On August 23, 2023, the U.S. Office of Management and Budget (OMB) published final guidance for agency implementation of the Build America, Buy America Act (BABA), enacted as part of the Infrastructure Investment and Jobs Act of 2021. BABA requires federal agencies to ensure that none of the funds made available through federal financial assistance programs be used for an infrastructure project “unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.” BABA further directs OMB to publish guidance to assist agencies in implementing these conditions.
OMB issued a preliminary guidance memo for agencies in April 2022 and published formal preliminary guidance in the Federal Register on February 9, 2023. After considering public comments on the February 2023 guidance, OMB updated and finalized the guidance. Relative to these earlier materials, the final guidance offers clearer and more detailed definitions for many key terms and concepts within the BABA framework. For example, the final guidance better defines “manufactured products” and “construction materials” and clarifies how agencies should assess BABA compliance for certain products. It also includes an extensive narrative explaining why OMB settled on various definitions and standards.
The final guidance does not invalidate the April 2022 memo and only prevails over that memo where the two conflict.1 Because the final guidance and April 2022 memo are consistent in many respects, that memo remains useful for understanding the BABA framework. That said, OMB’s final guidance is the most comprehensive and official resource for stakeholders to assess how U.S. agencies will implement BABA in their infrastructure funding programs.
In this alert, we highlight how OMB’s final guidance departs from or builds on the earlier guidance in important ways. We also discuss potential interactions between BABA and the United States’ international trade commitments, including its obligations under the World Trade Organization Government Procurement Agreement (WTO-GPA). We conclude with thoughts on next steps for stakeholders potentially affected by BABA.
Should you have any questions about the particulars of BABA and/or the OMB guidance, please contact the Sidley lawyer with whom you normally work or one of the authors of this alert.
The Final Guidance: The New and the Old
Scope of Covered Projects
BABA applies to the iron and steel, construction materials, and manufactured products “used in” infrastructure projects that utilize federal funds (in whole or in part).2 In the final guidance, OMB retained the definition of “infrastructure project” articulated in its April 2022 memo and February 2023 preliminary guidance. Under this definition, an infrastructure project is “any activity related to the construction, alteration, maintenance, or repair of infrastructure in the United States regardless of whether infrastructure is the primary purpose of the project.”3 This definition is expansive, and OMB encourages federal agencies to interpret it broadly.4 However, the final guidance encourages agencies to subject only products that are “incorporated into” an infrastructure project to the BABA requirements. In other words, in its final guidance, OMB clarifies that BABA should not apply to materials temporarily used at the work site, such as manufacturing equipment, temporary scaffolding, and furniture. This limitation was not stated clearly in the February 2023 guidance but is consistent with the April 2022 memo.5
The final guidance makes important amendments and clarifications to the definitions of “iron, steel, manufactured products, and construction materials” subject to BABA. It also offers much-needed and somewhat greater clarity on the methods of determining whether certain products in these categories are “produced in the United States” within the meaning of BABA.
The final guidance clarifies that a product’s categorization (i.e., as iron, steel, a construction material, or manufactured product) and compliance with applicable “produced in the United States” standards should be assessed “at the time it is brought to the work site.”6 This is a significant development, as earlier OMB guidance did not clarify this (though agency-specific materials on BABA suggested this would be the rule). Through this clarification, OMB confirmed that distinct materials should comply with applicable BABA requirements at the time and in the manner in which they arrive at a project site. However, the final guidance also announces an exception for “kits,” discussed further below.
In addition, the final guidance clarifies that a product can fall within only one of the BABA product categories. This was mentioned in the April 2022 memo but omitted from the February 2023 guidance.7 Under this standard, agencies should not, for example, characterize a product as both “steel” and a “manufactured product” and therefore should not subject that product to overlapping requirements for steel and for manufactured products. Rather, products should be categorized only as iron and steel, construction materials, or manufactured products and should be subjected to the BABA requirements only for that single category.
Product Category Definitions
With respect to the BABA product categories, OMB’s final guidance makes significant amendments and clarifications to the definitions of “manufactured products” and “construction materials.” (In addition, the final guidance retains the definition of “iron or steel products” from the preliminary guidance. However, consistent with the Buy American requirements for direct government acquisitions in the Federal Acquisition Regulation (FAR), the OMB’s final guidance clarifies that articles made of over 50% of iron and/or steel by component cost should be considered “iron or steel products” subject to BABA).8
Clarifications made to the definition of “manufactured products” are perhaps the most significant changes between OMB’s final and preliminary guidance. The final guidance adds an affirmative definition of “manufactured products” as “[a]rticles, materials, or supplies that have been: (i) [p]rocessed into a specific form and shape; or (ii) [c]ombined with other articles, materials, or supplies to create a product with different properties than the individual articles, materials, or supplies.”9 The preliminary guidance had only defined “manufactured products” with reference to what they are not — that is, not “construction materials” and not “iron or steel.”10 The final guidance also retains this negative definition.
OMB’s final guidance also expands the list of covered “construction materials” to include engineered wood in addition to the materials identified in the preliminary guidance.11 The final guidance also revises the definition of “construction materials” such that only “articles, materials, or supplies [consisting] of only one” of the listed materials should be deemed “construction materials.”12 To that end, combinations of finished “construction materials” into a composite product should be characterized as “manufactured products.”13 The final guidance also adds language providing that “minor additions of articles, materials, supplies, or binding agents to a construction material do not change the categorization of the construction material.”14 The February 2023 guidance contained a similar exception for binding agents but did not address “minor additions.”15 Importantly, the OMB will leave determinations as to what counts as a “minor addition” to agency discretion.16
Assessing BABA Compliance
The term “produced in the United States” has a different meaning under BABA depending on the category of products — that is, iron and steel, construction materials, or manufactured products.
