Infrastructure law broadens federal domestic preference policies

Last month, I wrote about part of the 2021 Infrastructure Investment and Jobs Act that broadens requirements for payment security (bonds) on all federally financed infrastructure projects receiving TIFIA loans and grants.

The Infrastructure Act, as amended, extends the Federal Miller Act to state-level projects where the involvement of the federal government is only by providing at least some of the project funding. Going forward, even if the federal government is not a party to the contract, the Federal Miller Act may provide payment protections to subcontractors. That same application may limit the defenses available to the prime contractor/principal when the surety is involved (e.g., there may be a no pay-if-paid or no-damage-for-delay defense even if such clauses are included in the subcontract).

The Infrastructure Act also includes the Build America, Buy America Act (BABA), which broadens or newly applies domestic preference policies to federally financed infrastructure programs. Additionally, some readers may recall the American Recovery and Reinvestment Act of 2009, which had a similar, but narrower, provision. Under ARRA, the domestic preferences applied only to projects receiving ARRA funding. The effect of BABA is not limited to funds appropriated under the Infrastructure Act. BABA extends domestic preferences to all federally financed infrastructure programs, regardless whether federal finance comes from the Infrastructure Act or some other source of federal funding.

FHWA funding has included some form of domestic preference since the Surface Transportation Assistance Act of 1978. BABA increases both the breadth and depth of domestic preferences for federally financed programs and projects. BABA requires that, by about May 15, 2022, each federal agency must apply domestic preferences to federally financed infrastructure programs. This means that no federal funds “may be obligated for a project unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the U.S.”

Of course, there are more details that could trap the unwary. “Produced in the U.S.” is defined differently for subcategories of products or materials. For iron or steel products, “produced” means “all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the U.S.” For manufactured products, “produced” means that such products were “manufactured in the U.S. and the cost of the components of the manufactured product that are mined, produced, or manufactured in the U.S. is greater than 55% of the total cost of all components of the manufactured product, unless another standard applies.” For construction materials, “produced” means that “all manufacturing processes . . . occurred in the U.S.” Lastly, but not least among even the highest-level definitions, the Infrastructure Act requires that, by May 2022, the Office of Management and Budget (OMB) must define “all manufacturing processes.” Navigating these definitions may require not only a road map and compass, but also a globe, sextant, GPS, and even a “Magic 8-Ball” toy.

What federal program would be complete without a dedicated office or group of persons to police the program? The Infrastructure Act establishes within OMB the Made in America Office (MAO), with the OMB Director appointing the MAO Director. The MAO Director’s responsibilities include (i) maximizing and enforcing “compliance with domestic preference statutes,” and (ii) developing and implementing “procedures to review waiver requests or inapplicability requests related to domestic preference statutes.”

Yes, there may be exceptions/waivers. But, apply early and do not bank on getting one. A federal agency head who applies a “domestic content procurement preference” may waive the application of that preference if: (1) applying the domestic preference “would be inconsistent with the public interest;” (2) types of iron, steel, manufactured products, or construction materials are “not produced in the U.S. in sufficient and reasonably available quantities or of a satisfactory quality;” or (3) application of the domestic preference “will increase the cost of the overall project by more than 25%.”

Since 1983 there has been a nationwide waiver for manufactured products other than steel and iron products. In 2013, following the ARRA, the question of whether to continue that nationwide waiver was opened for comment, but it remained unchanged. BABA may open another comment period and provide another window for change.

Be aware. Your program or project may not have previously been subject to domestic preferences, but renewals, future task orders, and/or scope changes may be. If/when that happens, there will be more eyes on your program or project than before.