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OP-ED: FHWA's Interpretation of Buy America Act Rejected

Daily Journal of Commerce
February 25, 2016

Overview

The Federal Highway Administration (FHWA) has long held that the federal government's so-called "Buy America" requirements apply neither to steel and iron manufactured products with less than 90 percent steel or iron, nor to other "miscellaneous" manufactured products. The FHWA had used a so-called "blanket waiver" of the Buy America requirements to support its interpretation.

The United States District Court for the District of Columbia recently rejected that assessment. Therefore, at least for now, any new federal aid project must adhere to the full text of the Buy America Act, unless the project owner obtains a specific project waiver for a given product.

The history of this issue goes back to enactment of the Surface Transportation Act of 1982 and implementation of its governing regulations in 1983. Since that time, the FHWA has held its position that it is in the public interest to waive the Buy America Act requirements except for steel and iron manufactured products. That position held true through multiple revisions of the act over several decades, culminating in a memorandum in December 2012 in which the FHWA determined that it was in the public interest to "waive application of Buy America to manufactured products other than steel and iron manufactured products."

The FHWA's rationale was that for many projects, so-called "off the shelf" products were being subjected to Buy America's requirements, making purchasing for construction projects difficult and more expensive to both contractors and public project owners because of the difficulties in administering such a requirement.

In December 2015, the D.C. court weighed in on the issue, in the case of United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union v. FHWA. In that case, the court vacated the FHWA's December 2012 memorandum and the waiver of the full requirements of Buy America. In its opinion, the court analyzed the FHWA's two exemptions – manufactured products made up of less than 90 percent steel or iron, and miscellaneous, or "off-the-shelf" steel or iron products. The court ultimately determined that the FHWA's process for exempting those segments of products was flawed, and further that picking 90 percent, as opposed to any other threshold, and without any apparent analysis, was arbitrary and capricious.

The court's decision is a victory for domestic manufacturers and distributors of products that are used for federally funded U.S. highway projects, because it means that, at least in theory, projects must now use products that comply with the full text of the Buy America requirements. That means more products manufactured in the United States, benefitting those manufacturers and distributors.

There are two important issues that owners and contractors should consider as new projects are let for the upcoming construction season. First, the court's decision has the potential to increase the cost of construction projects for the public, because domestic products tend to be, but are not always, more expensive than those produced overseas.

Second, contractors could find themselves in a "gotcha" situation if they follow "standard" practice in buying out their projects, without recognizing that the game has changed. Prudent contractors will carefully review project specifications and ensure that they are purchasing, or requiring their subcontractors to purchase, only those products that strictly adhere to Buy America requirements. Failure to do so can lead to rejection of submittals, rejection of work, or in drastic situations, removal and replacement at the contractor's own cost.

Finally, it is important to note that even though the court struck down the FHWA's blanket waiver, public owners can still apply for a project-specific waiver, if there is a product, for example, that is either not manufactured in the United States or one that is prohibitively expensive. Additionally, the FHWA could seek to revise its rule to reinstate a blanket waiver that will pass muster with the court.

For a complete list of the original FHWA memorandum, the court's decision striking down the memorandum, and a list of frequently asked questions, see the FHWA's Buy America website at www.fhwa.dot.gov/construction/cqit/buyam.cfm

Originally published in DJC Oregon on February 25, 2016

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