BABA establishes a “Buy America Preference” generally requiring that, absent a waiver or exemption, “all of the iron, steel, manufactured products, and construction materials” used in infrastructure projects funded through federal financial assistance must be produced in the United States. Through BABA, Congress directed each federal agency to review its existing domestic content procurement preferences and determine whether the agency’s preferences (or any existing waiver of its preferences) met BABA requirements. BABA includes a savings provision clarifying that BABA does not affect pre-existing domestic content procurement preferences already meeting BABA requirements. Congress empowered the Office of Management and Budget (OMB) to issue guidance for applying the BABA Buy America Preference.
In August 2023, OMB issued its final BABA implementation guidance, contained in a new part 184 to title 2 of the Code of Federal Regulations and made effective as of October 23, 2023. The OMB guidance confirmed the broad applicability of the BABA Buy America Preference, clarifying that the preference applies to projects even if infrastructure is not the primary purpose of the funding award. Rather, if a project involves “any activity related to the construction, alteration, maintenance, or repair of infrastructure in the United States,” that is sufficient to implicate BABA. Moreover, “infrastructure” is to be interpreted broadly, with a focus on whether the project “will serve a public function.” Award recipients are to ensure that all subawards and contracts issued under an award contain the BABA Buy America Preference.
The OMB guidance defines “iron or steel products,” “manufactured products,” and “construction materials” and establishes guidelines for determining what constitutes “produced in the United States” for each category. Critically, the guidance explains that, for purposes of determining BABA compliance, an item to be incorporated into a project should be classified into only one category (i.e., an item would be considered either an iron or steel product or a manufactured product, not both) and that the classification is to be determined “based on [the item’s] status at the time it is brought to the work site for incorporation into an infrastructure project.”
BABA allows for waivers of the Buy America Preference when an agency determines that applying the Preference would be inconsistent with the public interest; when iron or steel products, manufactured products, or construction materials produced in the United States are not reasonably available; or when including US-produced products would increase the cost of the overall project by more than 25 percent. The OMB guidance introduced further detail concerning the process required before an agency may grant a waiver. BABA and the implementing guidance also establish that certain emergency expenditures are exempt from BABA requirements. However, in the preamble to the guidance, OMB confirmed that there is no general exemption from BABA requirements for commercially available, off-the-shelf (COTS) items.
On October 25, 2023, OMB issued Memorandum M-24-02 to supplement 2 C.F.R. Part 184. Among other things, OMB Memorandum M-24-02 clarifies that the BABA Buy America Preference applies to all infrastructure projects funded through federal financial assistance awards made to nonfederal entities, even if that federal financial assistance was not funded through the IIJA. Further, the Buy America Preference applies to an entire infrastructure project, even if that project is partially funded by nonfederal funds. The OMB Memorandum further notes that international trade agreements applicable to direct federal procurements typically would not apply to projects funded through federal financial assistance but that a state’s participation in an international trade agreement might constitute a basis for a public interest waiver under 2 C.F.R. § 184.7. The OMB Memorandum also provided additional instructions for wavier requests and included sample BABA award terms.
BABA represents a major new compliance requirement bringing changes to awarding agencies, award recipients, and contractors alike. BABA’s sweeping scope will likely result in award recipients and contractors finding themselves subject to new and unfamiliar domestic requirements. Moreover, even federal agencies with established domestic preference regimes will adopt new practices for areas in which their existing preference did not meet BABA standards. For example, as a result of BABA, the Federal Highway Administration is set to end its general waiver of domestic preference requirements for manufactured products, which has existed for over 40 years. Meanwhile, award recipients and contractors will have to contend with the possibility that multiple different domestic preference regimes could apply to the same project. Contractors who are experienced in Federal construction contracting will find that BABA applies differently than the BAA, and items that might be considered compliant for one project governed by one regime might be considered noncompliant on another project governed by a different regime.
As with any other regulatory change, these agencies’ rule changes have involved temporary rules, public comment, and final rulemaking—all of which can be a slow-moving, opaque process that is difficult to track, let alone predict. But given the emphasis on domestic preference rules in recent years, there is every likelihood that these regimes will persist. BABA has had wide-ranging effects already and its full impact is yet to be determined. Prudent owners, contractors, suppliers, and construction lawyers will be wise to monitor these changes as they come.