Stimulus law creates construction industry challenges, obstacles

June 28, 2009
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The federal stimulus legislation’s “Buy American” requirement borrows pieces from existing “Buy American” and “Buy America” legislation. What is the difference? Is it that anyone can Buy American but not even Bill Gates can Buy America?

Buy American was originally enacted as part of the Depression Era legislation in 1933. Buy America was created in 1964 to apply primarily to mass transit programs administered by the Federal Transit Administration. The current stimulus Buy American rule combines features of both of these laws.

The stimulus Buy American rule requires that all iron, steel and manufactured products used in stimulus-funded projects for public buildings or public works must be produced in the United States. Public works projects include highways, bridges and sewers. Buy American provides for exemptions where the head of the relevant federal department finds that:

  • Application of the rule would be inconsistent with the public interest.

  • Iron, steel and manufactured goods are not produced in the U.S. in sufficient and reasonably available quantities and of a satisfactory quality.

  • Imposing the requirement would increase the cost of the overall project by more than 25 percent.

These Buy American requirements are also waived to the extent that they are inconsistent with treaties. Interim regulations have been published by several agencies, including the Office of Management and Budget, the Department of Defense and the Environmental Protection Agency.

We don’t need to look any further than the Buy American requirement for manufactured goods to find an example of the kinds of issues contractors will face. The regulations state that the Buy American requirements do not apply to “components” or “subcomponents” of manufactured goods. But figuring out what distinguishes a “manufactured good” from a “component” is not as simple as one may think. The Associated General Contractors of America provided an excellent example of this problem in comments it submitted in response to recently published interim regulations.

Consider door frames, the pieces of which are manufactured in Thailand. If those pieces are assembled into a door frame at the contractor’s warehouse in the U.S., then shipped to the job site, the frames were probably “manufactured” in the U.S. and comply with the Buy American requirements.

But what if the door frame pieces were shipped directly to the job site and assembled there? In that case, the pieces would presumably violate the Buy American requirement because the pieces were not “manufactured” in the U.S. Thus, the contractor will have to determine whether it needs to assemble the door frame pieces on site and risk a federal law violation, or incur the extra expense to assemble them offsite.

This is only one of many unresolved issues that the construction industry will encounter under Buy American requirements. Close attention must be given to bid specifications, contract documents, subcontractor and supplier agreements, and the certifications, indemnifications, flow-down clauses and other risk-shifting provisions that will inevitably appear in the contracting process.

Jeffrey S. Ammon is an attorney with Miller Johnson.

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