Buy AmericanHire American

2019 Update

Brian Waagner | Hal J. Perloff

Buy American Hire American-2019• Buy American Act (BAA)—Government

Contracts• Buy America—Federal Transit Administration

(FTA) Funded Projects• Compliance Strategies• Recent developments—EO and

BuyAmerican.gov Act

Buy American Act• Supplies (41 U.S.C. 8302, FAR 52.225-1 to -8• Applies to “unmanufactured articles, materials, and

supplies . . . acquired for public use . . . .”– Preference for:

• End products that are mined or produced in the USA; or • End products that are manufactured in the USA and:

– at least 50% of the component costs are for products mined, produced, or manufactured in USA; or

– the end product is a “commercially available off-the-shelf” (COTS) item (“bulk cargo” is not a COTS under this provision)

Buy American Act• Construction materials (41 U.S.C. 8303, FAR 52.225-9 to -12)

– Applicable to any “contract for construction, alteration, or repair of any public building or public work in [the USA] . . . .”

– Preference for use of “domestic construction materials”• Unmanufactured articles, materials, and supplies that have been mined or

produced in US• Construction materials that are manufactured in the USA, and:

– at least 50% components cost mined, produced, or manufactured in the United States; or

– end product is a “commercially available off-the-shelf “ (COTS) item; or– emergency life safety systems

Buy American Act—Exceptions• The cost of domestic construction material is

“unreasonable” (i.e. 6% higher)• Applying BAA would be “impracticable or inconsistent

with the public interest”• Domestic materials are not available in sufficient

quantities and satisfactory quality• Information technology that is a commercial item

Buy American Act—Exceptions

Trade Agreements Act• Trade Agreements treat products and materials

from certain countries as equivalent to “domestic” for BAA purposes

• Different trade agreements have different dollar thresholds

• No Procurement Agreements with China or Malaysia

Trade Agreements Act• Free Trade Agreement Countries: Australia, Bahrain, Canada,

Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Korea (Republic of), Mexico, Morocco, Nicaragua, Oman, Panama, Peru, & Singapore

• World Trade Organization GPA Countries: Armenia, Aruba, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea (Republic of), Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom

Trade Agreements Act – cont.• Least Developed Countries: Afghanistan, Angola, Bangladesh, Benin, Bhutan,

Burkina Faso, Burundi, Cambodia, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Laos, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, South Sudan, Tanzania, Timor-Leste, Togo, Tuvalu, Uganda, Vanuatu, Yemen, and Zambia

• Caribbean Basin Countries: Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bonaire, British Virgin Islands, Curacao, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saba, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Sint Eustatius, Sint Maarten, and Trinidad and Tobago

FTA Buy America• Federal Public Transportation Law

– 49 U.S.C. § 5323(j)• DOT Regulations

– 49 C.F.R. Part 661• Guidance

– FTA Buy America Website• https://www.transit.dot.gov/buyamerica• Regulations, Waiver Letters, Best Practices

FTA Buy America—generally

• 49 CFR § 661.5 General Requirements– (a) “no funds may be obligated by FTA for a grantee project

unless all iron, steel, and manufactured products used in the project are produced in [US].”

– (b) “steel and iron manufacturing processes must take place in [US], except metallurgical processes involving refinement of steel additives.”

FTA Buy America—generally

• 49 CFR § 661.5 General Requirements– (c) “steel and iron requirements apply to all construction

materials made primarily of steel or iron and used in infrastructure projects” (ex. transit or maintenance facilities, rail lines, & bridges)

• E.g. structural steel, beams, columns, running rail, contact rail• Does not apply to steel or iron used as components or

subcomponents of manufactured products or rolling stock

FTA Buy America—generally

• 49 CFR § 661.5 General Requirement– (d) Manufactured product

• All manufacturing processes take place in the US• All components must be of US origin

– A component is considered US origin if manufactured in the US, regardless of subcomponents origins

Buy America—Manufacturing• Manufacturing is more than mere assembly • 49 CFR § 661.3, Definitions:

– Manufacturing process means the application of processes to alter the form or function of materials or of elements of the product in a manner adding value and transforming those materials or elements so that they represent a new end product functionally different from that which would result from mere assembly of the elements or materials.

