New Buy America Rules – More Jobs for Government-Funded Infrastructure

The Biden Administration has adopted the view that infrastructure should, where possible, use materials produced in the United States with American labor (especially organized labor).  That has been the mission of Buy America policies since the concept was first enacted in 1933. But that mission has been tempered by exceptions to Buy America rules where the costs are too great, or the products are not available. The new legislation attempts to narrow the exceptions to Buy America.  It remains to be seen how effective those efforts will be.

The new law defines three categories of infrastructure products: iron and steel; manufactured goods; and construction materials.  The degree of “American-ness” for each differs significantly. Each agency dealing with infrastructure projects must assign every significant good to one and only one category. 

The rules for iron and steel products are the most stringent. Adopting a policy that was first applied to mass transit projects in the 1980s, iron and steel products for infrastructure projects must be “melted and poured” in the United States. First and foremost, iron and steel used in projects must have been cast in the United States; and every subsequent process, including hot and cold rolling, welding pipe, changing the shape of wire rod, etc., all the way to applying coatings to the steel, must take place in the United States. A good where iron or steel predominates should fall into the iron or steel category, even if it is fabricated beyond the definition of a “finished steel mill” product.

Manufactured goods are the next most stringent category. Each good must be finally made (substantially transformed) in the United States and consist of at least 55% domestically made components. The OMB guidance suggests that manufactured goods will likely be made of non-ferrous materials.

Construction materials are the least stringent category. These must be transformed in the United States before delivery to the job site, but there is no required minimum domestic content for the components of construction materials. OMB will provide additional guidance on the Buy America rules by mid-May.

Looking at this from the point of view of prospective government contractors, the options for using foreign materials will vary depending on which category is assigned to the goods delivered to an infrastructure job site. Each agency will define each good based on its own policies and criteria, but OMB has issued guidance within which the agencies must operate. OMB will, at least in theory, have the power to review each finding if there is an issue of definition. Disputes require lawyers, and there are likely to be a few disputes. 

Effective May 14, 2022, every federal agency must incorporate a Buy America preference into each award for an infrastructure project. The OMB guidance details many exceptions to this general rule, which would require a lengthier treatment than is possible here. Suffice it to say that all “infrastructure” projects must deal with Buy America requirements, either by complying with those rules or granting a waiver from them. 

Waivers

The OMB guidance discusses waivers extensively. Waivers have always been a vital part of Buy America requirements, because sometimes domestic materials simply don’t exist, or are so expensive that they would undermine the project. Waivers are granted by each agency directing an infrastructure project. OMB now must receive each waiver and take the time to analyze whether the waiver was properly given and properly limited based on the statute and the OMB guidelines. 

Basic waivers include nonavailability waivers, unreasonable cost waivers, and public interest waivers. The OMB guidance gives examples for each but cautions agencies not to grant these waivers without adequate justification. 

Nonavailability waivers are granted if the agency surveys the market and concludes that the product needed is not available domestically. Unreasonable cost waivers may be granted if the domestic product is available but would increase the cost of the entire project by 25% or more. Public interest waivers deal with broad policy considerations for materials that are not within the standards for nonavailability or unreasonable cost waivers. The head of the agency concerned must personally make the decision on public interest waivers.

Public interest waivers may be appropriate for international agreements, such as the WTO Agreement on Procurement. That Agreement provides that member countries under the Agreement (not all WTO members are members of that Agreement) should be treated as domestic in government procurement situations. The OMB guidance specifically provides that the Buy America provisions should be applied to conform to international agreements. 

As noted above, Buy America requirements have been around for almost 90 years.  Waivers have been given frequently, too frequently in the opinion of some stakeholders.  The new law was written to attempt to reduce Buy America waivers.  Advocates to strengthen Buy America scored a victory in the passage of IIJA. But the final tally is yet to be written. 

Domestic steel producers did well in this legislation because the “melted and poured” standard confines federal procurement, to steel products from EAF and blast furnace steel mills. If the “iron and steel” product category controls content requirements for fabricated products made principally of steel, the domestic “hot end” will benefit. However, rerollers (especially on the west coast where there is little steel “melted and poured” that is available) need not apply – unless they can obtain a waiver. 

Waivers can sometimes spell the difference between a project being completed or not. And Buy America requirements can lead to fewer projects for the money. The Biden Administration believes that American workers should make products for American infrastructure. And Congress agreed.

Jobs Impact

The number of infrastructure projects, and how quickly they can be completed, will largely depend on how the Buy America rules are applied. Contractors will surely try to shape the rules to fit with their priorities and their competitive strengths – there is nothing new in that. 

The opportunities for lobbying for and against applying Buy America and waiving those requirements in infrastructure projects will abound. Agencies will be under pressure (and will be reviewed by OMB) to provide infrastructure projects that are completed within budgets and on schedule. Buy America can put additional pressure on those lofty goals.

The jobs picture is also cloudy: while many in the labor movement view more stringent rules as encouraging US jobs, the reality may be more complex than they realize. More cost is likely to mean few projects or lengthier timelines. Moreover, organized labor represents a small percentage of manufacturing workers. Even in the domestic steel industry, most workers do not belong to unions. 

There will be complaints from bidders that lose projects. Workers and their unions will complain about waivers.  And agencies will have to do a lot of sorting out. All this takes time. Our infrastructure needs will tread a lengthy path.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz

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