Recently, the federal government implemented a powerful new domestic preference program called “Build America, Buy America,” or BABA. Signed into law as part of the bipartisan Infrastructure, Investment and Jobs Act (IIJA) of 2022, BABA requires that most products incorporated into infrastructure projects funded in whole or in part by federal grants or similar financial assistance be “Made in the USA.” The BABA domestic preference applies not only to IIJA projects, but also other federally funded infrastructure projects—potentially trillions of dollars’ worth in the coming years.
For manufacturers, suppliers, and distributors alike, it is essential to understand which products qualify as “Made in the USA” for BABA Act purposes. Importantly, a product does not necessarily qualify as domestic under BABAA just because it qualifies as American-made under another preference statute, like the Buy American Act, Berry Amendment, or Trade Agreements Act. Instead, BABA creates its own tests.
What follows is a high-level overview of those tests and a brief look at BABA waivers. For more information and suggestions about BABA compliance for product purchasers, such as distributors and suppliers, please see this blog’s companion piece. 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.
The Four Categories of American Made Products
The Build America, Buy America Act calls for products incorporated into BABA-covered infrastructure projects to be categorized in one of four groups: (1) iron or steel products; (2) manufactured products; (3) construction materials; and (4) so-called “Section 70197(c)” materials, which include cement, aggregates, and related materials. Each product must be classified in just one category, and the determination of the appropriate category is made based on the date the product is brought to the jobsite.
Suppliers, distributors, and manufacturers should review the regulatory definitions of each of the four categories to be sure to classify each product correctly. For example, one might intuitively think of fiber optic cable as a manufactured product, but it falls within the BABA definition of a construction material and should be classified accordingly.
Evaluating BABA Requirements for Compliance
Each of the four Build America, Buy America product categories has its own test to determine whether a product qualifies as Made in America for BABA purposes.
The test for products classified as Section 70917(c) materials is the easiest: Section 70917(c) materials are exempt from the requirement that they be manufactured in the United States.
Iron and steel products qualify as Made in the USA only if “all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.”
A similar test applies for the eight items classified as construction materials; “all manufacturing processes” for each item must occur in the United States. For example, with respect to non-ferrous metals, a product is considered domestic if “[a]ll manufacturing processes, from initial smelting or melting through final shaping, coating, and assembly, occurred in the United States.”
The BABA test for manufactured products is slightly different—and slightly more complex. Under BABA, a manufactured product qualifies as “Made in the USA” only if “the cost of the components of the manufactured product that are mined, produced, or manufactured in the United States is greater than 55 percent of the total cost of all components of the manufactured product.” To assist manufacturers in making this calculation, the BABA regulations and a governmental guidance memorandum provide a definition of the term “component” along with more detail about what costs are included and excluded in the cost calculation.
Importantly, while 55 percent ordinarily is the required floor, there are cases in which a specific product, procured using funds provided by a specific government agency, may require more than 55% domestic components. For example, a 2015 statute established the Department of Transportation’s domestic preference for rolling stock at 70% domestic content. BABA does not displace this statute or others like it.
Build America, Buy America Waivers
The domestic product preferences established by the Build America, Buy America Act are broadly applicable, but the government recognizes that in certain circumstances it be impractical or impossible to obtain certain products domestically. For that reason, BABA includes a provision for waivers—but manufacturers, suppliers and distributors should be aware that the waiver provisions are narrowly-tailored and that waivers are difficult to obtain.
Only the head of a federal agency—such as the United States Secretary of Transportation—or designee can grant a waiver. Additionally, only the direct recipient of federal infrastructure funds can request a BABA waiver. BABA recipients are usually state, local, and tribal governments, not private companies. In most cases, therefore, a manufacturer, supplier or distributor will be unable to request a new waiver. Instead, a manufacturer, supplier or distributor seeking a waiver must convince the recipient to request one—and then hope that the federal government agency grants it.
BABA’s domestic sourcing requirements can be waived for one of three reasons: (1) applying the domestic preference would be inconsistent with the public interest; (2) the product in question is not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality; or (3) the inclusion of products produced in the United States will increase the cost of the overall infrastructure project by more than 25 percent. Therefore, a manufacturer, supplier, or distributor seeking to convince a recipient to request a waiver should be prepared to support the request with evidence that one or more of these three circumstances exists.
In most cases, manufacturers, suppliers, and distributors should assume that a new waiver will not be granted and that BABA-compliant “made in the USA” products will be required. However, it is wise to keep an eye on the list of existing waivers, which is available on the Made in America Office’s website.
Many agencies have agency-specific information about BABA waivers on their websites. For example, the U.S. Department of Agriculture’s BABA website provides directions on how a recipient should submit a waiver request and explains that waiver requests should be targeted to specific products and projects wherever feasible. The Department of Education goes a step farther by requiring that BABA waiver applicants use a specific form. The Department of Housing and Urban Development also requires applicants to use a specific form, and the agency’s website provides a great deal of additional information.
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 requirements. Don’t forget to check out the 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.