OMB Issues Final BABA Guidance and USDOT Issues Final Public Interest Waiver

The federal government recently released long-awaited guidance regarding the Build America, Buy America (BABA) Act requirements included in the Infrastructure Investment and Jobs Act (P.L. 117-58; IIJA). On August 14, 2023, the White House Office of Management and Budget (OMB) published its final BABA guidance, which takes effect on October 23, 2023 and will govern the implementation of the Buy America preference, that applies to federally-supported public infrastructure projects. On August 15, 2023, the U.S. Department of Transportation (USDOT) finalized its waiver exempting certain de minimis costs and small grants from Buy America requirements.

OMB’s Final BABA Guidance

By way of background, on April 18, 2022, OMB issued Memorandum M-22-11 that provided initial Buy America implementing guidance required by Sections 70901-52 of the IIJA. OMB also issued a request for information soliciting public comments on implementation of the BABA requirements. A key difference between Memorandum M-22-11 and the final guidance is the specific method for distinguishing between the categories of products where Buy America preferences apply. The final guidance clarified that an article, material, or supply should only fall within one of the following categories:

• iron or steel products;
• manufactured products;
• construction materials; or
• materials identified in Section 70917(c) of BABA (Section 70917(c) materials).

The final guidance adds a new Part 184 to Title 2 of the Code of Federal Regulations, stating “Part 184 is intended to be high-level coordinating guidance for federal agencies to use in their own direct implementation of BABA.” Provided below is a brief section-by-section overview of this new 2 CFR Part 184, with an emphasis on the most notable revisions to the initially proposed guidance under Memorandum M-22-11.

Section 184.1 Purpose and Policy. Section 184.1 states the purpose and policy statement, giving context to the new rule. This section clarifies that BABA requirements only apply to products that are permanently incorporated into an infrastructure project.

Section 184.2 Applicability, effective date and severability. Section 184.2 clarifies the applicability, effective date and severability of the new rule.

Section 184.3 Definitions. Section 184.3 modifies two key definitions and adds four new key definitions.

• Construction Materials. OMB revised the definition of “construction materials” to apply to “only one” of the listed materials. “Construction materials” is now defined as “articles, materials, or supplies that consist of only one of the following: (i) non-ferrous metals; (ii) plastic and polymer-based products; (iii) glass (including optic glass); (iv) fiber optic cable (including drop cable); (v) optical fiber; (vi) lumber; (vii) engineered wood; and (viii) drywall.” Minor additions of articles, materials, supplies, or binding agents to a construction material do not change the categorization of the construction material. Based on review of public comments, OMB concluded that including additional items to the list of construction materials, such as coatings, paint, or bricks, was unwarranted.
• Manufactured Products. OMB revised the definition of “manufactured products” to provide an affirmative definition rather than just explaining, in the negative, what the term does not include. “Manufactured products” is now defined to mean “articles, materials, or supplies that have been: (i) processed into a specific form and shape; or (ii) combined with other articles, materials, or supplies to create a product with different properties than the individual articles, materials, or supplies.” Additionally, in the case of manufactured products, “Produced in the United States” means that: (i) the product must be manufactured in the United States; and (ii) the cost of the components of the manufactured product that are mined, produced, or manufactured in the United States must exceed 55% of the total cost of all components of the manufactured product (unless a federal agency has established another standard that meets or exceeds this standard for determining the minimum amount of domestic content of the manufactured product). Finally, this section clarifies that an item classified as a manufactured product may include components that are construction materials, iron or steel products, or Section 70917(c) materials.
• OMB added a definition of “component,” which means “an article, material, or supply, whether manufactured or unmanufactured, incorporated directly into: (i) a manufactured product; or, where applicable, (ii) an iron or steel product.” This definition is a modified form of the definition used in Federal Acquisition Regulation (FAR) Part 25.003.
• OMB added a definition of “manufacturer” to address comments received on the cost of component test for manufactured products. “Manufacturer” is now defined as “the entity that performs the final manufacturing process that produces a manufactured product.”
• Predominantly of iron or steel or a combination of both. OMB added a new definition to clarify the meaning of “predominantly of iron or steel or a combination of both,” that is generally consistent with the definition found in FAR Part 25.003. The definition adopted by OMB, however, does not incorporate FAR-specific waivers or exemptions, such as the language related to commercial-off-the-shelf (COTS) fasteners. Under this section, “predominantly of iron or steel or both” means that the cost of iron or steel content of a product is more than 50% of the total cost of all its components. The cost of iron and steel is the cost of the iron or steel mill products (e.g., bar, billet, slab, wire, plate, or sheet), castings, or forgings utilized in the manufacture of the product and a good faith estimate of the cost of iron or steel components. The final guidance provided specific information regarding this calculation.
• Section 70917(c) Materials. OMB added a definition of “Section 70917(c) materials,” which means “cement and cementitious materials, aggregates such as stone, sand, or gravel, or aggregate binding agents or additives.” The final guidance clarified three issues regarding Section 70917(c). First, Section 70917(c) materials, alone, are not manufactured products. Second, Section 70917(c) materials should not be considered manufactured products when they are used at or combined proximate to the work site. Lastly, Section 70917(c) materials may be used to produce a manufactured product.

Section 184.4 Applying the Buy America Preference to a federal award. Section 184.4 provides additional guidance clarifying the categorization of articles, materials, and supplies, and how to apply the Buy America preference to each category. Section 184.4(e) is particularly noteworthy as it clarifies that items are generally categorized into one of the four categories (iron or steel products; manufactured products; construction materials; or Section 70917(c) materials) when they are “brought to the work site.” 

