Introduction to Domestic Preference Acts
It comes as a surprise to no one that Congress has wide-ranging ability to place conditions on the federal government’s ability to spend federal dollars. What may surprise some contractors is the effect that Congress’s power via “domestic preference acts” has to limit how the contractor builds a project and what materials it procures to do so.
What do we mean when we say “domestic preference acts”? These refer to the Acts that establish the long-standing inclination of the United States government to ensure federal dollars are spent on domestic products. For example:
- Buy American Act of 1933 (41 U.S.C. §10a-d)
- Trade Agreements Act (19 U.S.C. §§ 2511-2518, implements WTO GPA)
- Berry Amendment (applicable to DoD)
- Surface Transportation Assistance Act of 1982 (“Buy America” – which notably is not exactly the same as “Buy American”)
The BAA requires “substantially all” of an acquisition be attributable to American-made components. This has come to mean that at least 50 percent of the costs must be attributable American content. The BAA applies to “construction materials” and “end products,” depending on whether a supply contract or construction contract is involved. A two-part test has developed to determine whether the BAA applies and the GAO applies a case-by-case standard to determine applicability of whether something is “manufactured” in the United States sufficient to meet the requirements of BAA.
This principle is applicable to those involved with heavy civil construction via the Surface Transportation Assistance Act of 1982, with its separate policy known as “Buy America.” This version governs procurements funded through the Department of Transportation, such as highway, bridge, rail, and transit construction. A product is defined as American–made under “Buy America” if all of its manufacturing processes, constituent parts and/or materials originated in the United States. The Federal Highway Administration (FHWA) applies the Buy America standards through 23 U.S.C. § 313, and 23 CFR § 635.410.
To further confuse matters, the 2009 American Recovery and Investment Act added its own amendments and requirements applicable to all projects funded with Recovery Act funds – both direct federal and federal-aid. (AARA Section 1605). In addition, there are agency specific interpretations in the Act and there are also special restrictions attached to federal funds given to states for mass transit and highway projects.
The Moving Ahead for Progress in the 21st Century Act (MAP-21), signed by President Obama on July 6, 2012, contains a provision that substantially broadened the application of Buy America to any contract eligible for Federal highway funding, regardless of the funding source of such contracts, if at least one contract for the project is funded with Federal-aid highway funds.
In response, FHWA the just issued its own clarification procedures in December 2012. The FHWA concluded that for a manufactured product to be subject to Buy America, it had to be manufactured “predominantly” of steel or iron, meaning it consists of at least 90 percent steel or iron content when delivered to the job site (including the sites where any precast concrete products are manufactured) for installation. For example, steel or iron products included fabricated structural steel, piling, sheet piling etc. are subject to Buy America. The miscellaneous steel or iron components, subcomponents and hardware necessary to encase, assemble and construct the above components (or manufactured products not predominantly steel or iron) are not subject to Buy America coverage. Products such as, clamps, fittings, sleeves, washers, bolts, nuts, screws, tie wire, spacers, lifting hooks etc. are not subject to the Act. FHWA also clarified that under MAP-21, the Buy America provisions extend downward to include the utility work, if the project is funded with federal-aid highway funds. (See, i.e. http://www.fhwa.dot.gov/construction/contracts/121220.cfm).
For another wrench in a contractor’s analysis, the Trade Agreements Act in effect modifies BAA and opens procurement to products from “designated countries”, for certain specified product categories, above certain specified thresholds, the amount of which is determined by the specific country. It requires a very detailed analysis to ensure compliances with the TAA in relation to the other domestic preference acts.
Unfortunately, for contractors, knowing which requirements apply and when they are subject to exemption or waiver can be difficult to ascertain and running afoul of these acts could involve audits, investigations, monetary sanctions, suspension or debarment and/or civil or criminal liabilities under the False Claims Act.