The Recovery Act's Buy American Restrictions

Monday, April 5, 2010 - 01:00

Section 1605 of the American Recovery and Reinvestment Act (Recovery Act) contains a unique "Buy American" provision that prohibits the use of foreign iron, steel or manufactured goods on projects funded through the Recovery Act, subject to certain exceptions discussed below. Specifically, section 1605 provides that "[n]one of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States."

Similar domestic preference requirements have been law for decades. For example, the Buy American Act of 1933 creates a preference for domestic end products over foreign products in most federal government procurement and in construction contracts awarded by the federal government. The Department of Transportation's Buy America program has been law since 1982 and requires that federally funded transportation projects use U.S.-produced iron, steel, and manufactured goods if it is readily available and competitively priced. In effect, the Recovery Act's Buy American restrictions expand upon existing law to require the use of domestically produced iron, steel and manufactured goods in projects funded by the Act.

Implementation Issues

Interim Regulations

Two sets of interim federal regulations have been issued to implement section 1605 of the Recovery Act:

On March 31, 2009, the FAR Council issued an interim rule that applies the Buy American restrictions to federal government procurement of construction materials for construction projects funded pursuant to the Recovery Act.

On April 3, 2009, the Office of Management and Budget (OMB) issued interim Guidance applying the Recovery Act's Buy American restrictions to grants, loans and other financial assistance (including assistance to state and local governments) funded by the Act.

Both interim regulations clarify that the Recovery Act's Buy American restrictions apply only to projects located in the United States and to projects involving a public building or public work ( i.e. , a building or work owned by a government entity).

Waivers

The Recovery Act's Buy American requirements may be waived in the following circumstances:

• Public Interest : When applying the provision would be inconsistent with the public interest;

• Non-availability : If the iron, steel and relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or

• Unreasonable Cost : The inclusion of U.S.-produced iron, steel or manufactured goods will increase the cost of the overall project by more than 25 percent (or, with respect to unmanufactured material, if the cost of such domestic material exceeds the cost of foreign material by 6 percent).

For example, if a certain manufactured good is not reasonably available in the United States, then a recipient of funds under the Recovery Act could seek a waiver from the relevant contracting officer allowing the manufactured good to be sourced from abroad. Or, if the use of a certain steel product would increase the cost of the overall project by more than 25 percent, a waiver may be sought to source the product from a foreign supplier.

According to the OMB Guidance, any waiver of the Recovery Act's Buy American restrictions must be made by the federal agency responsible for administering the grant. A contractor requesting a waiver exception should submit the request to the award official in time to allow a determination before submission of applications or proposals. The contractor must include the information and applicable supporting data required by 2 CFR 176.140(c) and (d) in the request. Note, however, that a post-award determination may be made, but sufficient reasons must be given for not requesting a waiver exception prior to the award of the contract.

International Agreements

Section 1605 also provides that the Buy American restrictions must be "applied in a manner consistent with United States obligations under international agreements." According to the interim regulations, if an international trade agreement applies to a particular procurement, the Recovery Act's Buy American restrictions are in effect "waived" and the government may procure foreign manufactured goods from a country that has executed the applicable agreement.

However, this trade agreement "waiver" only applies to contracts or grants above a certain dollar threshold. Thus, when the value of a Recovery Act contract or grant is below $7,443,000, "all iron, steel and manufactured goods" used in the project must be "produced or manufactured" in the United States. When the value of a Recovery Act contract or grant is $7,443,000 or more, goods that have been "manufactured or substantially transformed" in the United States or a designated country that has entered into a trade agreement with the United States are entitled to "equal" treatment with U.S. goods.

Determining whether an international trade agreement applies (and the Buy American restrictions are waived) also depends in large part on whether the specific government entity (federal, state, or local) doing the procuring is subject to the trade agreement and whether the specific category of procurement is covered by the agreement.

• The WTO Government Procurement Agreement (GPA) requires that countries not discriminate against other signatory countries with respect to government procurement. Forty countries have signed on to the GPA, including the United States, the EU and its member states, Canada, Japan and South Korea. Therefore, these GPA signatory countries may have certain rights with respect to government procurement using Recovery Act funds. However, these rights may vary depending on whether federal, state, or local procurement is involved.

• For example, pursuant to both NAFTA and the WTO GPA, Canada is eligible for nondiscriminatory treatment with respect to U.S. federal government procurement. However, because Canada has excluded its provinces from coverage under these agreements, Canada does not have the right to non-discriminatory treatment with respect to U.S. state and local government procurement.

Transparency

The Recovery Act requires close monitoring and transparency with respect to the implementation of the Buy American requirements. For example, if a waiver of the Buy American requirements is deemed necessary, the relevant federal agency is required to provide public notice and a detailed written justification as to the need for the waiver.

There are a number of additional implementation issues that have arisen as the various federal agencies have allocated stimulus funds and implemented the Buy American requirements. Wiley Rein's International Trade Group regularly advises clients on the Buy American requirements and issues relating to implementation of the Recovery Act.

Determining Whether the Recovery Act's Buy American Restrictions Apply: Key Points to Consider:

• Does the project involve Recovery Act funding?

• Does the project involve the construction, alteration, maintenance or repair of a public building or public work?

• Have the Buy American restrictions been waived ( i.e. , public interest, non-availability, unreasonable cost)?

• Does an international trade agreement apply to the procurement? If so, is the U.S. procurement by a federal, state, or local government entity?

Timothy C. Brightbill is a Partner in the International Trade Practice. He represents clients on all aspects of international trade law and policy including import trade remedies (such as antidumping law, countervailing duty law and safeguards investigations), global trade policy and trade negotiations, international arbitration, export controls (compliance and licensing), climate change policy, customs matters and international e-commerce issues. Mr. Brightbill can be reached at (202) 719-3138 or tbrightbill@ wileyrein.com.

Christopher B. Weld is an Associate in the International Trade Practice. Mr. Weld represents clients in a variety of international trade matters, including antidumping duty investigations, export control regulations and trade sanctions regulations. He also counsels clients on compliance programs for government contracting. Mr. Weld can be reached at (202) 719-4651 or cweld@ wileyrein.com.

Please email the authors at tbrightbill@wileyrein.com or cweld@wileyrein.com with questions about this article.