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Update on the “Buy American” Provisions of the American Recovery and Reinvestment Act

Supporting Your Business

September 2009

Author/s: Michael (Ted) E. Murphy, Holly E. Files

The American Recovery and Reinvestment Act of 2009 (“ARRA”) provides significant business opportunities through its funding of numerous largescale federal, state and local projects. The ARRA also contains certain “Buy American” restrictions that prohibit the use of ARRA funds for any project involving 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. While several federal agencies have issued recent guidance concerning the eligibility of products under contracts and public works projects funded by the ARRA, this is a rapidly evolving and confusing area of the law, and companies should be aware that there has been increased enforcement in recent years concerning the origin of products sold to the US Government.

There are two interim procurement rules with which potential contractors and sub-contractors should first become familiar: (1) the Federal Acquisition Regulation (“FAR”) interim rule for direct federal procurements that use ARRA funds; and (2) the Office of Management and Budget (“OMB”) interim rule for ARRA financial assistance awards to states and sub-federal entities. Both interim rules are limited to projects that use Recovery Act funds for the construction, alteration, maintenance or repair of public buildings and public works. Thus, the interim rules are separate from the traditional Buy American Act regulations, which apply generally to federal procurements, and the Trade Agreements Act regulations, which apply to federal procurements and some sub-federal procurements that meet or exceed certain specified dollar thresholds. Whether a particular product is eligible for an ARRA-funded project will largely depend on the identity of the procuring or awarding entity.

With regard to federal projects that use ARRA funds, most Federal agencies must adhere to the international agreement obligations of the United States, which require that construction materials of certain designated countries receive equal consideration with offers of domestic construction materials when the total contract amount meets or exceeds specified dollar thresholds.

By contrast, as many potential contractors and sub-contractors are finding out, many states and most municipalities are not bound by these international agreement obligations, and as a result, contractors are severely limited in what products they can offer in bids for state and subfederal ARRA-funded construction projects. For example, contractors will not be able to offer most Canadian-origin and Mexican-origin construction materials for state and subfederal projects funded by ARRA. This is because, of the forty states that have agreed to be bound by at least one or more international agreements, no state has agreed to treat products of North American Free Trade Agreement (“NAFTA”) countries (i.e., Canada and Mexico) equally with domestic offers. In addition, although Canada is a member of the World Trade Organization Government Procurement Agreement (“WTO GPA”), no state has agreed to apply the WTO GPA obligations to Canadian-origin products, because Canada has never agreed to offer the procurement of its provinces under NAFTA or the WTO GPA. It is also important to keep in mind that some states have their own Buy American laws, which may be applicable. Most municipalities are not bound by any international agreement obligations. As a result, ARRA-funded projects at the municipal level are limited generally to domestic construction materials, unless a waiver of the ARRA Buy American restrictions has been granted.

In the age of globalization, wherein many American firms rely on global production chains for sourcing and the integration of both domestic and foreign materials into a final product, the Buy American provision of ARRA has created complications for, not only non-US companies, but many US companies as well. In addition, some countries are taking retaliatory measures as a result of the ARRA Buy American restriction. Recently, an association of Canadian municipalities passed a resolution that advocates barring the award of municipal contracts to firms from countries that discriminate against Canadian firms. Last month, it was reported that China also has reversed its earlier position that it would not implement a “Buy China” policy for its $587 billion stimulus plan. Instead, it has issued a directive that all levels of government should direct stimulus money to Chinese-origin products first.

Firms interested in offering their products for ARRA-funded projects should confirm that the relevant origin-eligibility requirements are satisfied. Whether anything other than a “domestic manufactured good” or a “domestic construction material” may be used in an ARRA-funded construction project (absent a waiver), will depend, in large part, on (i) the identity of the entity offering the contract or award (e.g., federal agency, state, municipality, etc.), and (2) the total amount of the contract or award.

This article is one of several that appear in International Trade Compliance Update, July 2009.

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Update on the “Buy American” Provisions of the American Recovery and Reinvestment Act

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