OMB Issues Final Guidance on BABA Domestic Sourcing Requirements

At a Glance

• The OMB released final guidance on implementing the statutory requirements of the BABA provisions of the Infrastructure Investment and Jobs Act, which was subsequently published as a Final Rule in the Federal Register on August 23, 2023.
• The Final Rule further defines key terms to help agencies and contractors distinguish between product categories.

On August 14, 2023, the Office of Management and Budget (OMB) released final guidance on implementing the statutory requirements of the Build America, Buy America Act (BABA) provisions of the Infrastructure Investment and Jobs Act (Pub. L. 117-58). This guidance was subsequently published as a Final Rule in the Federal Register on August 23, 2023. The Final Rule adds a new part 184 to Title 2 of the Code of Federal Regulations (2 CFR), revises 2 CFR § 200.322, and, above all, clarifies how to apply BABA’s domestic content preference.

Federal agencies and contractors alike will welcome this clarification: BABA’s text left many of its key terms undefined, leaving agencies and contractors to rely on OMB’s April 2022 Memorandum M-22-11 for guidance. Below we list the Final Rule’s key definitions and explain how these definitions have changed from those provided in Memorandum M-22-11.

BABA mandates that the head of each federal agency must “ensure that none of the funds made available for a Federal financial assistance program for infrastructure, including each deficient program, may be obligated unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.” See BABA section 70914(a). The Final Rule encourages agencies to interpret the term “infrastructure” broadly and provides an “illustrative and not exhaustive” list of infrastructure examples, including “the structures, facilities, and equipment for roads, highways, and bridges; public transportation; dams, ports, harbors, and other maritime facilities; intercity passenger and freight railroads; freight and intermodal facilities; airports; water systems, including drinking water and wastewater systems; electrical transmission facilities and systems; utilities; broadband infrastructure; and buildings and real property; and structures, facilities, and equipment that generate, transport, and distribute energy including electric vehicle (EV) charging.”   

As most contractors hoped, a central part of the Final Rule provides confirmed definitions of key terms, helping both agencies and contractors distinguish between the product categories. The Final Rule defines the following terms, among others:

• “Infrastructure Project:” Any activity related to the construction, alteration, maintenance or repair of infrastructure in the United States regardless of whether infrastructure is the primary purpose of the project. 2 CFR § 184.3. This definition combines the definitions of “infrastructure” and “project” provided in Memorandum M-22-11. As the OMB noted in the Final Rule, “considering the guidance already available on this topic from BABA itself, in Memorandum M–22–11, and in other provisions of the revised guidance in part 184, OMB did not find it necessary to make additional changes to the definition[.]” 88 Fed. Reg 57,750, 57,768 (Aug. 23, 2023).
• “Predominately of iron or steel or a combination of both:” Not previously defined in Memorandum M-22-11; the cost of the iron and steel content exceeds 50% of the total cost of all its components. The cost of iron and steel is the cost of the iron or steel mill products (such as bar, billet, slab, wire, plate or sheet), castings, or forgings utilized in the manufacture of the product and a good faith estimate of the cost of iron or steel components. 2 CFR § 184.3.
• “Manufactured Products:” Not previously defined in Memorandum M-22-11; (1) articles, materials or supplies that have been: (i) processed into a specific form and shape; or (ii) combined with other articles, materials or supplies to create a product with different properties than the individual articles, materials or supplies. (2) If an item is classified as an iron or steel product, a construction material, or a section 70917(c) material, then it is not a manufactured product. However, an article, material or supply classified as a manufactured product may include components that are construction materials, iron or steel products, or section 70917(c) materials. “Manufactured products” was not defined in Memorandum M-22-11.
• “Construction Materials:” Articles, materials or supplies that consist of only one of the items listed in paragraph (1) of this definition, except as provided in paragraph (2). To the extent one of the items listed in paragraph (1) contains as inputs other items listed in paragraph (1), it is nonetheless a construction material. The listed items in paragraph (1) are:
  • Non-ferrous metals
  • Plastic and polymer-based products (including polyvinylchloride, composite building materials and polymers used in fiber-optic cables)
  • Glass (including optic glass)
  • Fiber-optic cable (including drop cable)
  • Optical fiber
  • Lumber
  • Engineered wood
  • Drywall

  Minor additions of articles, materials, supplies or binding agents to a construction material do not change the categorization of the construction material. 2 CFR § 184.3. This is a broader definition than the one provided in Memorandum M-22-11. The definition provided in Memorandum M-22-11 limited “construction materials” to articles, materials or supplies that are or consist primarily of non-ferrous metals; plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber-optic cables); glass (including optic glass); lumber; or drywall.