Section 184.5 Determining the cost of components for manufactured products. Section 184.5 remained substantively similar to the proposed guidance in Memorandum M-22-11, however, OMB provided additional detail on how federal agencies should implement the cost of components test.

Section 184.6 Construction material standards. Section 184.6 modified prior guidance in Memorandum M-22-11 by promulgating revised manufacturing standards for each listed construction material, including materials that were not included in Memorandum M-22-11 such as fiber optic cable, optical fiber and engineered wood.

Section 184.7 Federal awarding agency’s issuance of a Buy America Preference waiver. Section 184.7 substantively restates the Buy America waiver justifications and waiver procedure. Pursuant to this section, recipients may request waivers from a Federal awarding agency if the recipient reasonably believes a waiver is warranted based on one of the following justifications:

• Applying the BABA preference would be inconsistent with the public interest (a “public interest waiver”);
• Types of iron, steel, manufactured products, or construction materials are not produced in the U.S. in sufficient and reasonably available quantities or of a satisfactory quality (a “non-availability waiver”); and
• The inclusion of iron, steel, manufactured products, or construction materials produced in the U.S. will increase the overall infrastructure project by more than 25% (an “unreasonable cost waiver”).

OMB reaffirmed its prior guidance in Memorandum M-22-11 in this section whereby, before issuing a final waiver, the Federal awarding agency must make the proposed waiver and a detailed written explanation publicly available for comment for 15 calendar days (except as otherwise required by Section 184.8(e)), and submit the determination to the Made in America Office within OMB for final review.

Section 184.8 Exemptions to the Buy America Preference. Section 184.8, which discusses exemptions to the Buy America requirements, remains largely consistent with the guidance in Memorandum M-22-11. 

Additional Considerations

The preamble of the final guidance addressed two notable areas that will not appear in Part 184, however, both issues concern BABA’s applicability and are worthy of some attention.

BABA’s Applicability to For-Profit Organizations. OMB responded to commenters’ request for clarification regarding the applicability of BABA to for-profit organizations. This issue arises in the context of certain federal grant programs where for-profit entities may be eligible recipients and where there is a public policy interest in creating a level playing field regarding applicable requirements across for-profit and non-profit entities that may be applying for such funds. Under the final rule, OMB permits, but does not require, federal agencies to apply 2 CFR Part 200, including the domestic preference requirements at Section 200.322, to for-profit organizations.

International Trade Agreement Obligations. Several commenters requested clarification on how the implementation of BABA would interact with the various trade obligations of the United States through the Trade Agreements Act, such as the World Trade Organization Agreement on Government Procurement. In its prior guidance under Memorandum M-22-11, OMB explained pursuant “to section 70914(e) of [BABA], [OMB’s] guidance [on BABA] must be applied in a manner consistent with the obligations of the United States under international agreements.” Further, Memorandum M-22-11 stated if “a recipient is a State that has assumed procurement obligations pursuant to the Government Procurement Agreement or any other trade agreement, a waiver of a Made in America condition to ensure compliance with such obligations may be in the public interest.” Memorandum M-22-11 also stated that all proposed waivers citing the public interest as the statutory basis must include a detailed written statement addressing all appropriate factors such as potential obligations under international agreements.

In the final guidance, OMB unequivocally reiterated its prior guidance on this topic under Memorandum M-22-11. The final guidance requires that the BABA provisions be applied in a manner consistent with U.S. obligations under international agreements, as provided in Section 70914(e).

The USDOT Waiver of Buy America Requirements for De Minimis Costs and Small Grants

On May 19, 2022, USDOT issued a temporary waiver of Buy America requirements to awards that are obligated during the 180-day period between May 14, 2022 and November 10, 2022. Then, on November 4, 2022, USDOT proposed a waiver that would exempt certain de minimis costs and small grants from Buy America requirements. USDOT finalized this proposed waiver on August 16, 2023.

This final waiver is somewhat narrower in scope than the proposed waiver in that it does not address minor components of iron and steel products. The final waiver applies to a single financial assistance award obligated on or after August 16, 2023, for which:

• The total value of the non-compliant products is no more than the lesser of $1 million or 5% of total applicable costs for the project; or
• The total amount of Federal financial assistance applied to the project, through awards or sub-awards, is below $500,000.

Because many USDOT-administered financial assistance programs are also subject to program-specific domestic preference requirements, the waiver also applies to those requirements. As is often the case, however, there are exceptions to the applicability this waiver, primarily related to certain programs administered by the Federal Highway Administration (FHWA) and Federal Railroad Administration (“FRA”). For instance, the de minimis cost portion of the waiver does not apply to iron and steel subject to the requirements of 23 U.S.C. 313 on financial assistance administered by FHWA. In addition, the small grants portion of the waiver does not apply to iron, steel, and manufactured goods subject to the Buy America requirements of 49 U.S.C. 22905(a), administered by FRA.

Moving Forward

In any policy area, there are likely to be elements that may be somewhat in tension. That is certainly the case under the IIJA, that provided an historic level of infrastructure funding while also requiring the promulgation of these more stringent domestic preference standards, which will constrain available materials necessary for the implementation of the projects funded thereunder. Now, nearly two years after enactment of BABA, project sponsors and industry participants have final guidance on which they can rely.

The biggest issue that OMB and the federal government will now confront is the domestic capacity to produce the materials subject to BABA requirements. How the federal government identifies domestic capacity, identifies gaps in that capacity relative to demand, and matches project sponsors and industry participants to that domestic capacity will all be key to the successful implementation of BABA and achievement of the policy goals underlying these requirements. Additionally, the level of demand for waivers to these requirements, as well as the federal government’s issuance of such requested waivers, will provide insight into the market, the overall viability of these requirements and the success of the increased IIJA infrastructure funding.