The Office of Management and Budget’s (OMB) August 14, 2023, final guidance for the “Build America, Buy America” (BABA) Act requirements went into effect on October 23, 2023. OMB’s final guidance has far-reaching implications for government contractors in the infrastructure sector, to include a new category of “construction materials” that must be produced in the United States. This article explores how OMB’s final guidance impacts BABA, and the key changes between the OMB’s interim and final guidance.
BABA is a federal law promoting domestic economic growth by requiring government contractors to use domestically produced products on federally funded infrastructure projects. BABA expands on an existing set of statutes and regulations created in the last 50 years requiring the use of American produced products on federally funded state and municipal infrastructure projects.
On April 18, 2022 OMB published interim guidance for BABA (OMB Memorandum M-22-11) and on August 14, 2023 OMB issued its final guidance for BABA, effective on October 23, 2023. Projects awarded between May 14, 2022 through October 22, 2023 will fall under OMB’s April interim guidance, while projects awarded after will fall under OMB’s final guidance, codified at 2 C.F.R. § 184.
OMB’s final guidance critically defines three categories of BABA products: (1) a new category of construction materials; (2) iron and steel products, and (3) manufactured products.
New Category – Construction Materials
BABA is the first domestic preference law to address a broad new category “construction materials,” and BABA mandates that all construction materials must be produced in the United States. For a “construction material” to be considered produced in the USA, all manufacturing of the product must take place in the United States. Under OMB’s final guidance, “construction materials” are defined as:
(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) Fiber optic cable (including drop cable);
(v) Optical fiber;
(vi) Lumber;
(vii) Engineered wood; and
(viii) Drywall.
Significantly, this list omits aggregate and cement products, which are not considered construction materials for BABA purposes. Aggregates, stone, and cement are referred to as Section 70917(c) materials, and are exempt from BABA requirements and therefore do not have to be produced in the USA.
Iron and Steel Products
BABA requires iron and steel products to be produced in the United States; however this has a few qualifiers. First, although iron and steel products require manufacturing, they are not inherently considered “manufactured products” under BABA. Iron and steel products will only be considered “manufactured products” under BABA if subsequently incorporated (or manufactured) into another, wholly different product. Next, OMB’s final guidance defines iron and steel products as “articles, materials, or supplies that consist wholly or predominantly of iron or steel or a combination of both.” To be defined as “predominantly of iron or steel” for BABA purposes, the cost of iron and/or steel content must exceed 50% of the total cost of the product’s components.
Lastly, for iron and steel products to be considered produced in the United States, all manufacturing processes, “from the initial melting stage through the application of coatings” must take place domestically. This “poured and bent” requirement is the same as the previous Buy America Act requirements.
Manufactured Products
OMB’s final guidance defines “manufactured products” as those that are manufactured in the United States, and the USA produced material in the product must exceed 55% of the cost of the product’s components. Determining whether a product is manufactured in the United States requires a four-step process:
- Determine the components manufactured in the United States.
- Determine the cost of those components manufactured in the United States.
- Determine the cost of all components.
- Divide the cost determined in step 2 by the cost determined in step 3.
If the fraction in step 4 is greater than 55%, the manufactured product complies with BABA requirements.
Waiver
Of course, it is possible that a required product or material cannot comply with BABA requirements. To accommodate this possibility, both BABA and OMB’s final guidance allow for BABA waivers in three scenarios: public interest; nonavailability; and cost.
- Public Interest: A contractor may request a public interest waiver if following BABA requirements would be considered inconsistent with public interest.
- Nonavailability: the federal awarding agency can waive BABA requirements if the iron, steel, manufactured product, or construction material required by the contract is not produced in the United States, or not produced in adequate quantities in the United States.
- Cost: BABA requirements can be waived if inclusion of the BABA-required iron, steel, manufactured products, or construction materials will increase the overall cost of the infrastructure project by more than 25 percent.
Differences Between Interim and Final Guidance
There are several differences between the OMB interim guidance and the final guidance. For instance, many components may fall under more than one of BABA’s four classifications of (i) iron or steel products; (ii) manufactured products; (iii) construction materials; or (iv) Section 70917(c) materials. OMB revised its definitions in its final guidance to clarify that components are classified by their status when brought to the work site.
Moreover, OMB revised the definition of “all manufacturing processes” for construction materials. While the interim guidance required only the penultimate and final manufacturing processes take place in the United States to be considered produced in the USA, the final guidance mandates that all processes must take place domestically.
Further, OMB redefined “manufactured products” in the final guidance. In the interim guidance, “manufactured products” could not be considered construction materials or predominantly made of iron or steel. In response to several comments, the revised definition provides that manufactured products can be produced from iron, steel, or construction materials and then combined with other materials or processed into a particular form; however, importantly each component can only fall under one of the BABA categories.
Practical Implications
BABA is the newest in a series of statutes and regulations that impact federally funded infrastructure projects. Many commentors on the interim guidance raised concerns that while OMB’s definitions do solve many problems, they leave many more unresolved. Although the domestic production requirements are intended to boost economic growth and domestic industry, this does not come without a short-term cost to government contractors, who must adapt to new and ever-changing requirements, to include the new requirement for construction materials.
If you have questions regarding the Build America, Buy America Act, or its interim or final guidance, please reach out to Joseph M. Haughney (jmhaughney@smithcurrie.com), Jacob W. Scott (jwscott@smithcurrie.com), or Howard W. Roth (hwroth@smithcurrie.com).
The author acknowledges and appreciates the significant contributions of Smith, Currie legal intern Cortland Walton, in developing this article.
Smith Currie 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.
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