The Office of Management and Budget (OMB) received nearly 2,000 comments on its proposed revisions to the guidance that will govern how Build America, Buy America Act (BABA) requirements codified in the Infrastructure Investment and Jobs Act (IIJA) are applied to federal financial assistance programs. OMB released initial guidance in April 2022, later moving ahead with the issuance of a proposed rule on Feb. 9, 2023. The public comment period on the guidance closed last week after a brief 30-day window.
Background on the Proposed Rule
The IIJA was enacted in November 2021, and the process of implementing its wide-ranging programs and mandates is now fully in gear. The statute expanded “Buy America” requirements for federally backed infrastructure projects to encompass any that receive federal grants, widening the traditional scope of public works improvements to transportation and water-related infrastructure. More specifically, it mandates that “none of the funds made available for a Federal financial assistance program for infrastructure may be obligated for a project unless all of the iron, steel, manufactured products and construction materials used in the project are produced in the United States.”
The list of materials subject to Buy America requirements also grew. The requirements previously applied to iron, steel and certain manufactured goods, but IIJA brought nonferrous metals, like the copper used in electric wiring; plastic- and polymer-based products; glass, including optical fiber; and certain other construction materials, including lumber and drywall, under the umbrella. IIJA did not include cement and aggregates in the expansion.
The updated guidance proposed last month includes several changes to “improve uniformity and consistency” of BABA implementation across the federal government, including:
- Adopting the “cost of components” definition used by the Federal Acquisition Regulation (FAR) for federal procurement,
- Providing a clear distinction between “manufactured materials” and “construction materials,” and
- Establishing new uniform grant rules to help agencies impose Buy America requirements on infrastructure projects.
If certain procedures are followed, the guidance also preserves an agency’s ability to issue waivers for Buy America domestic requirements if: “(1) a waiver is in the public interest, (2) the types of iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient and reasonably available quantities or satisfactory quality, or (3) the application of the domestic content preference would increase the cost of the overall project by more than 25 percent.”
Outlook for Industry and Grant Recipients
Stakeholders in various sectors began to raise concerns with the feasibility of the new BABA requirements shortly after IIJA’s enactment. Buy America content standards are intended to bolster domestic production and U.S. companies, but the steep thresholds necessary for manufactured and construction goods to meet the statute’s requirements may make implementation unachievable for many companies in the short-term.
OMB’s guidance could create challenges for a broad range of industries, including those involved in key policy goals of the Biden administration. For example, the White House has laid out plans to address the ongoing shortage of affordable housing, but the cost of sourcing essential materials that align with the new Buy America requirements would significantly drive up the price tag on housing development, particularly for multiunit dwellings. Federal grant recipients and their suppliers will also have to scale up their recordkeeping to prove their compliance with the enhanced requirements of their awards.
Recognizing the potential difficulties, the Department of Housing and Urban Development issued a series of temporary waivers for recipients of its federal assistance programs, including the Community Development Block Grant (CDBG) and the Housing Trust Fund, to prevent disruptions that would jeopardize the availability of affordable housing. Similar actions were taken at other agencies, but there will likely be a flood of requests for individual waivers if the guidance is finalized later this year.
To remedy some of these concerns, the administration may consider exempting certain programs from the new Buy America guidance or better carve out protections for specific types of projects. Brownstein will be closely monitoring developments in this space over the coming months; for assistance or more insights, please contact a member of the team.
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