BABA is the most expansive domestic preference law in American history, requiring all federal funding on state and local projects to meet minimum BABA requirements for (1) iron and steel, (2) manufactured products, and (3) construction materials. The FHWA’s implementation of BABA requires compliance with a new “construction materials” category as well as the impending end of the FHWA’s “manufactured products” Buy America waiver. This requires contractors to be diligent and cognizant of these changes, as BABA affects how and where contractors source their materials.
How does BABA impact FHWA Requirements?
Because many agencies had existing Buy America requirements prior to BABA, BABA’s requirements apply only to the extent that federal agencies do not already apply Buy America preferences to iron and steel, manufactured products, and construction materials. BABA does not replace FHWA’s existing Buy America policies and provisions that meet or exceed the standards required by BABA, like FHWA requirements for iron and steel. However, the BABA provisions also provide for a process for reviewing existing waivers of Buy America general applicability, such as FHWA’s general waiver for manufactured products.
FHWA General Waiver for Manufactured Products Set to End Under Proposed New Rule
In light of BABA, the FHWA reconsidered its across-the-board manufactured products waiver. The FHWA notified the public in the Federal Register of its intent to do away with its longstanding general waiver and implement the BABA rule, and the public comment period closed on May 13, 2024. The BABA rule requires that manufacturing takes place in the United States, and the cost of the components of the manufactured product that are mined, produced, or manufactured in the United States is greater than 55% of the total cost of all components of the manufactured product.
Precast Concrete and Electronic Hardware BABA Deviations in Proposed Rule
However, the FHWA’s proposed rule deviates from BABA for two specific materials: (1) precast concrete products and (2) electronic hardware systems (like intelligent transportation systems). The FHWA has proposed that any iron or steel elements of precast concrete must meet the FHWA’s existing requirements for iron and steel. Further, the FHWA has proposed that all iron or steel required for electronic hardware systems installed in a highway right-of-way or other real property must meet existing FHWA iron and steel requirements.
Considering the FHWA’s comment period ended in May, the FHWA may issue its final rule on ending its “manufactured products” waiver at any time.
BABA’s “Construction Materials” Requirement
In addition to the already existing iron and steel and manufactured products requirements, BABA introduced a broad new category of “construction materials.” This category requires all construction materials must be produced in the United States. For a “construction material” to be considered produced in the US, all manufacturing of the product must take place in the United States. The Office of Management and Budget’s (“OMB”) final guidance defines “construction materials” as:
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- Non-ferrous metals;
- Plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables);
- Glass (including optic glass);
- Fiber optic cable (including drop cable);
- Optical fiber;
- Lumber;
- Engineered wood; and
- Drywall.
This list crucially omits aggregate and cement products, which are exempt under Section 70917(c) of BABA, are not defined as “construction materials,” and do not have to be produced in the United States.
Buy America Standards that Apply to the Manufacturing Process for Construction Materials
BABA implementing regulation 2 CFR 184.6 establishes the standards for each construction material to be considered “produced in the United States.” That section states:
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- Non-ferrous metals: All manufacturing processes, from initial smelting or melting through final shaping, coating, and assembly, occurred in the United States.
- Plastic and Polymer-based products: All 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, occurred in the United States.
- Glass: All manufacturing processes, from initial batching and melting of raw materials through annealing, cooling, and cutting, occurred in the United States.
- Fiber Optic Cable (including drop cable): All manufacturing processes, from the initial ribboning (if applicable), through buffering, fiber stranding and jacketing, occurred in the United States. All 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.
- Optical Fiber: All manufacturing processes, from the initial preform fabrication stage through the completion of the draw, occurred in the United States.
- Lumber: All manufacturing processes, from initial debarking through treatment and planning, occurred in the United States.
Drywall: All manufacturing processes, from initial blending of mined or synthetic gypsum plaster and additives through cutting and drying of sandwiched panels, occurred in the United States.
Engineered Wood: All manufacturing processes from the initial combination of constituent materials until the wood product is in its final form, occurred in the United States.
According to the OMB’s Final Guidance, items that apply to more than one category should be classified based on the primary category the item falls under when it arrives on-site. (2 CFR 184.4(e)).
The definition of “construction material” in 2 CFR 184.3 makes clear that a construction material is a material that consists of only one of the listed items, with an exception for minor additions of articles, materials, supplies, or binding agents to a construction material.
Temporary Use and Emergency Relief Projects under Declared Disasters Like Hurricanes
Temporary materials that are not permanently incorporated into the final product are not required to meet BABA’s “construction materials” requirements. Similarly, projects aiding major disasters such as hurricanes (as defined under the Stafford act) for Emergency Relief (ER) are not subject to BABA requirements; however, the FHWA’s iron and steel and manufactured products requirements will still apply. See OMB Final Guidance.
What Information is Needed for FHWA to Process a BABA waiver?
The FHWA and Made in America Office (MIAO) may also grant waivers for certain products that cannot reasonably meet BABA specifications. Other than project identification information, the FHWA and MIAO generally require the following information in a waiver request:
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- Waiver type (nonavailability, unreasonable cost, or public interest);
- Total estimated expenditures, including all federal and non-federal funds;
- Infrastructure project description and location (to the extent known);
- List of iron or steel item(s), manufactured products, and construction material(s) proposed to be excepted from Buy America requirements, including name, cost, country(ies) of origin (if known), and relevant Product and Service Code (PSC) and North American Industry Classification System (NAICS) code for each;
- A description of efforts made (market research) made by the awarding agency and recipient; and
- The impact if no waiver is issued.
Conclusion
While the end goal of BABA is to strengthen domestic industry, contractors and the government may experience cost increases, new statutory interpretations, and other growing pains in implementing the “construction materials” and now “manufactured products” rules (pending the FHWA final rule).
For more information and any questions, please contact the Smith Currie Oles domestic preference team members, Howard Roth (hwroth@smithcurrie.com), Jake Scott (jwscott@smithcurrie.com), or Joey Haughney (jmhaughney@smithcurrie.com).
Smith Currie Oles provides comprehensive legal services to all parts of the construction industry across the nation. Smith Currie lawyers have decades of demonstrated success representing construction and federal government contracting clients “From the Ground Up,” including procurement matters, contract formation and negotiation, project administration, claims prosecution and, when necessary, in litigation and other forms of dispute resolution.
The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.