July 11, 2019

By: Jamie Oberg, Associate, Peckar & Abramson, P.C.

On January 31, 2019, President Trump signed an Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects, placing continued emphasis on the importance of “the use of goods, products, and materials produced in the United States.”

This order builds upon the President’s “Buy American, Hire American” Executive Order, which he issued in April of 2017. The 2017 Order increased enforcement of standing Buy American laws and called for federal agencies to explore new possibilities regarding domestic preferences. In part, the 2017 Order required every agency to “scrupulously monitor, enforce, and comply with Buy American laws,” and to minimize the use of waivers of these laws.

The 2019 Order instructs federal agencies to develop rules to encourage contractors to comply with these preferences to the maximum extent practicable in any infrastructure project that receives any indirect federal government assistance. This includes recipients of loans, loan guarantees, grants, insurance subsidies or other forms of financing.

The Trump administration has framed both executive orders as “strong presidential guidance” that expects federal agencies to examine ways in which American resources can be directed toward American products and people. The agencies must also provide reports to the President recommending methods of maximizing domestic-preference policies on federal infrastructure contracts involving indirect federal funding. Therefore, while agencies must simply encourage the use of domestically-produced construction materials “in every contract, subcontract, purchase order, or sub-award that is chargeable against such Federal financial assistance award,” the groundwork is clearly being laid to mandate the use of such materials in the future.

The all-encompassing language of the Order serves as a stepping stone to significantly increasing the reach of the Buy American Act, potentially catching contractors off-guard and subjecting them to the severe penalties the Act imposes.

Questions for Contractors:
1) Am I subject to a domestic-preference law?
The Order imposes the encouragement and recommendation requirements on federal agencies administering “covered programs.” However, programs providing federal financial assistance subject to comparable domestic preferences, such as the Buy American Act or Buy America Programs are explicitly excluded. Therefore, it is first essential to determine if an existing domestic preference law applies.

The most well-known domestic preference law is the Buy American Act (BAA). Passed by Congress in 1933, the BAA requires the Federal Government to purchase domestic construction materials for public use unless a waiver has been granted. A good qualifies as domestic if it is manufactured in the United States and the cost of the components mined, produced or manufactured domestically exceeds 50% of the cost of all components.

In addition to the BAA, Buy America Programs (BAP) impose domestic preference requirements. The BAP can apply when the federal government is providing assistance, usually through a grant. The most common BAPs are the Federal Highway Administration’s Buy America program and the Federal Transit Authority’s Buy America program, which come into play when state and local projects are partially or wholly funded by grants from the U.S. Department of Transportation. Generally, if you received funds directly from the federal government or are working on a federal construction project, you are likely subject to the BAA or BAP.

2) How will the Order impact me if I’m not subject to BAA or BAP?
The broad scope of the 2019 Order, in terms of the materials and types of projects involved, highlights the Trump administration’s goal of increasing the coverage of domestic preference legislation.

The 2019 Order applies to any grant involving the “alteration, construction, conversion, demolition, extension, improvement, maintenance, reconstruction, rehabilitation, or repair of an infrastructure project in the United States.” The Order further defines “infrastructure projects,” to include, amongst many others, any project to develop public or private physical assets that are designed to provide or support services to the general public in the surface transportation, aviation, water transportation, and energy production and transmissions sectors. Notably, “infrastructure projects” have expanded significantly outside the typical construction realm to include services related to cyber security and broadband internet. Under this inflated definition, any number of contracts even tangentially related to traditional federal construction would be subject to stringent BAA rules.

3) What should I do if I think the Order applies?
If Congress decides to expand the scope of the BAA consistent with the 2019 Order, contractors should be mindful of the severe consequences for failing to abide. Penalties for violations of current domestic preference laws can be harsh—including ripping our and replacing non-conforming materials, or terminating a contract for default.

Contractors should be especially diligent in informing their sub-contractors and suppliers of any current and future BAA requirements. As all parties to a contract can be implicated in a solitary BAA or BAP violation, contractors should strive to ensure each of its downstream entities complies or has timely requested and been granted a waiver. If an agency finds that a contractor has failed to comply with federal procurement legislation, the contractor and any subcontractor or supplier associated or affiliated with the contractor cannot be awarded another public contract for 3 years.

The combination of severe penalties, already-tricky Buy America(n) requirements, and uncertainty surrounding impending requirements lends itself to a multitude of questions on how to stay eligible for federal contract work as President Trump continues his domestic push. As contractors are required by the BAA to certify compliance with the Act on the front-end, it is absolutely critical to contact legal counsel with any questions you might have.

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.