Build America, Buy America

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What To Know About the Act to Increase Domestic Manufacturing

As federal regulators continue to release implementation guidelines for the Build America, Buy America Act (BABAA), the new law aimed to increase domestic manufacturing, the Department of Housing and Urban Development announced its decision to phase implementation of the requirements. A number of affordable housing groups worry about potential negative unintended consequences of the law and would like a permanent exemption for affordable housing.

The BABAA, enacted as part of the Infrastructure, Investment and Jobs Act (IIJA), requires that infrastructure projects awarded federal financial assistance on or after May 14, 2022, must source certain construction materials from the United States, including iron, steel, manufactured products and construction materials, but allows federal agency heads to waive these requirements under certain circumstances.

Not limited to infrastructure projects funded specifically by IIJA, the requirements apply to any funds that will be used to construct, alter, maintain or repair infrastructure in the United States, even if the federal award is not paying for the entire project.

On Feb. 9, 2023, the Office of Management and Budget (OMB) issued its most recent guidance on the new law, as well as a proposed rule. The latest guidance, based on prior stakeholder feedback, sets standards for domestic manufacturing of the materials. Public comments on the proposed rule closed on March 13. After reviewing those comments, OMB will issue its final rule.

OMB’s previous guidance, issued on April 18, 2022, includes “preliminary and non-binding” guidance on the definition of construction materials, as well as the waiver process and guidance for federal agencies.

Affordable housing groups are concerned that the proposed guidance would increase the cost of building affordable housing and reduce the number of units that can be developed using existing federal funding.

In Dec. 2022, OMB directed all federal agencies to submit a report listing all federal financial assistance programs for infrastructure.

In March, a coalition of 24 housing organizations sent a letter to President Joe Biden, asking for an exemption to the new law for affordable housing development and repair, including HUD and the U.S. Department of Agriculture assisted multifamily housing. 

Citing several programs named in HUD’s list of federal financial assistance, the group says placing BABAA requirements on these programs would place an enormous administrative burden on builders and developers of affordable housing.

“Further, unless HUD and USDA FFA for housing are exempted, Low Income Housing Tax Credit properties that use those funds may also be jeopardized,” the letter says.

The group asks that the exemption of the law’s requirement for private homes for personal use from the definition of infrastructure should also apply to all affordable housing development and repair, including affordable homeownership repair and development programs and HUD-assisted and USDA-assisted multifamily housing.

Initial Guidance
The OMB’s initial guidance, titled M-22-11 Initial Implementation Guidance on Application of Buy America Preference in Federal Financial Assistance Programs for Infrastructure (OMB Guidance), provides agency guidance to apply a “Buy America” preference to federal financial assistance programs for infrastructure, as well as the process to waive the preference if necessary. It also includes non-binding guidance on what constitutes building materials.

Under the new law, all iron and steel used in the project should be produced in the U.S., which means all manufacturing processes, from the initial melting stage through the application of coatings, occur in the U.S., the guidance says.

The law also states that all manufactured products and construction materials used in the infrastructure project are produced in the U.S.

For manufactured products to be considered domestically produced means the product is manufactured in the U.S, and the cost of the components of the product that are mined, produced or manufactured in the U.S. is greater than 55 percent of the total cost of all components of the manufactured product, the guidance says.

Additionally, construction materials must also be manufactured in the U.S. The guidance defines construction material to include articles, materials or supplies that consist mostly of nonferrous materials, plastic or polymer-based products, glass, lumber and drywall. Not included are items that are mostly iron or steel, a manufactured product, cement and cementitious material, aggregates such as stone, sand or gravel; or aggregate binding agents or additives, the guidance says.

If an item consists of two or more of the listed materials combined through a manufacturing process, or an item includes one of the materials with a non-listed material also combined through a manufacturing process, it should be treated as a manufactured product, not a construction material, the guidance says. For example, glass is a construction material, but a window is a manufactured product.

Initial guidance also clarifies that the BABAA preference only applies to items that are incorporated or affixed to the infrastructure. It doesn’t apply to tools, equipment or temporary scaffoldings. It also doesn’t apply to items that are not a permanent part of the structure, like desks or computers, the guidance says.

Each item being considered should be placed in only one category: iron/steel, manufactured product or construction material.

The initial guidance tasked agencies to determine how the guidance is best applied to their infrastructure programs and processes.

The M-22-11 guidance also outlines and explains under what circumstances a federal agency head can issue a waiver to the domestic content requirement. These circumstances include public interest considerations, if the types of iron, steel, manufactured products or construction materials are not produced in the U.S. in sufficient and reasonably available quantities or satisfactory quality, or if the application of the domestic content preference would increase the cost of the overall project by more than 25 percent, the guidance says.

While waivers are permitted, the new law also gives statutory authority to the Made in America Office (MIAO) in the Office of Management and Budget to maximize and enforce compliance with Made in America Laws. Federal agencies must also consult with MIAO for proposed waivers with broader applicability, such as a general applicability waiver, before posting them for public comment.

HUD Responds
On June 1, 2022, HUD published a request for information (RFI) seeking public input on the implementation of the BABAA as it applies to HUD’s Federal Financial Assistance. HUD asked for input on several topics relating to the potential information collection burden on recipients, including existing mechanisms for demonstrating compliance with the Act’s domestic content procurement preference, potential costs of compliance for recipients and contractors, and the potential impact on projects funded by HUD Federal Financial Assistance.

On March 15, 2023, HUD issued its final notice on the “Public Interest Phased Implementation Waiver for FY 2022 and 2023 of BABAA Provisions as Applied to Recipients of HUD Federal Financial Assistance.” The public interest waiver sets an implementation schedule of the Buy America provision for recipients of HUD’s federal financial assistance for the purchase of steel and iron products for infrastructure projects, as well as an implementation schedule for the purchase of four specifically listed construction materials – non-ferrous metals, lumber, composite building materials, and plastic and polymer-based pipe and tube, all manufactured products, as well as all other construction materials.

“HUD has expressed its desire to move forward with the full implementation of the Buy America provision across its FFA programs, but believes that the public interest is served best by a measured approach to implementation of the Act, allowing for the appropriate balancing of the intent of the Act with the public interest in the continued efficiency and success of infrastructure projects funded through HUD’s affordable housing and community development programs,” the final notice says.

Looking Ahead Proposed Rule
In February 2023, OMB released additional guidance, this time as a proposed rule to revise OMB Guidance on Grants and Agreements.

The new guidance aims to provide consistent implementation of Buy America requirements for infrastructure projects government-wide and proposed guidelines for determining the cost of manufactured products. It also provides guidance about when a variety of construction materials can be treated as U.S.-made.

While OMB memorandum M-22-11 provides “preliminary and non-binding” guidance on the definition of construction materials, this proposed rule includes OMB’s proposed standards for “all manufacturing processes” for the manufacture of construction materials.  

Nushin Huq is a Houston-based freelance journalist. She has worked as a reporter covering energy markets and regulation, business and government – both federal and state.