Articles

Eric Johnson

Rules of the Road for Federal Stimulus Project Vendors

The American Recovery and Reinvestment Act of 2009 (commonly known as the “Stimulus Bill” and referred to here as “the ARRA” or “the Act”) became law on February 17, 2009.  The Act appropriates funding for a wide range of matters, including housing, education, scientific research and more.  One means by which the ARRA is intended to stimulate the American economy is by funding projects that employ American workers and incorporate American-made materials.  With regard to the latter, section 1605 of the Act’s “Appropriations” section (entitled “Buy American”) requires that “all the iron, steel, and manufactured goods” used in public infrastructure projects funded by the Act be “produced in the United States.”  Although regulations interpreting Buy American’s key language are yet to be released, businesses that could participate in ARRA-funded projects should become familiar with Buy American now so as to allow efficient action in the future.

The General Rule

Buy American’s general rule appears straightforward.  It reads: “None 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.”  However, knowing whether a given project falls within this language requires an understanding of certain terms.  For example, what qualifies as a “public building or public work”?  What are “manufactured goods”?  When is something “produced” in the United States?

Public Building or Public Work

Buy American applies to projects related to “a public building or public work.”  The Federal Acquisition Regulation (“FAR”), a set of rules governing the process by which the United States purchases goods and services (i.e., through federally funded projects), may offer guidance in defining Buy American’s scope.  Specifically, FAR subpart 22.4, which establishes labor standards for contracts related to the “construction, alteration, or repair . . . of public buildings and public works,” broadly defines “public building or public work” as a “building or work, the construction, prosecution, completion or repair of which . . . is carried on directly by authority of, or with funds of, a Federal agency to serve the interest of the general public regardless of whether [legal] title [to the building or work] is in a Federal agency.”  This definition could likely translate to Buy American because it contemplates not only federally-owned buildings and works but also those that are state, local or privately owned and receive federal funding for construction, alteration, or repair.

Additionally, the scope of a “project for the construction, alteration, maintenance, or repair of a public building or public work” is uncertain.  Does it include only heavy construction projects?  Or does it also cover ventures such as the development of communication and data networks?  These issues may be addressed by the forthcoming regulations.

Manufactured Goods

All “manufactured goods” used in ARRA-funded public projects must be produced in the United States.  Interpretation of the term “manufactured goods” raises many questions.  For example, does it refer only to manufactured building materials such as copper piping and aluminum ductwork?  Or does it also encompass goods with intangible content such as software?  Further, does Buy American cover manufactured goods that were not originally purchased for an ARRA-funded project but ultimately used in one?  Finally, for manufactured goods made partially of iron or steel, must all of the iron or steel components be produced in the United States?

 

 “Produced in the United States

All the iron, steel, and manufactured goods used in an ARRA-funded project must be “produced in the United States.”  The place where a good is “produced” is often referred to as its “country of origin.”  A good’s country of origin is commonly determined by either where the good is “substantially transformed” into the form in which it is sold, or by where the finished good and at least 50% of its component parts are manufactured.  The ARRA, read in isolation, does not indicate which country-of-origin test will determine compliance with Buy American.  Further, guidance is likely needed as to whether the determination of a good’s country of origin will be made at the end-product level or at the component or subcomponent level.

As noted, absent regulations interpreting Buy American, concrete answers to the above questions do not yet exist.  Nevertheless, awareness of the issues created by Buy American’s ambiguity will allow businesses that may participate in ARRA-funded projects to prepare to show reasonable compliance with its requirements.

Exceptions to the Buy American Provision

There are three situations in which a project may receive ARRA funding despite non-compliance with Buy American’s general rule: (1) when compliance would be “inconsistent with the public interest;” (2) when the covered goods and materials “are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality;” and (3) when use of American-made iron, steel and manufactured goods would “increase the cost of the overall project by more than 25 percent.”  As with the general rule, application of these exceptions likely requires an understanding of terms such as “public interest,” “sufficient” quantities, and “satisfactory” quality.

It should also be noted that the cost differential in the third exception refers to a 25% increase in cost of the entire project, not simply the cost of a specific component or input.

Application Consistent with U.S. International Obligations

A final important point is that Buy American must be “applied in a manner consistent with United States obligations under international agreements.”  Agreements likely covered are those in which the U.S. has agreed to treat goods and materials produced in signatory countries similarly to competing American-made products (e.g., for tariff or duty purposes).  Examples include World Trade Organization (WTO) agreements such as the Agreement on Government Procurement (GPA), as well as free trade agreements such as NAFTA.  Additionally, the joint Senate and House Conference Committee, in its review of the final version of the ARRA, noted that Buy American’s general rule will not apply to “least developed countries” to the same extent it will not apply to signatories to covered agreements.

In general, iron, steel and manufactured goods produced in certain countries are more likely to be excepted from Buy American’s general rule.  However, whether such exception will be made may depend on factors such as the overall cost or objective of the project for which the iron, steel or manufactured goods are used, or which federal agency distributes the ARRA funds.

Present Preparation = Future Efficiency

Many questions surround the ARRA’s Buy American provision in its current state.  Although federal regulations interpreting its language are likely forthcoming, businesses that may participate or are currently participating in ARRA-funded projects should organize now to show compliance with or entitlement to an exception under Buy American.

One means of preparation is to obtain certifications from suppliers that the iron, steel or manufactured goods that the business will contribute to a project are American-made or produced in a country with which the U.S. is party to a qualifying international trade agreement.  Businesses may also submit documentation to the federal agency involved in the project and request a ruling on ARRA compliance.  Finally, businesses should consider consulting an attorney if other questions arise in applying Buy American or the applicable regulations to a particular situation.  These and other means of preparation will allow businesses to bid on ARRA-funded projects, begin work, and, hopefully, stimulate business activity on local, state and national levels.

 

By: Eric Johnson

Published in Business North, May 2009