While Buy America requirements are nothing new to the realm of federal procurement, the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (commonly referred to as the “Uniform Guidance”) (codified at 2 C.F.R. Part 200), which govern the administration of federal grants and cooperative agreements, previously only directed recipients to “provide a preference for the purchase, acquisition, or use of goods, products, or materials produced in the United States.” 2 C.F.R. § 200.322(a) (emphasis added). The Build America, Buy America Act, signed into law on November 15, 2021, sought to change that landscape with its proscription 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.” Pub. Law 117-58, Sec. 70914(a). Now, the Office of Management and Budget (OMB) has proposed Buy America regulations that will implement this requirement. This alert aims to discuss the substance and scope of the proposed regulations, as well as some of the questions the proposal leaves unanswered.
OMB’s proposal would create new regulations at 2 C.F.R. Part 184 and amend the Uniform Guidance at 2 C.F.R. § 200.322 to require compliance “with the Buy America Preferences set forth in 2 CFR part 184.” 88 Fed. Reg. 8374, 8378 (Feb. 9, 2023).
To Which Types of Grants Would Part 184 Apply?
The new Part 184 would apply “to awards where funds are appropriated or otherwise made available for infrastructure projects in the United States, regardless of whether infrastructure is the primary purpose of the award.” Id. at 8377. Covered Federal awards would be required to “include the Buy America Preference in the terms and conditions” of the award, which in turn would flow down to “all subawards, contracts and purchase orders for the work performed, or products supplied under the award” unless the award terms “specifically indicated otherwise.” Id.
What Would Part 184’s Domestic Preference Test Look Like?
The “Buy America Preference” means “that none of the funds made available for a Federal award for an infrastructure project may be obligated unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.” Id. “Produced in the United States” has various meanings under the proposed regulations. For “Iron and steel products” and “Construction materials,” it means “[a]ll manufacturing processes . . . occurred in the United States.” Id. The regulations would also provide standards for specific construction materials, such as “glass” and “lumber.” Id. at 8378. For “Manufactured products,” it means (1) “[t]he product was manufactured in the United States” and (2) U.S. components represent at least “55 percent of the total cost of all components of the manufactured product.” Id. at 8377.
Part 184 would provide further instructions to determine “whether the cost of components for manufactured products is greater than 55 percent of the total cost of all components.” Id. For purchased components, component cost would include “the acquisition cost, including transportation costs to the place of incorporation into the end product (whether or not such costs are paid to a domestic firm), and any applicable duty (whether or not a duty-free entry certificate is issued).” Id. For manufactured components, component cost would include “all costs associated with the manufacture of the component, including transportation costs . . . plus allocable overhead costs, but excluding profit” and excluding “any costs associated with the manufacture of the end product.” Id. at 8377-8378.
What Would Be Included in “Infrastructure”?
The regulations would direct Federal awarding agencies to “interpret the term ‘infrastructure’ broadly,” id. at 8377, including, but not limited to,
the structures, facilities, and equipment for, in the United States, roads, highways, and bridges; public transportation; dams, ports, harbors, and other maritime facilities; intercity passenger and freight railroads; freight and intermodal facilities; airports; water systems, including drinking water and wastewater systems; electrical transmission facilities and systems; utilities; broadband infrastructure; and buildings and real property; and structures, facilities, and equipment that generate, transport, and distribute energy including electric vehicle (EV) charging.
Id.
How Will Part 184 Apply?
In addition to the regulatory twists and turns above, OMB’s proposed Part 184 contains a surprisingly tricky provision regarding the applicable date of the new regulations. At first blush, Part 184 would apply only to Federal awards for infrastructure projects if, prior to November 15, 2021, said projects were not subject to a Buy America preference “meeting or exceeding” the Build America, Buy America Act’s domestic preference requirements at Section 70914 of the Act. Id. This appears to create a cut-off date to determine which Federal awards are grandfathered into the new regime and which awards must incorporate the new Buy America preferences. However, upon closer inspection, this applicability provision creates numerous questions for Federal grant recipients participating in infrastructure projects.
Because the Buy America, Build America Act contained a grace period before which agencies were not obligated to implement its domestic preferences, should Part 184 be read to apply only to awards made after that grace period ended (i.e., after May 14, 2022)? Alternatively, the Act contains express and unambiguous language proscribing federal award funds after that grace period unless the Buy America preferences are implemented. Therefore, must awarding agencies modify any existing award agreement to incorporate Part 184 now that the grace period has expired? Would this also be the case for awards made before the grace period? If an awarding agency neglects to do so, must a non-Federal entity proactively implement the Buy America preference requirement in its award-funded infrastructure projects? Will different Federal awarding entities interpret Part 184 differently, resulting in multi-award recipients having to comply with Part 184 for some but not other agencies?
Conclusion
Although OMB’s proposed regulations are relatively concise and straightforward in most respects, they raise questions about their applicability to existing Federal grants for infrastructure projects. The proposal is subject to public comments until March 13, 2023. In addition to a long list of questions on which OMB has requested comments, Federal grant recipients would benefit from a careful inspection of Part 184 and may well decide to comment on the question of how the proposal will impact their grant-funded infrastructure projects that pre-date the relevant effective dates. Venable’s team of experts can help identify strategies to respond to these questions during and after the comment period.