Government Contracts Monitor

Stimulus\' Buy American Provision Raises Compliance Challenges for Contractors

February 18, 2009

The much-criticized "Buy American" provision of the $700 billion+ American Recovery and Reinvestment Act (ARRA) imposes domestic-sourcing requirements that may appear familiar to consturction companies currently holding government contracts.

In reality, however, firms may need to reevaluate their compliance programs in response to stringent new requirements.  Section 1605(a) of the ARRA provides:

None of the funds appropriated or otherwise made available by this Act may be used for a project for 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.

Note that the "all of the iron, steel, and manufactured goods" must be produced in the United States- regardless of whether all of the project's funding comes from stimulus funds. Also note that no definition of "manufactured goods" is provided and this phrase could potentially include all manufactured components of a project.

A firm may be exempted from the Buy American provision if applying the provision is "inconsistent with the public interest" (the term "public interest" is not defined) or if the domestic-sourced materials are unavailable or will increase the overall cost of the project by 25% or more.

Many contractors are familiar with Buy American provisions - Federal Acquisition Regulation (FAR) Subpart 25.2 requires contractors performing federal procurement contracts to use "domestic construction materials" in construction, alteration, or repair of a public building or public work in the United States. Under the Buy American Act, "domestic construction materials" include any end product that is more than 50% U.S. origin content and a 6% price premium is added to international origin content.  Other schemes are stricter. For example, the regulations applicable to state and local contracts funded by the Federal Transit Administration, 49 C.F.R. § 661, imposes tougher sourcing requirements - including a requirement for 100% U.S.-made components and a 25% price premium for international origin materials.

Since the ARRA includes both direct federal spending and grants to states and municipalities, all contractors - federal and state - should be prepared to be held to the more demanding domestic sourcing requirements of that law.

Compliance Challenges

In light of the extensive government oversight mechanisms created by the ARRA, even those contractors familiar with existing Buy American provisions must prepare for more stringent domestic-sourcing requirements. Federal, state, and local contractors, and subcontractors, receiving stimulus-funded infrastructure projects should be prepared to certify their compliance with the stimulus' Buy American provision. It is essential to know the origin of all components.  Offerors that cannot meet the sourcing requirements face more than a 25% premium added to their offer; a false certification could lead to liability under the False Claims Act, 31 U.S.C. § 3729.  Violating any of the sourcing requirements could result in significant penalties, including suspension or debarment from government contracting opportunities.