May 12, 2022

By: Chad Theriot, Jones Walker and Stan Millan, Special Counsel, Jones Walker.

Contractors working on federally funded construction projects need to be aware of the new Infrastructure Investment and Jobs Act (IIJA) and amendments to the Buy American Act (BAA) which have expanded the requirement that contractors use domestic goods and materials on their projects.  Failure to consider these requirements could have far-reaching impacts.

Overview of Domestic-Procurement Laws and Regulations

A number of domestic-preference laws exist today, which generally require that certain goods purchased with federal funds must be produced primarily in the United States. Projects affected include Department of Transportation (DOT)-funded highways, public transportation, airports, aviation, and rail, and Environmental Protection Agency (EPA)-funded water infrastructure initiatives, among others.

The Biden administration recently amended the BAA federal acquisition regulations to increase, in phases, the domestic-content requirement for federal procurement, from the current level of just 55% to 60%, 65%, and 75% over the next seven years. Exceptions are included, and a reporting requirement has been added to account for “critical” construction materials and domestic end products. The administration’s rationale for these changes stems from what it believes is the desire of Congress to further increase the domestic materials and services used in federal procurements.

Before 2021, however, the United States waived the BAA requirements for government procurements covered under existing trade agreements. Those agreements treated foreign goods the same as domestic goods.

The new act requires federal agencies, including and in addition to DOT and EPA, to develop their own buy-American rules. State and local governments using federal funds must also comply with such rules when launching projects to upgrade bridges, piping, sewerage, etc. Given the complexity of the new law’s requirements, this situation virtually invites problems for contractors.

The Situation Today

Beginning in 2022, the buy-American requirements have been expanded to all federally funded infrastructure projects, whether funded through IIJA or infrastructure grants.  Projects involving electric utilities, water, transportation, real property and buildings, transmission lines, and more — totaling hundreds of billions of dollars annually — are also covered by these requirements. State and local governments using federal funds for their construction projects must obtain a trade agreement assessment and a specific waiver if they want to exclude the buy-American requirements.

That said, State and local governments using federal funds may still be granted a waiver from domestic-item requirements, although the waiver process has been modified. All waiver requests will be centralized in, and reviews handled by, the new Made in America Office (MIAO) within the Office of Management and Budget (OMB), rather than by the specific agencies through which grants are made. Waiver requests will be publicized for comment and will be subject to a 15-day review period. Waiver requests will be approved or denied based on a number of factors, including consistency with the public interest, domestic unavailability, lack of domestic quality, high domestic cost, and foreign fair-trade practices.

The new act covers iron, steel, certain manufactured products, and non-ferrous metals such as copper, as well as polymers, glass, and construction materials (e.g., lumber and drywall, but not aggregate). By definition, “construction materials” is a rather broad category, and is intended to mean pre-constructed articles, other articles, materials, or supplies brought to a construction site by a contractor for incorporation into a work or building. Exempt from — or not on — this list are life safety equipment produced as a complete system, materials purchased directly from the government, and certain other products.

The act defines as “produced in the United States” any product that contains more than 55% US domestic content. It further requires that all construction materials must be manufactured in the United States. United State  origination standards cover a range of processes, from melting to coating; for construction materials, the OMB will define in regulations all relevant manufacturing processes.

With the Biden Administration pumping hundreds of billions of federal tax dollars into infrastructure projects through IIJA and BAA, many projects are now subject to requirements demanding that contractors use a certain percentage of domestically produced goods and materials.  This could very likely also apply to state and local government construction projects funded by United States tax payers.  Contractors need to be aware of these new requirements to ensure they do not inadvertently run afoul of the IIJA and BBA and face penalties and other repercussions.  

“The Construction Industry Team at Jones Walker LLP is one of the most highly regarded and award-winning construction law practices in the nation. Our experienced construction attorneys understand the complex dynamics between — and the unique priorities of — project participants and can craft effective solutions that minimize disputes, manage risks, and help keep projects moving from conception to completion.”

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