Buy America Requirements for Federal Highway Projects (2020)

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NCHRP LRD 80 3 BUY AMERICA REQUIREMENTS FOR FEDERAL HIGHWAY PROJECTS Timothy R. Wyatt, Conner Gwyn Schenck pllc, Greensboro, NC I. INTRODUCTION TO FHWA BUY AMERICA PROVISION For more than forty years, grant funds administered by the Federal Highway Administration (FHWA) to grant recipients such as state transportation agencies have been conditioned on compliance with statutory domestic preferences, or “Buy America” requirements. The current requirements are codi- fied at 23 U.S.C. § 313, referenced herein as the “FHWA Buy America provision.” FHWA has adopted regulations at 23 C.F.R. §  635.410 to implement the FHWA Buy America provision. This section provides a high-level overview of the FHWA Buy America provision. A. Scope of Coverage The FHWA Buy America provision states that FHWA funds may not be used for any project, “unless steel, iron, and manufactured products used in such project are produced in the United States.”1 This requirement applies to all projects authorized under Title 23 (Highways) of the United States Code, which includes all federally assisted highway construction proj- ects, as well as “[p]rojects located on highways classified as lo- cal roads and rural minor collectors; transportation enhance- ment projects; and non-highway construction are also covered by these requirements when funded by Federal Highway Trust Fund money.”2 On its face, the FHWA Buy America provision appears to be a broad prohibition of foreign content in materials or equipment used on any project that receives FHWA funds. Importantly, however, FHWA has a longstanding general waiver for manufactured products other than steel or iron, dis- cussed in detail in Section III of this report. Furthermore, the FHWA Buy America provision, in its present form, does not apply to commonly used highway construction materials oth- er than steel or iron, such as cement or asphalt. Therefore, the FHWA Buy America provision presently applies only to steel and iron permanently incorporated into projects that are eligi- ble for FHWA funding. This means that on any such project on which “steel or iron materials are to be used, all manufacturing processes, including application of a coating, for these materials must occur in the United States.”3   Application of the FHWA Buy America provision to steel and iron is addressed in detail in Section II of this digest. 1 23 U.S.C. § 313(a) (2018). 2 FHWA, Contract Administration Core Curriculum Man- ual, Rep’t No. FHWA-NHI-134077, at 87 (Oct. 2014). 3 23 C.F.R. § 635.410(b)(1) (2018). Because it applies only to steel and iron, the FHWA Buy America provision is unique in comparison to other Buy America requirements in federal law, such as those applicable to other United States Department of Transportation (USDOT) agencies and non-highway transportation programs. Although its limited application to steel and iron would appear to simplify enforcement of the FHWA Buy America provision, there re- mains considerable complexity due to the fact that many prod- ucts used on highway projects have steel or iron components, and it can be difficult if not impossible to determine where those components were produced. In the case of predominantly steel or iron products, certifications may be obtained to identify the steel mill or fabricator, providing confirmation that the products were manufactured in the United States. For such materials, it would often be significantly more cost-effective to use steel or iron manufactured in a country other than the United States. Such noncompliant products cannot be used on an FHWA- funded project unless FHWA has granted a waiver or exception from the FHWA Buy America provision for the products. B. Waivers from Coverage Congress has authorized FHWA to grant waivers from the FHWA Buy America provision, allowing steel or iron materials or products manufactured in a country other than the United States to be used on FHWA-funded projects, in the following situations: • Public Interest: when “application [of the FHWA Buy America provision] would be inconsistent with the pub- lic interest;”4 • Nonavailability: when “such materials and products are not produced in the United States in sufficient and rea- sonably available quantities and of a satisfactory quality; or”5 • Price Differential: when “inclusion of domestic material will increase the cost of the overall project contract by more than 25 percent.”6 In addition, FHWA has implemented a Minimal Use excep- tion from the FHWA Buy America provision, allowing steel or iron materials or products manufactured in a country other than the United States to be used on an FHWA-funded project, “if the cost of such materials used does not exceed one-tenth of one percent (0.1 percent) of the total contract cost or $2,500, 4 23 U.S.B. § 313(b)(1) (2018). 5 Id. § 313(b)(2). 6 Id. § 313(b)(3).

