The Buy American Act of 1933 requires the federal government to buy American–made iron, steel, and manufactured goods wherever possible. A product is defined as American–made under “Buy American” if at least 50 percent of its constituent parts and/or materials originated in the US. Since 1933, several additions to that policy have been enacted, and a body of policy, procedure, and case law has developed. Federal contractors have had to operate within this framework. Additionally, in the Surface Transportation Assistance Act of 1982, a separate policy known as “Buy America” was enacted. It governs procurements that are funded through the Department of Transportation, such as highway, bridge, rail, and transit construction. A product is defined as American–made under “Buy America” if all of its manufacturing processes, constituent parts and/or materials originated in the US. In 2009, the American Recovery and Reinvestment Act, created yet another standard, which applied to all projects with Recovery Act funds (both direct federal and federal–aid). This new Recovery Act standard is distinct from the others in that it supersedes the other two requirements where they would normally apply, establishes a new definitions of American–made, and applies the requirement to sectors of the construction market that have never had to comply with either of the previous requirements before.
Repeal Recent Changes and Oppose Expansion of the Buy American Act
- The Buy American Act of 1933 requires the federal government to buy American-made goods wherever possible. A product is defined as American-made if at least 50 percent of its constituent parts and/or materials originated in the US. The Buy American Improvement Act seeks to strengthen many provisions, tighten definitions, and shut down exceptions to the original Act.
- Interferes with Competitiveness of American Contractors at Home. If a contractor bids a project using potentially more expensive American-made products, they are gambling that other contractors’ bids include that same cost. The provision in the Buy American Improvement Act that seeks to address this problem is woefully inadequate. It only gives preference to domestic bidders (or bidders using domestic products) where the company’s offer is “substantially the same” as an offer made by a company that does not include American-made products. If American products turn out to be substantially greater in cost, the contractor that uses them will be less competitive.
- Interferes with the Competitiveness of American Contractors Abroad. Preferential treatment for American-made products here will encourage reciprocal action abroad. Contractors who do business overseas could lose business on projects they otherwise would have been competitive on.
- Increases Costs by Artificially Constraining the Supply Chain. By altering the definition of what constitutes an American-made product (raising the threshold percentage from 50 to 75 percent), companies who do business with the federal government will have to shift their supply chains as they are left to choose from a smaller list of acceptable products.
- Violates International Treaty. Strengthening the Buy American Act would be in violation of the plurilateral Agreement on Government Procurement (1994), to which the US is party, administered by the World Trade Organization. This opens the possibility for potentially costly and time-consuming international suits and dispute mediation, which could strike unexpectedly during any portion of the construction cycle.
The Buy American requirements in the American Recovery and Reinvestment Act originate in Section 1605, which states:
- SEC. 1605. Use of American Iron, Steel and Manufactured Goods
- (a) 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.
- (b) Subsection (a) shall not apply in any case or category of cases in which the head of the federal department or agency involved finds that:
- (1) applying subsection (a) would be inconsistent with the public interest;
- (2) 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; or
- (3) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.
- (c) If the head of a Federal department or agency determines that it is necessary to waive the application of subsection based on a finding under subsection (b), the head of the department or agency shall publish in the Federal Register a detailed written justification as to why the provision is being waived.
- (d) this section shall be applied in a manner consistent with United States obligations under international agreements
Two different sets of regulations govern the Buy American provisions of the Recovery Act, each for its own type of work. Direct federal work, carried out by direct contract with a federal agency, is governed by a separate set of rules than by the grants, financial assistance, and loans that are not administered directly by the federal government, but by State and local entities. Separation of these two is of critical importance, as the Buy American Act does not apply to grants, financial assistance, and loans and the trade agreements exemption does not apply uniformly at the State level.
Direct Federal Work
Direct federal work is governed by the Federal Acquisition Regulation (FAR) and as such a standalone FAR case was developed for the implementation of Section 1605 for projects directly procured by the federal government. FAR Case 2009–008 requires all construction, repair or maintenance projects use only iron, steel and manufactured goods produced in the United States. The rule provides a number of narrow exceptions, such as cases when goods are not available domestically, or if the local price is not reasonable. The final version of the rule makes a few key distinctions, such as the determination that in cases where there are mixed Recovery Act and non–Recovery Act funds, and the Recovery funds are not segregated by line item, the law requires the mixed–fund contracts to be treated as if they were entirely funded by the Recovery Act. Another important determination is the separation of the Recovery Act rules from existing rules governing the Buy American Act of 1933 (as amended). The Councils have determined that Section 1605 supersedes the Buy American Act on Recovery Act projects.
Federal–aid projects, such as highway and bridge construction and clean water investment are governed by guidance issued by OMB. They issued regulations April 23, which covered not only the Buy American implementation, but also the reporting requirements and the Davis–Bacon wage requirements. While the regulations are similar to the ones set in the FAR, the implementation is different. The guidance documents provide an overview and templates for recipients, sub–recipients and vendors as prescribed in the Recovery Act.
It is important to note that the OMB regulations are designated “interim final” meaning that a newer version of them could come out at any time that would be designated the “final” versions. These final versions could differ substantially from the interim final versions discussed here. However, unless and until the final versions are released, all contract actions shall operate under these interim final versions.
Section 1605 applies to construction, alteration, maintenance, or repair of a public building or public work. For direct federal work, the regulatory definitions at FAR 22.401 define this as: “Public building or public work” means 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.
For federal–aid work, public building and public work means 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
For both federal and federal–aid work, what is known as the “substantial transformation” test is applied. Manufactured good means a good brought to the construction site for incorporation into the building or work that has been—
- (i) Processed into a specific form and shape; or
- (ii) Combined with other raw material to create a material that has different properties than the properties of the individual raw material
Perhaps the largest substantial difference between direct federal and federal–aid work under these regulations is the treatment of the requirement that Section 1605 be applied in a manner consistent with United States obligations under international agreements. For direct federal construction, contracts above $7,443,000 may treat material that is from any of the Recovery Act Designated Countries as if it were American. To be considered from one of these countries, the material must either be wholly the growth product or manufacture of the designated country, or “substantially transformed” in that country (see manufactured goods above, substantial transformation test)
Recovery Act Designated Countries:
- WTO GPA Countries
Aruba, Austria, Belgium, Bulgaria, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea (Republic of), Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan, or the United Kingdom
- FTA Countries
Australia, Bahrain, Canada, Chile, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Mexico, Morocco, Nicaragua, Oman, Peru, or Singapore
- Least Developed Countries
Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, East Timor, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea–Bissau, Haiti, Kiribati, Laos, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Tanzania, Togo, Tuvalu, Uganda, Vanuatu, Yemen, or Zambia
For federal–aid work, applying the trade agreements exemption is much more complicated. States and other affected nonfederal entities are required to abide by their separate, individual obligations to other countries under trade agreements when making subawards of grants funded by ARRA. Not every state has undertaken these international obligations, and those that have typically reserve certain exclusions to their commitment. The Buy American requirements for state and local projects therefore, vary not only from state to state, but also from project to project. Again, the $7,443,000 threshold applies before trade agreement exceptions may be utilized.