“Buy America” provisions in the new $1.2 trillion infrastructure plan enacted in November may require that any iron, steel, manufactured products and construction materials used in a domestic infrastructure project that receives federal government funding be produced in the United States.

Or they may not.

The scope of the new Buy America restrictions remains under review by the Office of Management and Budget and the affected agencies.

The Buy America requirement appears to apply both to infrastructure programs that previously had similar or less stringent Buy America requirements and to those that had no such requirements.

Consequently, the impact of the provisions varies across programs, from low or no impact in the case of programs that were already subject to similar requirements (such as federal funding for “public works”), to a potentially significant impact in the case of programs that had less restrictive Buy America requirements (such as TIFIA for transportation infrastructure and WIFIA for water infrastructure), to a substantial impact in the case of programs previously not subject to such requirements at all (such as the Department of Energy’s loan and loan guarantee programs).

Affected Projects

The crux of the Buy America requirement is in section 70914 of the new law. It reads as follows:

Not later than 180 days after the date of enactment of this Act, the head of each Federal agency shall ensure that none of the funds made available for a Federal financial assistance program for infrastructure, including each deficient program, 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. (Emphasis added.)

A “deficient program” is any federal spending program that does not already impose the same Buy America requirement as in the new infrastructure plan.

The Buy America requirement will be subject to common sense waivers and exceptions.

Substantial portions of the new infrastructure law are devoted to a process for reviewing existing federal financial assistance programs for their “domestic content procurement preferences” with the goal of bringing them up to the new requirement.

For instance, borrowers from the TIFIA program run by the Department of Transportation already are required to buy iron, steel and manufactured products from US suppliers. The new law expands that requirement to add construction materials (except for cement, which has been carved out). The WIFIA program run by the Environmental Protection Agency for financing water infrastructure projects already requires use of US-produced iron and steel, but it now appears that manufactured products and construction materials may also need to be domestically sourced.

The new requirement applies to all “infrastructure” projects that receive federal support. Infrastructure is broadly defined and means 

at a minimum, the structures, facilities, and equipment for, in the United States—(A) roads, highways, and bridges; (B) public transportation; (C) dams, ports, harbors, and other maritime facilities; (D) intercity passenger and freight railroads; (E) freight and intermodal facilities; (F) airports; (G) water systems, including drinking water and wastewater systems; (H) electrical transmission facilities and systems; (I) utilities; (J) broadband infrastructure; and (K) buildings and real property. (Emphasis added.)

New transmission lines and other “utility” projects that receive federal support are covered. Thus, a utility project or transmission line that receives a federal grant is covered.

However, merely benefiting from federal tax credits will not cause a project to be covered, and it does not appear that a project whose owners receive a direct cash payment in place of tax credits will be covered, either, inasmuch as there are separate domestic content requirements that would apply in the build- back-better plan to projects receiving direct cash payments, but the Office and Management Budget will have to make this clear.

The reference to “in the United States” suggests that infrastructure projects located overseas that might be supported by the US development finance programs (such as the United States International Development Finance Corporation or the Millennium Challenge Corporation) are not infrastructure for this purpose and, therefore, are not subject to its Buy America requirement—which makes sense since otherwise every overseas project would require a waiver.

Importantly for energy project developers, whether power plants are excluded from the definition of “infrastructure” turns on what was intended when Congress said structures, facilities and equipment for “utilities” are covered.

Federal financing for energy projects not falling under the headings transmission or utilities, such as energy efficiency projects and loans under the DOE advanced technology vehicle manufacturing program, would appear to be beyond the scope of the new requirement.

The intended scope of the Buy America requirement is further clarified with definitions of, among other terms, “domestic content procurement preference” and “Federal financial assistance”—but, again, not with perfect clarity.

“Federal financial assistance,” which brings the Buy America requirement into play for infrastructure projects, has the same meaning as in existing “Uniform Guidance” for federal awards that can be found on the OMB website.

The term includes assorted government transfers, such as grants, direct appropriations and non-cash contributions or donations of property.

Loans and Loan Guarantees

Whether the term covers federal loans or loan guarantees is unclear.

The definition of “Federal financial assistance” does not mention loans or loan guarantees, although it ends with “other financial assistance”—but that is qualified by an exception for “assistance listed in paragraph (2) of this definition.” That paragraph (2) lists both loans and loan guarantees (as well as insurance and interest subsidies), but qualifies that list by saying it is only for purposes of “§200.203 and subpart F of this part” which have to do with public notices and federal audits, respectively. If federal financial assistance includes loans and guarantees only for those purposes, then the term does not include loans or guarantees for other purposes. It is thus tempting to infer that the Buy America provisions do not apply to federal loans or guarantees.

However, the definition has a further element labeled “Inclusion” that says:

The term “Federal financial assistance” includes all expenditures by a Federal agency to a non-Federal entity for an infrastructure project

(excluding federal expenditures related to disasters and emergency responses). This could be read to override the exclusion of loans and guarantees from federal financial assistance. Or possibly not.

The clause applies only to “expenditures” by Federal agencies. The OMB Uniform Guidance defines “expenditures” as “charges made by a non-Federal entity to a project or program for which a Federal award was received”—which is not particularly helpful one way or the other.

