Federally funded projects may make the difference in the financial health and success of many contractors. Accordingly, all the players involved in federal projects need to become keenly aware of the Buy American/Buy America mandated preferences for American-made products. Anticipating and avoiding Buy American/Buy America compliance pitfalls can help avoid delay and expense. Three separate federal legislative acts comprise the Buy American/Buy America requirements: (1) The 1933 Buy American Act; (2) The 1982 Surface Transportations Assistance Act; and (3) The 2009 American Recovery Reinvestment Act, also known as the Stimulus Plan. The following is a synopsis of each of these laws.
1933 Buy American Act
Congress enacted the 1933 Buy American Act after the Great Depression. The Act requires the federal government to buy American–made iron, steel and manufactured goods wherever possible. Under the Act, a product is "American–made" if at least 50 percent of its constituent parts and/or materials originated in the United States. Generally, the Act requires the federal government to buy domestic "articles, materials and supplies" when acquired for public use, unless the head of the procuring federal agency determines that the application of the Act:
- would be inconsistent with public interest;
- would result in unreasonable cost;
- or would be unworkable because the products are not produced in the United States in sufficient and reasonably available commercial quantities and of satisfactory quality.
The Act applies to all direct federal procurements, but has separate provisions for supply contracts and construction contracts. The rules for determining whether products are of foreign or domestic origin are the same for both types of procurements. However, the "test of origin" is on the end product, when it is a supply contract, but on the "construction materials" when it is a construction contract. The Act also differentiates between "manufactured" and "un-manufactured" articles. An "un-manufactured" article will be deemed a domestic end product or construction material if it has been mined or produced in the United States. Manufactured articles are considered domestic if they have been manufactured in the United States from components, "substantially all" (more than 50 percent of the cost) of which have been mined, produced or manufactured in the United States. Finally, certain products from countries with which the United States has a relevant international agreement are exempt from the Act and deemed "domestic."
1982 Surface Transportation Assistance Act
The 1982 Surface Transportation Assistance Act, among other things, enacted a separate policy known as "Buy America." "Buy America" governs Department of Transportation-funded procurement, such as highway, bridge, rail and transit exceeding $100,000. Generally, "Buy America" prohibits the use of federal grants unless the iron, steel and manufactured goods are U.S. produced. Similar to the 1933 Buy America Act, there are three primary exceptions, which allow the head of the Department of Transportation to treat particular items or materials to be of "domestic" origin if:
- the iron, steel and manufactured goods are not available in the United States in reasonable quantity and quality;
- the U.S.-produced good increases the cost of a project by more than 25 percent; or
- using a U.S.-produced good conflicts with the public interest.
2009 American Recovery Reinvestment Act (The Stimulus Plan)
The Stimulus Plan created yet another standard, which applies to all construction projects utilizing federal funds. Thus, as to construction projects, the Stimulus Plan supersedes the above Acts. Section 1605 of the Stimulus Plan, titled "Buy American," establishes a new definition of American–made, and applies the requirement to sectors of the construction market that never needed to comply with the above Acts. Generally, the Stimulus Plan requires that infrastructure projects involving construction, alteration, maintenance, or repair of public works must use U.S. produced iron, steel and manufactured goods. Again, the heads of federal agencies can make exceptions when use of domestic products is:
- inconsistent with the public interest;
- compromised because there are insufficient or reasonably unavailable quantities of domestic products or the domestic products are of an unsatisfactory quality; or
- likely to increase the cost of the overall project by 25 percent or more.
With President Obama's American Jobs Act in the offing, which contains funding for infrastructure projects that, if passed, may lead to new opportunities for the construction industry, gaining an understanding of the Buy America/Buy American statutory framework – no matter what your role is in the construction industry – will provide value to your business.