For iron and steel, “all manufacturing processes, from the initial melting stage through the application of coatings,” must have occurred in the United States for the item to be considered “produced in the United States.”17
For construction materials, BABA similarly requires “all manufacturing processes” to occur in the United States for the item to be considered “produced in the United States.”18 The statute tasks OMB with defining “all manufacturing processes” for each covered construction material (and OMB has done so in its guidance).
For “manufactured products,” BABA requires that the product be “manufactured in the United States” and composed of over 55% U.S.-made components by cost (a lower content threshold than the analogous thresholds in the FAR).19 And as noted above, according to OMB, a product’s BABA compliance should be assessed “at the time it is brought to the work site.”20 All else being equal, this could pose significant challenges for products that are shipped to the project site in pieces/separately but that constitute a single product. Together, these standards would require each piece in each separately shipped container arriving at the project site — as opposed to the unified product assembled at the site — to meet the 55% U.S. content threshold. This could create an excessive compliance burden for project developers.
In its final guidance, OMB addressed this issue by offering a specific method of assessing BABA compliance for “kits.” OMB describes a “kit” as a product “acquired for incorporation into an infrastructure project from a single manufacturer or supplier that is manufactured or assembled from constituent components on the work site by a contractor.”21 Further, OMB suggests that “kits” should be limited to “discrete products, machines, or devices,” the pieces of which perform a “unified function” when assembled.22 OMB clarifies that such a “kit” can be assessed as a single manufactured product for purposes of the BABA domestic content analysis “even if its components are brought to the site separately or at different times.”23 While suggesting definitional elements of a “kit,” OMB explicitly leaves application of the “kit” concept to agency discretion. OMB does, however, urge agencies to exclude systems, such as HVAC systems, from the definition of “kits.”24 While the OMB’s guidance on “kits” is a helpful development, ambiguities remain — such as the line between a “kit” and a set of products that perform “non-unified” functions, as well as the line between a “kit” and a “system.”
The Waiver Process
Under BABA, agencies can waive domestic preference requirements for covered products in certain circumstances. Specifically, agencies can grant waivers for reasons of public interest, when relevant domestic materials are not sufficiently available, and when BABA compliance would “increase the cost of the overall project by more than 25 percent.”25 These waivers may be project-specific, or they may be product-based waivers that apply to all projects funded by a given agency.
OMB’s guidance on waivers remains generally unchanged from the February 2023 guidance, absent a few minor modifications. Under the OMB guidance, individual agencies will be responsible for creating the waiver request submission systems for their funding programs. Of note, the OMB’s final guidance does not include a general BABA exception for commercial off-the-shelf (COTS) products. This contrasts with the FAR, which excludes COTS products from meeting the component cost test for Buy American compliance. Instead, the OMB’s final guidance notes that agency-specific waiver processes will be the appropriate avenue for stakeholders to seek COTS exemptions.26 The need to apply for piecemeal waivers for COTS products may create new costs and delays that are not present in the FAR context. Further, the FAR and BABA frameworks’ different treatment of COTS could result in confusion and added compliance costs for stakeholders.
OMB also points to public interest waivers as the appropriate way to mitigate clashes between BABA and the United States’ commitments under free trade agreements (FTAs) and the WTO-GPA. The WTO-GPA and certain U.S. FTAs require signatory countries to afford nondiscriminatory treatment to the goods, services, and suppliers of other signatory countries when specified government entities conduct certain procurement processes. OMB maintains that BABA raises few concerns under these treaties because U.S. treaty commitments typically cover only direct government acquisitions, not the provision of funding.
However, OMB recognizes one area in which BABA could interact with the WTO-GPA and U.S. FTAs. Many U.S. states have made their own commitments under these treaties to afford nondiscriminatory treatment to foreign suppliers in certain subfederal procurement processes. As a result, BABA could implicate a state’s obligations under the WTO-GPA or U.S. FTAs if the state is itself undertaking an infrastructure project that may receive federal funding. In both the April 2022 memo and the final guidance, OMB notes that if a federal funding recipient “is a State that has assumed procurement obligations pursuant to the [WTO-GPA] or any other trade agreement, a waiver of a [BABA requirement] to ensure compliance with such obligations may be in the public interest.”27 In effect, the burden will be on states to determine whether their procurement activities are covered by U.S. treaty commitments and to advocate for any necessary BABA waivers; furthermore, it is not clear how quickly such waivers will be processed and whether the need to use a waiver process will have an adverse impact on timing and compliance requirements relating to state projects.
Conclusion and Next Steps
The OMB’s final guidance will take effect on October 22, 2023. Until then, agencies will assess project funding with reference to the April 2022 memo. Further, OMB is encouraging agencies to rely on the April 2022 memo when assessing follow-on funding obligated before October 22, 2024 for projects that already received funding between May 14, 2022 and October 22, 2023.28 However, OMB advises that agencies may apply the final guidance to such projects if the projects undergo “significant design or planning changes” after August 23, 2023.29 Agencies will have discretion to decide what constitutes “significant design or planning changes” for purposes of this analysis.30
The OMB’s BABA guidance involves a complex set of interacting concepts and standards. Some of these standards align with the FAR rules for direct government acquisitions, but other standards depart from that regime. Further, OMB explicitly defers to agencies on certain important aspects of BABA implementation; therefore, many questions will be answered only in the coming years, though agency practice.31
We expect OMB to continue engaging with stakeholders affected by BABA. Further, OMB has indicated that it will reissue the April 2022 memo to ensure that it is fully consistent with the final guidance.32 OMB may also refine its BABA guidance in the future. Sidley lawyers are available to answer your questions about navigating BABA and the OMB’s new guidance.
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