Buy America—Manufacturing

• “End Product” Definition—49 C.F.R. § 661.3– [A]ny vehicle, structure, product, article, material, supply, or

system, which directly incorporates constituent components at the final assembly location, that is acquired for public use under a federally-funded third-party contract, and which is ready to provide its intended end function or use without any further manufacturing or assembly change(s).

Buy America—Manufacturing

49 CFR § 661.3, Appendix A– Manufactured end products: Infrastructure projects not made

primarily of steel or iron, including structures (terminals, depots, garages, and bus shelters), ties and ballast; contact rail not made primarily of steel or iron; fare collection systems; computers; information systems; security systems; data processing systems; and mobile lifts, hoists, and elevators.

Elevators & EscalatorsFTA 12/7/2010 letter to SF Muni• FTA considers elevators and escalators to be

COMPONENTS of an end product (station)• Manufacturing processes for components must occur

in US• Escalator drive & reversing stations = subcomponents

Elevators & Escalators

FTA 4/9/12 letter to Kone• Installing escalator at project ≠ manufacturing• If no manufacturing processes occur at the

component level then those processes must occur in the US at the subcomponent level– Escalator manufactured in China and then disassembled

• Installation at the project = mere assembly

Elevators & EscalatorsFTA 8/23/2013 letter to Otis Elevator• Installation, integration, interconnection, and testing of

escalator subcomponents = manufacturing• Extensive activities off-site at Florence, SC plant

Elevators & EscalatorsFTA 1/8/2015 letter to Kone• Elevator door frames and guide rails are

subcomponents• Elevator door frames and guide rails are not a

construction material made primarily of steel or iron– Not structural or loadbearing element of a building

FTA Certification Requirements

• For any contract for steel or manufactured products

• Bidders / Offerors must submit a signed certificate that they either – comply – they do not comply, but they qualify for a waiver of the

requirements

Buy America Waivers

• Four statutory waivers (48 USC § 5323(j)(2)) – Public interest– Non-availability– Rolling stock – Price-differential

Public Interest Waiver• Written detailed justification • Published in the Federal Register

Non-availability Waiver• Goods or materials not produced in US in sufficient and reasonably

available quantities and of a satisfactory quality – No offers in response to a solicitation– Appendix A to 49 CFR § 661.7

– FAR 25.104 list of unavailable items applies here– General waiver for microprocessors, computers, software used

for processing or storing data– Small purchases – below the simplified acquisition threshold -

$150,000 (FAR 2.101)

Price Differential Waiver

• Use of domestic material would increase the cost of the overall project by more than 25%– Look at OVERALL PROJECT COST– Not the cost of the item– Difficult to meet

Obtaining a Waiver• Offeror seeks through Grantee• Grantee submits to FTA with detailed facts & justification• FTA decides• FTA publishes waivers and decision letters at

www.fta.dot.gov/legislation_law/12921_598.html

Obtaining a Waiver• Offeror seeks through Grantee• Grantee submits to FTA with detailed facts & justification• FTA decides• FTA publishes waivers and decision letters at

www.fta.dot.gov/legislation_law/12921_598.html

Buy American Act 41 USC § 8303;

48 CFR 25

FTA Buy America49 USC § 5253(j);

49 CFR 661

FHWA Buy America23 USC § 313;

23 CFR 635.410

FAA Buy American49 USC § 50101;

49 CFR 501

Applies to Construction, alteration, or repair of public buildings or public works; does not apply to maintenance contracts

Public transportation projects funded by FTA (metro stations, bus stations, rail lines, bridges, etc.)

