Infrastructure Outlook: New ‘Buy America’ Rules May Change How You Use Federal Funds

Josh Mahan on March 24, 2023 - in Articles, Column

It has been just more than a year since the bipartisan Infrastructure Investment and Jobs Act (IIJA) was signed into law, delivering the prospect of funding for modernization of water and transportation infrastructure as well as other important projects. The law also delivered significant restrictions on sourcing materials from outside the United States as defined in the “Build America, Buy America Act” provision of the IIJA.

Many businesses, utilities and public agencies have already realized the implications of this law on their plans and projects. For those who haven’t yet faced a new reality, here’s a look at what you need to know. First, the good news.

Eligible Infrastructure

The IIJA applies to a wide range of infrastructure projects, including roads and bridges, passenger and freight rail, public transit, ports and waterways, airports, water infrastructure, and power and grid reliability. The law also applies to the deployment of publicly accessible infrastructure for electric vehicle charging; hydrogen, propane and natural gas fueling; and designated alternative fuel corridors.

The IIJA reauthorizes surface transportation programs for five years and invests $110 billion in additional funding to repair U.S. roads and bridges. The Biden Administration described it as a “once in a generation investment in our nation’s infrastructure and competitiveness” and notes that it will “rebuild America’s roads, bridges and rails, and expand access to clean drinking water,” among other investments.

However, the IIJA is so complex that many organizations still are working to fully understand it.

That’s Still a Lot of Money

Several new programs have been established under the act.

For example, the IIJA established the Promoting Resilient Operations for Transformative, Efficient and Cost-Saving Transportation Program (PROTECT), which provides $7.3 billion to help make surface transportation more resilient to natural hazards. In this case, “hazards” include impacts of climate change, sea-level rise, flooding, extreme weather events and other natural disasters.

In addition to coastal infrastructure, PROTECT resources also may support planning activities, resilience improvements, community resilience and evacuation routes. And the $6.4 billion Carbon Reduction Program has funds available for bicycle and pedestrian trails in addition to transit and other energy-efficient transportation investments.

Clean drinking water also is an IIJA priority. According to the U.S. Environmental Protection Agency (EPA), “The nation has underinvested in water infrastructure for too long. Insufficient water infrastructure threatens America’s security, and it risks people’s health, jobs, peace of mind and future prosperity. The Bipartisan Infrastructure Law delivers more than $50 billion to EPA to improve our nation’s drinking water, wastewater and stormwater infrastructure—the single largest investment in water that the federal government has ever made.” The law is intended to invest in water infrastructure and eliminate lead service pipes, including in the Tribal Nations and disadvantaged communities that need it most.

According to the U.S. Department of Commerce, the IIJA also includes $65 billion to help close the digital divide and ensure that all Americans have access to reliable, high-speed and affordable broadband.

Buy America

And here’s the caveat.

IIJA includes a new domestic content mandate as part of the bill’s “Build America, Buy America Act” provision, which impacts all federally funded infrastructure projects located in the United States. The requirements apply to an entire infrastructure project, even if the project is funded by federal and non-federal funds under one or more awards.

All construction, alteration, maintenance or repair of infrastructure with federal financial assistance is subject to the Buy America requirements, unless an exemption applies and a waiver is granted to the federal agency that provides funding for the project.

These requirements have significant implications for new build and modernization programs, as many projects depend on components that are only manufactured outside the United States.

For manufactured products, the Buy America law requires a) the product to be manufactured in the United States; and b) the cost of the components of the manufactured product that are mined, produced or manufactured in the United States is greater than 55 percent of the total cost of all components of the manufactured product.

Significantly, the Buy America, Build America requirement is not only applicable to IIJA funding: it is a wholesale blanket policy for all infrastructure funding. In contrast, the Buy America provision in the American Recovery Reinvestment Act only applied to appropriations from that bill. The Administration continues to develop guidance on how to implement this provision.

Build America, Buy America Waivers

If you’re wondering how your project can move forward without critical materials or specialized components sourced from around the world, you’re not alone. That’s where the waivers come in.

Eligible recipients of federal funding may request Buy America waivers for the components or products necessary for completion of their projects. Federal agencies are urging eligible funding recipients to focus their waiver requests on time-limited, targeted waivers.

Some waivers that are traditionally available under existing Buy America laws are authorized under the latest provision where 1) applying the Buy America requirement would be inconsistent with the public interest; 2) where the iron, steel, manufactured products or construction material is not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality; and 3) where inclusion of the domestic products or construction materials will increase the cost of the overall project by more than 25 percent.

Federal agencies are responsible for processing and approving all waivers to this requirement, subject to approval from the Office of Management and Budget, including waivers requested by recipients and on behalf of subrecipients. Several federal agencies elected to delay the application of the Buy America provision through granting a six-month “adjustment period” utilizing the public-interest waiver authority. For some federal agencies, this six-month period ended in 2022 or will end in early 2023. For others, an extension or a one-time workaround is possible.

For example, the U.S. Department of Transportation issued a notice stating it’s not extending its temporary waiver for construction materials, making the requirement effective in November 2022. The agency also is proposing a narrow waiver for “de minimis costs,” small grants and minor components; and proposing to waive the construction materials requirements for any contracts entered into before Nov. 10, 2022.

The U.S. EPA provides information about similar circumstances where the Buy America requirements may be waived. The Federal Emergency Management Agency received approval for a general applicability public-interest waiver that expired in December 2022, and the U.S. Department of the Interior issued a six-month general applicability waiver that was set to expire on Jan. 12, 2023.

Preparing for Success

Project managers, finance teams and legal teams are encouraged to work closely with federal funding agencies to understand how the Buy America requirements affect shovel-ready or future projects. This includes:

• Expect different approaches among federal agencies.

• Determine if new approvals, certifications or other actions are necessary to meet Buy America requirements.

• Plan for the Buy America requirements to delay and/or increase the cost of projects.

• Discuss opportunities to seek waiver(s) through federal partners for critical products manufactured outside the United States.