waiver of domestic preference requirements, codifying the changes initiated by President Biden’s January 2021 Executive Order 14005, “Ensuring the Future is Made in America by All of America’s Workers.” Before an agency can issue a waiver, it must publish a written explanation for the waiver on its website and BuyAmerica.gov and allow for public comment. After the public comment period ends, the proposed waiver must be approved by the Made in America Office (MIAO). The OMB Guidance specifies information required to be submitted to the MIAO with the waiver request, including a detailed justification for the non-domestic materials and a certification of a good faith effort to solicit bids for domestic materials.
The OMB Guidance instructs agencies that they may grant or reject waivers in whole or in part, with the goal of issuing waivers at the project and product levels that are time-limited, targeted, and conditional. In this way, the new waiver guidance aims to boost reliance on and use of domestic supply chains by avoiding waivers that, in the eyes of OMB, might be overly broad.
Three types of waivers are contemplated:
- Nonavailability waivers – where a product is not reasonably available in the United States in the requirement quantity or quality.
- Unreasonable cost waivers – where the domestic product increases the cost of the overall project by more than 25% when compared to the alternative of using foreign-made products.
- Public interest waivers – a broad catch-all category providing the government buyer with flexibility to execute the project, and potentially allowing non-U.S. content in de minimis amounts, for small value procurements, in exigent circumstances, and/or allowing the Buy America requirement to be applied consistent with international trade obligations.
The MIAO will also increase scrutiny for general applicability waivers, which will include appropriate justification by the agency and a review of the waiver every five years. There is a carve-out for product-specific general applicability waivers that were issued before May 19, 2021, as those do not need to be reviewed until November 15, 2026.
Certain agencies have begun issuing waivers to ease the transition to the new BABA regime. For example, on April 28, the Department of Transportation issued a six-month “transitional waiver” of BABA requirements applicable only to construction materials. And on May 3, the Department of Housing and Urban Development officially published a six-month “general applicability waiver” of BABA requirements while the agency collects further information on the “burdens … arising from compliance and monitoring” with BABA requirements.
Domestic preference requirements for federal procurement and federal financial assistance have continued to evolve at an unprecedented pace, and the most recent OMB Guidance and RFI are the latest developments in this area. According to the OMB Guidance, new or amended infrastructure programs must be aligned with the Buy America requirements by May 14. Though the requirements will not apply retroactively to infrastructure programs started and awards made before May 14, unless and until they are renewed or amended, these changes could still drastically alter a company’s compliance and ability to continue doing work on federally funded infrastructure projects. Additional OMB regulations under the IIJA are expected soon.
Companies that do work on federally funded infrastructure projects should continue to monitor the evolving domestic preference standards as additional regulations are issued and implemented, familiarize themselves with the changing Buy America requirements, and assess and document their compliance with the various country of origin requirements, including a review of products acquired through the supply chain for various projects and customers.