Buy American Provisions of Stimulus Act

Section 1605(a) of the Stimulus Act is probably one of the most criticized and controversial of its provisions, evoking cries of "Fortress America" overseas and concerns domestically with how to reconcile these requirements with existing global supply chains. These fears are probably exaggerated given that similar requirements already exist in most domestic infrastructure projects funded with federal grants. Nonetheless, there will be federally-funded construction projects which previously were subjected to the less onerous domestic preference regime of the Buy America Act and implementation on these projects may well cause confusion and make difficult furnishing the best products the global economy has to offer.

The Buy American Provision
Section 1605 provides that no funds appropriated, or otherwise made available by the Stimulus Act can 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." This provision is modeled after virtually identical requirements in such statutes that govern federal highway and mass transit projects (see 23 U.S.C. § 313, 49 U.S.C. § 5323(j) and 49 U.S.C. § 24405(a) and contains identical exceptions where the head of the relevant agency determines:

(1) The Buy American requirements would be inconsistent with the public interest;

(2) The iron, steel, or relevant manufactured goods are not produced in "sufficient and reasonably available quantities and of a satisfactory quality;" or

(3) The Buy American requirements will increase the cost of the overall project greater than 25 percent.

Although not unique, Section 1605 also requires that the agency head publish in the Federal Register a "detailed written justification" as to why the Buy American provision is being waived; a provision that is likely intended to deter waivers that do not have a strong rationale.

Federal Procurement
The impact of Section 1605 could be modest on federal procurement. First, while there is some ambiguity as to the intended reach of the undefined language relating to "maintenance . . . of a public building or public work," by and large the restriction appears restricted to construction contracts. Accordingly, goods purchased by federal government agencies will continue to be governed by the more familiar Buy American Act and Trade Agreements provisions in the FAR and agency supplements, as well as the common exceptions for information technology (IT) commercial products and for COTS items. However, equipment such as air handling units, IT systems and even trashcans that are purchased as part of a public building renovation or construction could be covered.

Furthermore, as a result of foreign political pressure, the final provision includes an express requirement (§ 1605(d)) that the provision be "applied in a manner consistent with United States obligations under international agreements." Consequently, only smaller value construction projects are likely to be affected as those exceeding $7,433,000 (the current TAA threshold) should remain open to services and construction materials from designated countries, including least developed countries. The impact on those smaller value projects is difficult to assess as much will depend on how the FAR is amended to define what constitutes a domestic "manufactured good." Currently, "construction material" delivered to the project site must meet the traditional 50% component test, but in the grant world, discussed below, "manufactured goods" must often meet a 100% domestic component test, permitting only foreign material and sub-components to be used in the domestic manufacture of the components.

Federal Grants
The United States excludes from its international concessions - as do most countries - procurements financed from federal grants whether for domestic infrastructure projects or foreign assistance. As noted, such projects are already subject to a variety of Buy America provisions at both the federal, state and even local level. Thus, for companies already performing as contractors and subcontractors for federally-funded highway and mass transit projects, the Stimulus Act provision will be familiar. It is also likely the Department of Transportation (DOT) will implement these provisions the same way that they have the existing provisions. However, ambiguities remain as to whether some of the existing exceptions and special rules (e.g., for "rolling stock") will apply or whether they would even be covered if the agencies read the Act literally as limited to construction. Moreover, the Act contains numerous construction projects outside of the highway and mass transit areas where implementing regulations will be necessary although presumably they will closely follow those of the DOT agencies.