New Buy American Rules Permit Wider Use of Foreign Components in Federal Projects

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April 6, 2009

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) recently published an interim final rule in the Federal Register relaxing some of the Buy American provisions covering federal procurement in the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5) (ARRA). 

The Buy American provision included in Section 1605 of the stimulus bill is a combination of two existing U.S. domestic content laws – the Buy American Act and the Buy America Statute. The Buy American Act applies only to federal government procurement and construction projects, whereas Buy America applies principally to Federal Transit Administration (FTA) grants provided to states and localities.

As enacted, Section 1605 specified that nearly every infrastructure project receiving ARRA funds use only U.S.-produced iron, steal, and manufactured goods to the extent possible without violating U.S. trade obligations.   However, the interim final rule issued by the Councils amending the Federal Acquisition Regulations (FAR), which covers federal procurement and construction projects, contains country-of-origin rules that could result in a broader use of foreign components.

Under the new rule, components and subcomponents of construction materials used in federal infrastructure projects funded by the ARRA may be of foreign origin provided the final product is manufactured in the United States.   Previously, under the foreign acquisition section of the FAR, a two-part test stipulated that the cost of the U.S.-made components must account for over 50 percent of all components in a manufactured product. The second part of that test, which is unaffected by the interim rule, stipulates that products used in federal procurement projects must be manufactured in the United States.

Furthermore, the interim final rule limits the definition of manufactured goods to construction materials which will be used “for the construction, alteration, maintenance, or repair of a public building or public work.”   This exempts certain final goods, such as electronic equipment, and will limit the trade implications of the provision.

For federal iron and steel procurements, the interim final rule does not alter existing acquisition interpretations, with the exception of iron and steel components used in manufactured construction materials. It stipulates that “all manufacturing processes must take place in the U.S, except metallurgical processes involving the refinement of steel additives.”

The interim final rule is also meant to provide clarification on how the ARRA’s Buy American provisions will be applied to federally administered procurement and construction projects. Federal agencies can still invoke a waiver if the use of U.S.-made iron, steel and manufactured construction materials would increase the cost of the overall project by 25 percent. Foreign raw materials, defined as a non-manufactured construction material that has not been processed or combined with another raw material, can be used if the price of the U.S. equivalent is more than 6 percent greater.

These rules apply only to federal procurement and construction projects. The Office of Management and Budget (OMB) has yet to provide additional guidance on the “Buy America” provisions which cover projects funded by federal money distributed to state and local governments.

For now, these projects are subject to the more strict “Buy America” provisions contained in the Surface Transportation Assistance Act of 1982 (49 C.F.R. § 661.5).   Pursuant to these rules, all manufacturing processes must take place in the U.S. and all components of the product, exclusive of subcomponents, must be of U.S. origin to be eligible for funding. The OMB is expected to provide further guidance which may alter the existing “Buy America” rules sometime in mid-April.