For infrastructure projects funded in whole or in part by federal financial assistance, “Made in the USA” is much more than a slogan—it’s now a legal requirement. In late 2022, the President signed the bipartisan Infrastructure, Investment or Jobs Act. The IIJA includes a powerful new program called “Build America, Buy America,” or BABA, which requires that most products incorporated into federally funded infrastructure projects be produced in the United States. The BABA domestic preference potentially will apply to trillions of dollars’ worth of work in the coming years.
In a companion piece to this blog, we provided an overview of the tests used in BABA to determine whether a product is made in America. This blog, in contrast, provides a high-level overview of BABA compliance obligations and recommendations for product purchasers—that is, a supplier, distributor, or any other non-manufacturer purchasing a product that ultimately will be incorporated into a BABA-covered project.
To learn about Build America, Buy America and how to comply in greater detail, we recommend viewing our BABA webinar and the webinar’s accompanying BABA White Paper
Build America, Buy America Contract Review & Flow-Downs
The Build America, Buy America Act broadly applies to infrastructure projects funded in whole or in part by federal grants or similar assistance. Typically, the “owner” of a BABA-covered project—called a “recipient” in BABA terminology—is a state, local, or tribal government, although BABA is not limited to projects sponsored by these entities. Therefore, product purchasers should be aware that BABA applies to projects that, outwardly, may show few if any signs of federal government involvement.
Product purchasers should carefully review their contracts to determine whether BABA applies. When a project is governed by BABA, the recipient must “flow down” the BABA requirements to their lower-tier contractors, those lower-tier contractors must flow down the requirement to those at even lower tiers, and so on down to the product manufacturer. For this reason, product purchasers should understand that the BABA domestic preference requirement may be imposed by a contract directly with a recipient, or through a contract with another entity in the contracting chain.
The Build America, Buy America Act (BABA or BABAA) does not require that recipients and their lower-tier contractors use specific language to establish a flow-down. Therefore, it is essential that product purchasers review each contract closely to determine whether BABA applies.
BABA Contract Compliance Obligations and Requirements
If a product purchaser’s contract includes a Build America, Buy America flow-down, the product purchaser must flow down the contract’s BABA requirements to its own lower-tier contractors. Importantly, a product purchaser may be obliged to amend its standard purchase documents (such as purchase orders, subcontracts, and so on) to include the BABA flow-down. Failure to flow down BABA when required may expose the product purchaser to liability.
BABA gives federal agencies and recipients significant discretion in terms of what information must be collected regarding BABA compliance. For example, the Federal Emergency Management Agency requires recipients to collect BABA compliance certificates. Similarly, the Department of Housing and Urban Development states that recipients “must keep proper documentation to demonstrate compliance with BABA for purchased products covered by the Act, which may include either documentation that the products are BABA compliant or manufactured in the U.S.” Other BABA-covered contracts may require the collection of even more information, such as a manufacturer’s spreadsheet identifying how each product was classified for BABA purposes.
Product purchasers must understand that the BABA flow-down requirements may vary from contract to contract. Each flow-down must match the requirements of the higher-tier contract. If, for example, the higher-tier contract requires compliance certifications, that requirement must be flowed down to lower-tier contracts. For this reason, product purchasers cannot rely on one-size-fits-all “template” flow-down language, but instead must adapt the flow-down to match the specific requirements of the higher-tier contract.
Suggestions to Better Avoid BABA Liability
The government is known for strictly enforcing domestic preference statutes like the Buy American Act, which applies to many federal government contracts. Although BABA is relatively new, it is safe to assume that the government will strictly enforce the BABA “Made in America” requirements, as well. With that in mind, product purchasers should consider going beyond their minimum BABA compliance obligations to better avoid any potential liability.
For example, product purchasers should consider requiring BABA compliance certificates from manufacturers even when the higher-tier contract does not require them. In the event of an audit or investigation, certificates may help demonstrate that the product purchaser labeled the products as BABA-compliant in good faith reliance on the certifications. Of course, if the product purchaser has reason to believe that any BABA certifications are inaccurate, the product purchaser should address the matter with the manufacturer before proceeding. FEMA’s BABA website provides suggested language that can be used to obtain BABA certifications.
Additionally, a product purchaser should consider adapting its lower-tier contracts to better protect against potential BABA liability. For example, a product purchaser may wish to include an indemnity provision in its purchase contracts, requiring the product seller to defend, indemnify and hold harmless the product purchaser for any actual or alleged BABA violations. The purchaser may also wish to include provisions requiring the seller to cooperate, promptly and in good faith, with any BABA-related audits or investigations, and to promptly provide any information that the purchaser or an investigator may reasonably require to evaluate BABA compliance.
Additional Build America, Buy America Resources
The Build America, Buy America program is a dramatic change to the rules governing federally assisted infrastructure projects. For manufacturers, suppliers, and distributors alike, it will be essential to understand and comply with the BABA domestic preference purchasing requirements. Don’t forget to check out our resources described above to learn more about BABA and how to comply with this important new statute. For an overview of IIJA/BABA Purchasing Guidelines Resources, make sure to bookmark the IIJABuyersGuide.com.
This article is for educational use only. The information contained in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
Steven Koprince is legal analyst and faculty member for Govology. He is an author and speaker on federal contracting. He is also the founder and former managing partner for Koprince McCall Pottroff LLC. He has represented more than 1,000 clients in federal contracting and related matters.