4 NCHRP LRD 80 issued emergency regulations limiting application of the FHWA Buy America provision to structural steel only,16 eliminating the need to determine compliance of any other materials or prod- ucts on a given highway project. Congress significantly revised the FHWA Buy America pro- vision in 1983 in legislation reauthorizing appropriations for the federal-aid highway program.17 The revised FHWA Buy America provision expressly required all “steel, cement, and manufactured products used”18 on FHWA-funded contracts to be domestic. The revised FHWA Buy America provision also re- pealed the 1978 project cost threshold of $500,000,19 expanding application of the Buy America requirements to a much wider range of projects and procurements. The FHWA Buy America provision, as revised in 1983, re- tained the ability for grant recipients to obtain waivers from FHWA based on Public Interest, Nonavailability, or Price Dif- ferential.20 However, in order to obtain a Price Differential waiver on an FHWA-funded project, the inclusion of domes- tic goods would have to “increase the cost of the overall project contract” by more than 25 percent,21 a significant increase from the 10 percent threshold enacted in 1978, making it much less likely that any given project would qualify for a Price Differen- tial waiver. FHWA responded to the revised FHWA Buy America pro- vision in 1983 by issuing a waiver for manufactured products, specifically including asphalt.22 This Manufactured Products waiver effectively limited application of the FHWA Buy Amer- ica provision to steel and cement. Congress removed coverage for cement from the FHWA Buy America provision in 1984.23 Congress added coverage for iron to the FHWA Buy America provision in 1991.24 Therefore, with the 1983 Manufactured Products waiver still in place, the FHWA Buy America provi- sion since 1991 has effectively required the use of domestic steel and iron on FHWA-funded projects, but has not restricted the use of foreign goods not made of steel or iron. D. Digest Overview Although the language of the FHWA Buy America provision has not changed markedly since 1991, the scope of coverage of FHWA grant funds has changed. The FHWA Buy America provision was originally intended to apply largely to steel (and 16 Buy American Requirements, Rules and Regulations, 43 Fed. Reg. 53,717 (Nov. 17, 1978). 17 Surface Transportation Assistance Act of 1982, Pub. L. No. 97-424, § 165, 96 Stat. 2097 (Jan. 6, 1983). 18 Id. § 165(a). 19 Id. § 165(e). 20 Id. § 165(b). 21 Id. § 165(b)(4). 22 Buy America Requirements, Rules and Regulations, 48 Fed. Reg. 53,099 (Nov. 25, 1983). 23 National System of Interstate and Defense Highway, appropriated funds, Pub. L. No. 98-229, § 10, 98 Stat. 55, 57 (1984). 24 Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) Pub. L. No. 102-240, § 1048, 105 Stat. 1914 (1999). whichever is greater.”7 These waivers and exceptions are ad- dressed in detail in Section IV of this digest. C. History The original FHWA Buy America provision was enacted in 1978 amidst concern by Congress that the Buy American Act (BAA), addressed in greater detail in Section VI.B, was not being applied to federal grant funds. In 1978, the Comptroller General reported to Congress “that contracts awarded by State and lo- cal authorities under Federal grant programs are not covered by the Buy American Act (BAA), unless the statute authoriz- ing the Federal assistance to State and local authorities explicitly provides for application of the Buy American Act.”8 The Comp- troller General concluded that federal grant programs, specifi- cally including the federal-aid highway program administered by FHWA, “do not address the issue”9 of domestic preferences. Later that year, Congress enacted an FHWA Buy America provision in legislation reauthorizing appropriations for the federal-aid highway program.10 The 1978 FHWA Buy America provision closely mirrored the BAA, in that it required that only domestic materials and manufactured products (i.e., products “manufactured in the United States substantially all from”11 do- mestic materials) be used on FHWA-funded contracts. Also like the BAA, the 1978 FHWA Buy America provision allowed for waivers in the following instances: • Public Interest: where the Secretary of Transportation determined it “would be inconsistent with the public interest”12 to apply the FHWA Buy America provision; • Nonavailability: where domestic goods were not avail- able “in sufficient and reasonably available quantities and of a satisfactory quality”;13 and • Price Differential: where including domestic goods would “increase the cost of the overall project contract by more than ten per centum”.14 Probably more significant than any of the waivers, however, was that the 1978 FHWA Buy America provision only applied to projects “whose total cost exceeds $500,000.”15 This $500,000 cost threshold significantly limited application of the FWHA Buy America provision only to larger projects. Further, FHWA 7 23 C.F.R. § 635.410(b)(4) (2018). 8 Federal Assistance to State and Local Governments and Other Organizations for Selected Programs, Comp. Gen. Rep’t No. ID-78-40, Docket Nos. B-162222, B-156489, Enclosure II, at 6 (1978). 9 Foreign-Source Procurement Funded through Federal Programs by States and Organizations 1, Comp. Gen. Rep’t No. ID-79-1, Docket Nos. B-162222, B-156489, App. 1, at 13–14 (1978). 10 Surface Transportation Assistance Act of 1978, Pub. L. No. 95-599, § 401, 92 Stat. 2689 (Nov. 6, 1978). 11 Id. § 401(a). 12 Id. § 401(b)(1). 13 Id. § 401(b)(3). 14 Id. § 401(b)(4). 15 Id. § 401(a).