Buy American Act

What is the Buy American Act of 2009?

The Buy American Act of 2009 is not a specific act of Congress but is a provision that was included in the American Recovery and Investment Act of 2009. The purpose of the provision is to require that funds used from the American Recovery and Investment Act are used to purchase materials for the development of the infrastructure of the United States.

The Buy American provision specifically states :

“None of the funds appropriated for or otherwise made available by the Recovery 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 or manufactured in the United States.”

The Buy American provision also states that "there is no requirement with regard to the origin of components or subcomponents in manufactured goods used in a project, so long as the manufacturing occurs in the United States.

Why was the Buy American provision enacted?

Due to the economic crisis of 2008 the United States government passed The American Recovery and Investment Act of 2009, which was signed into law by President Barack Obama. The plan, also known as the stimulus, provided an estimated $787 billion in government spending in the form of spending on infrastructure, education, health and energy, federal tax incentives, and the expansion of unemployment benefits and social welfare provisions. In total $105 billion was set out for infrastructure development. President Obama insisted that a provision be put into the bill that would require that all "manufactured goods" used in the construction of infrastructure projects be American made. After debates over how this would affect international trade agreements the Senate amended the Buy American provision to include exemptions for those countries that are privy to international trade agreements.

What manufacture goods apply?

For the purposes of the Buy American provision a manufactured good is a "good brought to the construction site for incorporation into the building or work that has been processed into specific form and shape; or combined with other raw material to create material that has different properties than the properties of the individual raw materials." Only manufactured goods that are permanently affixed to the real property are covered by the provision.

Are there exceptions to the Buy American provision?

Yes, there are three exceptions, or waivers, to the Buy American provision that allow contractors to use materials that were not manufactured in the United States. These three exceptions are:

• Iron, steel or manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of satisfactory quality;

• Inclusion of iron, steel or manufactured goods produced in the United States will increase the cost of the project by more than 25 percent;

• Applying the Buy American restriction is inconsistent with the public interest.

Controversy over the Buy American provision

One of the issues that spark controversy over the Buy American provision is the lack of definition in terms used. Specifically, the exceptions to the Buy American provision are vague and ill defined.

The first exception to the Buy American Act allows for the use of foreign manufactured good s when there is "not enough produced in sufficient quanitities and satisfactory quality. " What is sufficient and what is satisfactory? The second exception is that is ill-defined is the "increase project cost by more than 25%" exception. The question remains whether the 25% is attributable to the total cost of the project or the cost of that particular material needed for the project. The last exception is the most vague; it states that manufactured goods from overseas may be used in domestic construction if the failure to use the foreign made goods would be "inconsistent with the public interest." This exception is discretionary. In the past, it has rarely been used to waive application of a Buy American provision. Use requires demonstration of significant harm to US national security and/or economic interests. To have any potential of success, a detailed, credible justification must be prepared and used to convince senior Administration officials. However, it has still not been challenged under this particular provision and it is unknown what the outcome might be.

How does the Buy American provision affect International Trade?

One of the major controversies involving the Buy American provision deals with the effect that the provision has on international trade and international trade agreements. The Buy American provision as written in the Stimulus bill requires that all infrastructure in the United States be supplied by domestic steel, iron and manufactured goods. The question remains as to what the effect of this will be on trade.

There is a $7,800,000 threshold in order for international agreements to be exempt from the Buy American provision. For projects below that threshold, international agreements do not come into effect. At or above that amount, however, there may be circumstances where contractors can use manufactured goods from certain foreign countries without seeking a waiver. The circumstances and countries involved will depend on the individual grantee and the specific international agreement in question.

During the Senate's discussion of the bill it was determined to loosen restrictions in order to maintain international trade agreements, especially those entered into with the World Trade Organization.

There was a fear that without these provisions other countries would seek retaliation. This would create a policy of isolationism within the United States and many believed that it would lead to a trade war.

Even American manufacturers such as John Deere have complained about the act for they fear that it will adversely affect their business in construction projects overseas.

How does the Buy American Act affect contractors?

A construction contractor that violates the Buy American Act can face penalties from downward adjustments in contract price to termination for default. There is, however, an even greater concern. A contractor that violated the Buy American Act may also be liable for violating the FCA. Each contractor must submit a certificate of Buy American Act compliance, and these can represent false claims. In one case a contractor was found liable under the False Claims Act for each invoice submitted that was not in compliance with the Buy American Act. Finally, the Act also authorizes the government to initiate debarment proceedings.