• “Produced in the United States:” (1) In the case of iron or steel products, all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States. (2) In the case of manufactured products: (i) The product was manufactured in the United States; and (ii) the cost of the components of the manufactured product that are mined, produced or manufactured in the United States is greater than 55% of the total cost of all components of the manufactured product, unless another standard that meets or exceeds this standard has been established under applicable law or regulation for determining the minimum amount of domestic content of the manufactured product. (3) In the case of construction materials, all manufacturing processes for the construction material occurred in the United States. 2 CFR §§ 184.3; 184.6. While the Final Rule provides additional guidance on the definition of “produced in the United States” for specific construction materials as described below, this definition of “produced in the United States” remains the same as in Memorandum M-22-11.

The Final Rule sets forth standards for “all manufacturing processes” for the manufacture of construction materials. For example, for plastic and polymer-based products to be “produced in the United States,” all manufacturing processes, from initial combination of constituent plastic or polymer-based inputs, or, where applicable, constituent composite materials, until the item is in its final form, must occur in the United States. 

Recognizing that BABA is a “new and complex statute,” OMB notes that this guidance is “not intended as comprehensive guidance on all topics related to the implementation of BABA,” but instead, “is intended to be high-level coordinating guidance for Federal agencies to use in their own direct implementation of BABA.” With that said, OMB’s summary of and responses to the public comments it received provides additional helpful insight into some of the more nuanced issues and questions that may arise when agencies and fund recipients seek to comply with the BABA domestic preference requirements. Among other things, the guidance: (a) confirms that the BABA requirements apply to products “incorporated into” an infrastructure project (rather than temporary products such as tools, equipment and supplies brought to the construction site and removed at or before completion of the infrastructure project); (b) addresses the topic of the application of BABA to for-profit entities; (c) explains how to determine the cost of components of manufactured products; (d) notes that BABA provisions will be applied in a manner consistent with U.S. obligations under international agreements, and (e) provides additional guidance on the application of waivers. 

The Final Rule also explains that federal agencies can maintain their own Buy America preferences meeting or exceeding the requirements of BABA if the preferences existed before November 15, 2021. If certain agency regulations do not meet or exceed the BABA requirements for all the product categories, agencies must supplement their existing requirements. Specifically, the Final Rule states, “[b]ecause the construction material category was first established under BABA — and the term is used there in a novel way — provisions of OMB’s guidance offering definitions and standards related to constructions materials will be used by all Federal agencies with Federal financial assistance programs for infrastructure in their own direct implementation of BABA.” 88 Fed. Reg 57,750, 57,753 (Aug. 23, 2023). The guidance also permits agencies to issue supplemental guidance and information to recipients under the agencies’ specific federal financial assistance infrastructure programs and reiterates that federal agencies have direct statutory authority to propose and issue BABA waivers.

The Final Rule takes effect on October 23, 2023, and will apply to federal awards obligated on or after the effective date. In most cases, any federal award for an infrastructure project that was obligated on or after May 14, 2022, the effective date of BABA, and before October 23, 2023, is instead subject to OMB Memorandum M-22-11. Prior to the effective date of the Final Rule, OMB plans to issue an updated memorandum to replace Memorandum M-22-11. It will remove direct conflicts between Memorandum M-22-11 and the Final Rule as well as provide additional guidance that OMB did not believe it needed to include in 2 CFR Part 184. OMB may also issue additional BABA guidance in the future as it receives additional feedback. Our team will continue to monitor developments.