Interstate highways and bridges, if at least one project contract is funded by FHWA

FAA-funded construction such as airports

Basic requirement

Articles, materials, supplies must be mined, produced, or “manufactured” in US

“Steel, iron, and manufactured goods” used in the project must be “produced” in US

For “steel or iron materials,” all manufacturing processes, including application of a coating, must occur in US

Steel and manufactured goods used in the project must be produced in the US

Component test

Except for COTS items; 50% of cost of components must be US-sourced

“Components” must be manufactured in US; except for rolling stock, no origin requirement for “subcomponents”

Steel or iron materials must be manufactured in US, regardless of status as an end product, component, or subcomponent

“wholly produced in America and are of 100% US materials;” FAA may waive if 60% of cost of components and subcomponents are of US origin

Cost differential for domestic materials

“Unreasonable” costs – 6% for construction materials

Requirement may be waived if domestic goods increase cost of entire project by 25%

Requirement may be waived if domestic goods increase cost of entire project by 25%

Requirement may be waived if domestic goods increase cost of entire project by 25%

Trade Agreements?

For construction contracts over specified thresholds, materials “substantially transformed” in designated countries can be used

Not applicable Not applicable Not applicable

Non-Compliance• If no fraud suspected, then:

– Request corrective action from contractor– Consider removal and replacement– Contractual Adjustment– Possible termination, suspension or debarment

• If fraud suspected or serious noncompliance:– Terminate for default– Report to Agency Suspension and Debarment Official– Refer to appropriate agency officials for investigation

Compliance Strategies• Know the source of the requirement• Seek clarifications / waivers early

– Before submission of offers!

• Establish a posture of compliance– Inform– Bind– Administer– Enforce

Recent Developments• E.O. 13858—Strengthening Buy-American Preferences for

Infrastructure Projects (Jan. 31, 2019)• United States Mexico Canada Agreement (Nov. 30, 2018)

(NAFTA 2.0)• E.O. 13788—Buy American and Hire American (Apr. 18,

2017)• Legislative changes under consideration• The infrastructure plan?

Buy American and Hire American • Executive Order No. 13788, signed April 18, 2017• Scrupulously monitor, enforce and comply with existing

Buy American laws• Agency heads directed to study compliance and develop

new policies• OMB and Dep’t of Commerce to report to the President

Strengthening Buy-American Preferences for Infrastructure Projects• Executive Order No. 13858, signed Jan. 31, 2019• Applies to federally-funded infrastructure construction, including

buildings, internet infrastructure, energy projects that are not covered by a “comparable” domestic preference

• Not mandatory. By May 1, 2019, agencies are to “encourage” recipients of federal funds to maximize use of domestic products

• By May 31, agencies are to report to President on “tools, techniques, terms and conditions” that have been or could be used to maximize use of domestic products.

BuyAmerican.gov Act • Introduced January 9, 2018 (S. 2284)• Bipartisan bill (Murphy, Portman, Graham, Brown)• Limit availability of public interest waivers

– Agency head decision– Requirement for detailed justification for use of foreign products– Certificate of good-faith effort to solicit bids for domestic items– No approval of waiver without making proposed waiver publicly

available for comment

Buy America 2.0 Act• Introduced March 8, 2018 (H.R. 5137)• Brendan Boyle (D. Pa 13) & 21 D cosponsors• Increases Buy America percentage thresholds for rolling

stock and aviation facilities– Public transportation (49 USC § 5323(j))– Aviation facilities (49 USC § 50101)

• Extension of Buy America requirements for construction of public water systems (42 USC § 300j-12)

USMCA (NAFTA 2.0)• United States Mexico Canada Agreement (USMCA)• Increases minimum wage requirements for non-US workers—30% of labor

must be done by workers earning $16/hour.• Increases domestic content requirements for automobiles to 75%.• Increased safety requirements for Mexican trucks.• No change in “substantial transformation” standard in Trade Agreements Act.• Canada removed from Chapter 13 on Government Procurement; Mexico

remains.• Executed November 30, 2018, but won’t be effective unless ratified by

Congress.

Buy American Hire American – 2019

Brian Waagner202.378.2355

brian.waagner@huschblackwell.com

Hal J. Perloff202.378.2354

hal.perloff@huschblackwell.com