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On February 9, 2023, the Office of Management and Budget (“OMB”) issued a proposed rule and notification of proposed guidance aimed at standardizing the implementation of the Build America, Buy America (“BABA”) provisions of the Infrastructure Investment and Jobs Act (“IIJA” or “the Act”), which may impact all federally funded infrastructure projects in the United States. These requirements may apply to any federally funded project (not just IIJA) and the entire infrastructure project, even if the project is funded by both federal and non-federal funds under one or more awards. The proposed standards are more rigorous than past Buy American/Buy America programs, which largely targeted iron and steel and only covered certain projects. Comments on the newly proposed rule are due on March 13, 2023.

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The proposed rule includes a number of proposed changes to the federal grant rules reflecting OMB’s initial implementation contained in April 2022 OMB Memorandum M-22-11, “Initial Implementation Guidance on Application of Buy America Preference in Federal Financial Assistance Programs for Infrastructure,” which <a href="https://www.thompsonhine.com/insights/omb-issues-new-buy-america-guidance-for-federal-infrastructure-projects/">we previously discussed</a>.

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OMB is required by IIJA to issue standards that define “all manufacturing processes” regarding construction materials. While OMB’s earlier memorandum provided “preliminary and non-binding” guidance on the definition of construction materials, the proposed rule would establish a new part 184 to OMB regulations to reflect OMB’s updated interpretation of, and standards for, “all manufacturing processes” for manufacturing construction materials, which are based on industry feedback, agency consultation and market research conducted by OMB.

Changes Proposed by OMB and Expected Impacts

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OMB proposes to implement a new part 184 in 2 CFR chapter I (2 CFR part 184) to support implementation of the Act and clarify existing requirements within 2 CFR 200.322, Domestic preferences for procurements. The proposed revisions are intended to improve uniformity and consistency in the implementation of BABA requirements across government agencies by adding a new part addressing the Buy America Preference for all awards with infrastructure expenditures set forth in section 70914 of IIJA. The new part will generally align with OMB’s guidance in M-22-11, mentioned above. The new part also provides definitions for the purpose of 2 CFR part 184 and a common framework for applying the BABA preferences.

The new part 184 also includes guidance for determining the cost of manufactured products and proposes to use the definition of “cost of components” in the Federal Acquisition Regulation (“FAR”) (48 CFR 25.003) that is used for federal procurement. Using this “cost of components” definition for determining the cost of manufactured products for Federal Financial Assistance aims to provide consistent and clear market requirements for industry to meet one standard for making such cost determinations.

OMB seeks stakeholder feedback on several specific aspects of the proposed rule, including:

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In addition, OMB proposed standards for each of the above construction materials for when the material can be considered “produced in the United States.” OMB is also requesting input on the proposed standards for fiber optic cable and optical fiber, and whether additional standards should be issued for other categories of construction material such as “coatings,” “brick” and “engineered wood products.”

Lingering International Complications Posed by OMB’s Proposed Changes

OMB’s proposed revisions may run afoul of U.S. obligations under various trade agreements, including the World Trade Organization Agreement on Government Procurement (WTO-GPA). The IIJA includes boilerplate text confirming that it “shall be applied in a manner consistent with the United States obligations under international agreements.”  However, it remains unclear how OMB will interpret those international obligations, particularly in instances where the funding award is made at the subnational (i.e., state or local) level using federal funds and/or whether the nature and form of the funding is subject to these international agreements. Contractors using subcontractors and/or supplies from non-U.S. entities will need to closely monitor these developments.

Domestic preference requirements for federal procurement and federal financial assistance continue to evolve at an unprecedented pace, and the most recent OMB proposed rule and guidance are just the latest developments in this area. Comments on the proposed rule are due on March 13, 2023. Given the BABA’s requirements’ significant impact on federally funded infrastructure projects, contractors and suppliers should carefully consider whether there are reasons for maintaining a different set of standards that have traditionally applied to federal infrastructure projects and if they should, or would like, to provide input to OMB on this or other issues as the proposed guidance is being finalized.

Companies that perform work on federally funded infrastructure projects should continue to monitor the evolving domestic preference standards as additional regulations are issued and implemented, familiarize themselves with the changing Buy America requirements, and assess and document their compliance with the various country of origin requirements, including a review of products acquired through the supply chain for various projects and customers.

<em>This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions.</em>

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<a id="_ftn1" href="#_ftnref1">[i]</a> The cost of components “purchased by the contractor” would mean the acquisition cost, including transportation costs to the place of incorporation into the end product or construction material and any applicable duty (regardless of whether or not a duty-free entry certificate is issued).

<a id="_ftn2" href="#_ftnref2">[ii]</a> “Components manufactured by the contractor” would refer to all costs associated with the manufacture of the component, including transportation costs plus allocable overhead costs, but excluding profit.  The term, however, would not include any costs associated with the manufacture of the end product. 

https://admin.thompsonhine.com/wp-content/uploads/2023/02/OMB-Issues-Proposed-Rule-and-Guidance-on-U.S.-Made-Construction-Materials-in-Infrastructure-Projects.pdf

OMB Issues Proposed Rule and Guidance on U.S.-Made Construction Materials in Infrastructure Projects

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