This policy brief is for U.S. & Canada Municipal Water Corporate Subscription clients.
- Expand domestic preference procurement policies that are tied to federal financial assistance programs for public works infrastructure
- Increase the domestic component content requirements of manufactured goods and construction materials sold to the Federal Government under BABA
- Provide transparency into governmental contracting decisions related to domestic sourcing
- End products and materials are manufactured in the United States
- A minimum of 55% of all cost components are mined, produced, and manufactured in the United States
- 55% for items delivered through 25 October 2022 (only applies to the “manufactured products” category)
- 60% for items delivered in 2022–2023
- 65% for items delivered in 2024–2028
- 75% for items delivered starting in 2029
Source: U.S. Library of Congress, Congressional Research Service, Bluefield Research
On 3 November 2022, the EPA released its Build America, Buy America Act Implementation Procedures for EPA Office of Water Federal Financial Assistance Programs, providing further clarity to water utilities and suppliers. One of the key takeaways from the implementation procedures is that while all stakeholders (i.e., manufacturers, distributors, suppliers, and utilities) share responsibility for maintaining BABA compliance, utilities have been encouraged by the Office of Water to shift most of this responsibility to hired consultants and contractors. This is somewhat contradictory to the IIJA’s emphasis on disadvantaged communities. Smaller utilities, which are often unable to afford high-end consultants and lack the internal staffing resources needed for managing BABA compliance, are set to face greater burdens in accessing IIJA funds, in relation to other larger, better-resourced utilities.
On 9 February 2023, the OMB issued a proposal to revise existing guidance on how to implement BABA provisions, with this proposal potentially leading to more types of construction materials being covered under the requirements. In their proposed revisions, the OMB recommended adopting the Federal Acquisition Regulation’s (FAR) definition of “cost of components,” which would include acquisition costs (including transportation), applicable duties for acquired components, and costs of manufacturing the component (excluding profit), for components manufactured by a company. Importantly, applying this definition for manufactured products typically results in the cost of labor being excluded from the cost of component calculation, which is a significant portion of the costs typically incurred by onshoring manufacturing. The public comment period for this proposed guidance closed on 13 March, with a final document set to be published following a review period.
Exhibit: BABA Product Coverage
Note: Construction materials do not include items of primarily iron or steel; manufactured products; cement and cementitious materials; aggregates such as stone, sand, or gravel; aggregate binding agents or additives; or non-permanent products
Source: U.S. Environmental Protection Agency Office of Water, Bluefield Research
Waivers for BABA requirements are granted on the basis of three conditions:
- Where sourcing of materials domestically is inconsistent with the “public interest”
- Where domestically sourced materials are not available in sufficient quantity or quality
- Where overall project costs would increase by over 25% to meet sourcing requirement
OMB encourages that waivers be requested on a case-by-case basis for individual projects and products. Agencies are also able to request “general applicability” waivers in some circumstances (e.g., for projects that fall under a certain cost threshold, or for manufactured products that are already facing supply chain issues). Waivers undergo an adjudicative process; requests must be posted publicly for a 15-day comment period before OMB’s Made in America Office will approve or deny them. “General applicability” waivers undergo a 30-day public comment period before they are approved or denied.
When analyzing the waivers that have been approved to date, waivers for the EPA’s State Revolving Fund (SRF) and Water Infrastructure Finance and Innovation Act (WIFIA) funding programs are granted for water infrastructure projects that completed substantial engineering and design work prior to 14 May 2022, the effective date of the BABA requirements. These waivers permit the use of non-domestic manufactured products and construction materials in select cases, mitigating the short-term impact of the strict new domestic sourcing requirements. In the case of these two primary funding channels, the EPA acknowledged that it would be significantly more costly and time-consuming to force utilities to redesign and re-engineer existing projects to meet BABA requirements than to allow them to proceed, and could also result in utilities failing to meet public health and compliance targets or drive utilities to seek other higher-cost financing options.
The EPA also has a De Minimis waiver, which is set to reduce administrative burden on assistance recipients by waiving entire products that in total are no more than five percent of a total project cost, along with a Minor (Ferrous) Components of Iron and Steel Products waiver that will reduce administrative burden on manufacturers that seek to ensure that their iron and steel products comply with BABA, but may have small iron or steel components within their product that are nondomestic or of unknown origin.
Though easing up, supply chain pressures continue to be felt across the water sector, with many key products having long or unpredictable lead times. The EPA has committed to continue exploring short-term waivers for specific products facing availability constraints in order to allow projects to meet timelines necessary for receiving IIJA funding.