BABA Black Sheep, Have You Final Rules? OMB Issues Final Implementation Guidance on Build America, Buy America Requirements for Federally Funded Infrastructure Projects

On August 23, 2023, the Office of Management and Budget (OMB) released its final rule and notification of final guidance addressing implementation of the Build America, Buy America Act (BABA) provisions enacted with the Infrastructure Investment and Jobs Act (IIJA), which requires the use of domestic iron, steel, manufactured products, and construction materials in infrastructure projects supported with federal financial assistance.  The final rule goes into effect October 23, 2023, and applies to federal awards for infrastructure projects awarded after November 15, 2021.  We previously reported on OMB’s February 9, 2023 proposed guidance here.

In response to nearly 2,000 public comments, the final rule clarifies that OMB is providing high-level guidance to harmonize federal agencies’ approaches to the key definitions and requirements in BABA, while nevertheless giving individual agencies discretion to tailor application of these requirements to their specific types of infrastructure projects.  Highlights of this final guidance include:

Alignment with certain Federal Acquisition Regulation (FAR) definitions.  The final rule adopts certain FAR definitions used for the federal Buy American Act where applicable, adapted for the context of federally funded infrastructure projects, particularly vis-à-vis items falling into the “manufactured products” category, which the BABA final rule defines as 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.”  For example, the BABA final rule adopts a similar definition of “component,” defined as “an article, material, or supply, whether manufactured or unmanufactured, incorporated directly into a manufactured product (or, where applicable, an iron or steel product).”

In addition, the rule adopts a FAR-like cost of components test, used to determine whether the cost of components of a manufactured product is greater than 55% of the total cost of components.  The rule requires:

• for components purchased by the manufacturer, “the acquisition cost, including transportation costs to the place of incorporation into the manufactured 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);” or
• for components manufactured by the manufacturer, “all costs associated with the manufacture of the component, including the transportation costs,” and labor associated with manufacturing, “plus allocable overhead costs, but excluding profit.” This cost of components cannot include “any costs associated with the manufacture of the manufactured product.”

Similarly, OMB adopted the FAR “predominance” test for defining iron and steel products despite significant industry criticism that OMB should have adopted the “structural” criterion traditionally used by the Federal Transit Administration.  Under the FAR-based final rule, products whose iron and/or steel content exceeds 50% of the total cost of components are subject to the iron/steel requirement to perform all manufacturing operations in the U.S.  This represents a departure from the agency-specific requirements state and local construction contractors may be accustomed to following.

Kits and systems. Taking another cue from the federal Buy American Act’s requirements for construction projects, the final rule states that articles, materials, and supplies should generally be categorized based on status at the time they are brought to the work site for incorporation into the infrastructure project.  However, the OMB commentary provides that, in certain cases, a manufactured product purchased from a single manufacturer or supplier as a “kit” may be classified as a manufactured product even if its components are brought to the site separately or at different times.  

OMB further clarified that the term “kit” means a product that is acquired for incorporation into an infrastructure project from a single manufacturer or supplier that is manufactured or assembled from constituent components on the job site by a contractor.  A kit may be treated and evaluated as a single and distinct manufactured product.  OMB left interpretation of the term “kit” to the federal agencies, with the guideline that agencies generally should interpret the term to be limited to discrete products, machines, or devices that perform a unified function, and that more wide-ranging systems should not be considered a kit.

Focus on “construction materials.”  The rulemaking commentary and revisions focus heavily on “construction materials,” which were one of the key expansions of the Buy America requirements for federally funded infrastructure projects.  The OMB guidance sets manufacturing standards for non-ferrous metals, plastic and polymer-based products, glass (including optic glass), lumber, engineered wood, drywall, fiber optic cable and optical fiber.  The OMB guidance makes clear that only the enumerated construction materials are covered; materials like paint and bricks are not covered.  Additionally, OMB walked back language from the proposed rule that would have treated composite materials comprising two or more listed products as construction materials.  Under the final rule, unless the composite material itself is listed as a construction material, such products should be considered under the rules applicable to manufactured products.

Treatment of cement and other aggregates.  In its proposed rule, OMB invited comment on how to treat cement and other aggregates such as gravel and crushed stone, which are statutorily excluded from the definition of “construction materials.”  The final rule clarifies that such materials are not subject to any BABA requirement when delivered to a work site in a raw form for incorporation into a project (such as wet cement or hot asphalt), but they may be considered components of a manufactured product when incorporated into a finished product (such as precast concrete) prior to delivery to the work site.     

Status of for-profit entities.  The final rule confirms that BABA does not apply to direct awards to for-profit and other entities not constituting a “non-federal entity.”  However, agencies have discretion to impose BABA requirements on any infrastructure project, so contractors should watch for the imposition of those requirements.

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Contractors should continue watching for developments around BABA implementation, especially as OMB convenes an interagency working group.