This post is part of a series sponsored by IAT Insurance Group.
After fighting back from the Great Depression, the Hoover administration passed the “Buy American Act” in 1933. The basic premise of the act was obvious – to revive and strengthen the American economy by requiring US iron and steel to be mined or produced in the US for use in projects for the federal government.
In 1982, Congress passed the Buy America Act, which for the first time extended the requirement that contractors use only US iron and steel in state transportation projects receiving federal funding. The Buy America Act also expanded the items that must be purchased from the United States to include manufactured items.
More recently, a further expansion, called the “Build America, Buy America Act” (BABA), was enacted in November 2021 as part of the Infrastructure and Investment Jobs Act (IIJA). Entrepreneurs need to be aware of how the law governing Buy American requirements has changed and how it may affect their businesses in new ways.
Most importantly, BABA’s material requirements apply to all infrastructure projects that receive federal funding—not just IIIA projects—and not just where the federal government is a contracting party, but also on projects where a state or local government is a contracting party. Furthermore, “infrastructure” projects are broadly defined to include:
- roads, tunnels and bridges
- railways (both passenger and freight)
- dams, ports, harbors and other maritime facilities
- water system
- electrical transmission facilities and systems
- broadband infrastructure
- buildings belonging to all of the above, including for example train and bus stations, tolls and even office facilities
Here are some other things you should know about BABA:
- Along with iron, steel and manufactured products, BABA’s requirements extend for the first time to construction materials, which must also come from the United States. Building materials are defined to include raw materials such as glass, plasterboard, fiber optic cable, non-ferrous metals such as copper and aluminum as well as PVC and other plastic or polymer based products. Aggregates and cement are excluded.
- BABA is gradually increasing the domestic content threshold (by cost) for manufactured goods from 55% to 60% from October 2022, up to 65% in 2024, and will top up at 75% in 2029. In some cases, however, increases have been postponed pending a review.
- Commercially available off-the-shelf products manufactured overseas can be used if not modified.
Some frequently asked questions about BABA
Q: Can a particular item or component fall into more than one category among iron and steel, manufactured products and building materials?
A: No. The guidance suggests that all objects included in an infrastructure project fall within one of the three categories. For example, an item that combines a construction material, such as glass, with another material or a manufactured product (such as a window unit) will be considered a manufactured product.
Q: What exactly is a commercially available off-the-shelf (COTS) product?
A: According to the Federal Acquisition Regulations, a COTS is any supply item (including a building material) that is sold in significant quantities in the commercial market and is used without modification in the form in which it is sold.
Q: Are there exceptions to BABA requirements under IIJA?
A: Yes. A waiver may be available if the assignment is found to be contrary to the public interest or if the material is unavailable or unreasonably priced. Exemptions issued by a particular government agency may apply to that agency or be project specific. Further, under international treaty obligations, products from certain preferred trading partners are treated as made in America for contracts of $7,804,000 or more with certain exceptions, such as Small Business Administration contracts, which fall under Buy American mandates regardless of project amount.
Q: What can contractors do if they are unsure whether BABA requirements apply to a specific project or product or if other help is needed to comply with the law?
A: In addition to consulting an attorney or other professional, contractor questions regarding Buy American requirements may be directed by email to BuyAmerican@ee.doe.gov. In addition, the Office of Management and Budget regularly publishes guidance on the changing landscape of BABA requirements.
Best practices for contractors
If you are working on a project that is federally funded in any respect, compliance with applicable Buy American requirements is critical to your performance. Stay on top of the rules with these best practices:
- Get certification from your suppliers. Obtain supplier certification confirming that the building materials or manufactured products meet BABA requirements.
- Share responsibility. Construction contracts with subcontractors and suppliers should contain language that makes those parties responsible for the costs of noncompliance with BABA.
- Keep up to date with requirement changes. Laws change frequently. Pay close attention to bulletins issued by federal agencies such as the Office of Management and Budget. The conditions for exemption may change along with the types of building materials covered by BABA. Exceptions to the rule are also subject to change. Although cement and aggregate are not currently included in BABA, that may change.
- Don’t count on an exception. BABA is in place for a reason, so exemptions will not be easy to obtain and will likely be project or even product specific. Do your due diligence, be aware that the timing of implementing BABA requirements is not uniform for all federally funded infrastructure projects, and ensure that the BABA requirements applicable to the project are met.
- Consider dedicating one person to BABA supervision. Documentation is key so make sure you record all the facts surrounding the job and BABA compliance. Task someone in your organization with tracking documentation or consider having a dedicated person responsible for ΒΑΒΑ compliance. Seek legal advice when in doubt.
Failure to comply with applicable BABA requirements may result in the need to remove and replace completed work at your expense, termination from the contract, and potentially even prohibition from performing federally funded work. In addition, willful failure to comply with Buy American requirements may result in liability under the False Claims Act, where penalties include treble damages.
For further information on BABA and IIIA, please contact The IAT team.
This article should not be used as legal advice. All parties should consult legal counsel of their choice and seek expert advice on legal and compliance matters Federal Register, “Federal Acquisition Regulation: Amendments to the FAR Buy American Requirements,” 7 March 2022.
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