Disbursements of direct and guaranteed loans are not expenditures in the usual sense of spending money. Direct loan disbursements come with a repayment obligation. Disbursements by private lenders of federally-guaranteed loans involve no expenditure of federal funds. The logic that drove the Federal Credit Reform Act of 1990 was that both sorts of disbursements—of direct and guaranteed loans—ultimately impose the same cost to the government: the potential loss corresponding to the credit risk of the loan. That act requires all federal credit programs to prepay that projected loss by depositing the estimated amount (the so-called ”credit subsidy cost”) into an account at the US Treasury.

It is difficult to see how that deposited amount, really a loan loss reserve, could be deemed to be a federal “expenditure.” If loans and guarantees are not federal expenditures, then the “Inclusion” clause in the definition of “Federal financial assistance” would not bring federal loan and guarantee programs within the scope of the Buy America provisions.

On the other hand, a broad exclusion of federal direct and guaranteed loan programs would be surprising since several such programs are explicitly mentioned in the new law as subject to a review to identify deficient programs, presumably with the goal of bolstering those programs’ Buy America requirements.

Whether the new Buy America requirement applies to existing federal loan and loan guarantee programs is currently under review at OMB.

Waivers

The beneficiaries of federal financing can seek waivers of the US sourcing requirement based on public interest, practicality (or impossibility) or cost. Specifically, the new law provides the following:

The head of a Federal agency that applies a domestic content procurement preference under this section may waive the application of that preference in any case in which the head of the Federal agency finds that—

1. applying the domestic content procurement preference would be inconsistent with the public interest;
2. types of iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality; or
3. the inclusion of iron, steel, manufactured products, or construction materials produced in the United States will increase the cost of the overall project by more than 25 percent.

The “public interest” grounds for a waiver mirror similar justifications found in other Buy America laws. The new law addresses potential uncertainties in determining when a Buy America provision is “inconsistent with the public interest” by requiring, in section 70921, that OMB produce guidelines to help federal agencies determine when purchasing American materials may be inconsistent with the public interest.

OMB has been directed to minimize waivers that result in a decrease in employment in the United States. Section 70937(c) requires any agency granting a waiver based on public interest now to provide a “detailed written statement” explaining why the waiver is in the public interest.

The second waiver justification—when the materials are not produced in adequate quantities or to satisfactory quality in the United States—also matches some existing Buy American provisions.

The regulations implementing the existing Buy American Act authorize an agency contracting officer to make an individual determination that an item is not available in adequate quantity or quality (per 48 CFR § 25.103(b)(2)). However, under section 70937(d) of the new law, an agency seeking to grant a non-availability waiver must now provide “an explanation of the procurement official’s efforts to procure a product from a domestic source” and the reasons why the product was not available, and post the explanation on a public website. Under the regulations implementing the existing Buy American Act, non-availability determinations that have been made for specific items are published at least once every five years in the Code of Federal Regulations.

The third waiver justification is for cost. An exception to the Buy American requirements is available if using materials produced in the United States will increase the project’s overall cost by more than 25%. Section 70937(c) of the new law requires that agencies providing a waiver based on cost publish “a comparison of the cost of the domestic product to the cost of the foreign product or a comparison of the overall cost of the project with domestic products to the overall cost of the project with foreign origin products or services.”

For each of these waiver types, the new law requires an agency seeking to waive an otherwise applicable Buy America requirement to submit a request to the General Services Administration, which must publish the request on a newly established BuyAmerican.gov website and keep the request open for public comment for at least 15 days. The focus is on increasing transparency around when and how waivers are granted as a means to limit inappropriate waivers. However, there is an exception for an “an urgent contracting need in an unforeseen and exigent circumstance.”

The new law establishes a new position of Made in America director within OMB, with various reporting and compliance roles and the responsibility to implement procedures to review waiver requests from agencies.

An implied waiver also exists wherever imposition of the Buy America requirement would not be “consistent with United States obligations under international agreements.”

The new law directs the Commerce Department, United States Trade Representative and OMB, by April 14, 2022, and in a publicly available report, to assess “the impacts of all United States free trade agreements, the World Trade Organization Agreement on Government Procurement, and Federal permitting processes on the operation of Buy America laws, including their impacts on the implementation of domestic procurement preferences.”

A Work in Progress

The new Buy America requirement envisions being rolled out over time, with agency heads having until January 14, 2022 to notify OMB and Congress of “each Federal financial assistance program for infrastructure” administered by their agencies.

The Buy America obligation becomes effective on May 14, 2022.

OMB has until that same deadline to “define the term ‘all manufacturing processes’ in the case of construction materials.” OMB has until November 14, 2022 to “promulgate final regulations or other policy or management guidance, as appropriate, to standardize and simplify how Federal agencies comply with, report on, and enforce the Buy American Act.”

That leaves somewhat open what happens in the meantime.

Agencies may continue current practices until OMB provides implementing clarifications. Others may apply their best guesses given the statutory language. There may be a risk that processing of financing applications will slow until the new rules have been clarified. Among those pending clarifications is whether, or to what extent, the new Buy America enhancements will apply to federal loans and guarantees supporting the private development of energy infrastructure. In any event, sponsors with projects under consideration by affected federal financing programs should keep an eye out for developments.

 

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Special thanks to law clerk Kevan Christensen (Washington, DC) for assisting in the preparation of this content.