USDOT Issues Temporary Exemption from Buy America for Certain Utility Relocations

Following up on our previous post regarding the uncertainty surrounding the application of Buy America requirements to utility relocations, the United States Department of Transportation (USDOT) has recently released two documents that provide further clarification on the matter.

On July 11, 2013, USDOT circulated an internal memorandum to Federal Highway Administration (FHWA) Division Administrators and the Directors of Field Services acknowledging that the broadened application of Buy America has created implementation issues for the utility industry and caused delays for ongoing highway construction projects.  To address these concerns, for non-Federally funded utility relocations, FHWA will allow utility companies until December 31, 2013 to take the necessary steps to ensure that the steel and iron products they use are in compliance with Buy America requirements.  On July 12th, the FHWA California Division issued a subsequent letter to the California Department of Transportation further noting that project-specific utility agreements executed on or before December 31, 2013, that do not have federal funding, are exempt from Buy America requirements.

Click on the following links to view the full memorandum and letter.

Thanks to Frank Liu for his assistance with this entry.

FHWA's Expanded Application of Buy America to Utility Relocations Causes Consternation, Delays

As we have previously reported, the Federal Highway Administration (FHWA) has issued guidance holding that "Buy America applies to any utility work that is accomplished as a result of a Federal-aid highway project", unless the utility work cannot legally be reimbursed by the State.  This conclusion is based on an amendment to Buy America found in Section 1518 of MAP-21, which requires the application of Buy America to all contracts eligible for assistance within the scope of a project (as defined by the NEPA document), if at least one contract for the project is funded with Federal-aid highway funds.  The rule applies even if no federal funds are used to reimburse the utility work.

The relatively sudden application of Buy America to utility work that was not previously subject to its requirements has had serious consequences.  Utilities in many states are refusing to sign agreements that incorporate the Buy America requirements, which threatens to delay and increase costs for many projects.  Reasons advanced for this refusal vary, but many appear to be based on practical concerns; for example, a utility states that it does not have any experience in complying with Buy America, its current procurement processes do not yield the information necessary to confirm compliance, or it is not certain that it will be able to procure quality Buy America-compliant materials.

For a project sponsor, the consequences of noncompliance with Buy America could be dire.  According to FHWA (as stated on FHWA's MAP-21 website), failure to incorporate Buy America provisions where required ". . . would render all contracts within the scope of the NEPA document ineligible for Federal-aid highway funds." 

State DOTs, other project sponsors and related groups have expressed the need for guidance and practical assistance from FHWA in the application of this new law.  For example, in a February 12, 2013 letter to outgoing Transportation Secretary Ray LaHood, the American Public Works Association (APWA) and the National Association of County Engineers (NACE) requested guidance and future rule making to the effect that "Buy America requirements are not applied to contracts or work under an agreement with a utility that is not funded by title 23 programs".  Others have suggested a grace period for implementation of the new rules.  Discussion at a recent meeting of the AASHTO Subcommittee on Right of Way, Utilities, and Outdoor Advertising Control found that notwithstanding the guidance posted on FHWA's website, so far the new rules are not being interpreted or applied uniformly throughout the country. 

We understand that FHWA anticipates issuing a Notice of Proposed Rule Making for regulations dealing with these Buy America compliance issues sometime in 2013.  We urge FHWA to act quickly in developing its proposed regulations, and to pursue whatever other measures are necessary to resolve this impasse as soon as possible.
 

FHWA Clarifies Broad Reach of Buy America Requirements

The Federal Highway Administration (FHWA) released two guidance memoranda in December 2012 relating to Buy America, largely in light of the amendments made by MAP-21.  On December 20, FHWA clarified the Buy America requirements applicable to utility work on Federal-aid projects.  The December 21 memorandum provided additional amplification on FHWA’s position regarding Buy America requirements applicable to manufactured products.

FHWA’s December 20, 2012 Guidance

FHWA was in the process of evaluating the applicability of Buy America requirements to utility work on Federal-aid highway projects when President Obama signed the Moving Ahead for Progress in the 21st Century Act (MAP-21), Pub. L. 112-141, July 6, 2012.  Section 1518 of MAP-21, amending 23 U.S.C. §313, “substantially broadened” the application of Buy America requirements to any contract eligible for Federal highway funding “carried out within the scope of the applicable finding, determination, or decision under the National Environmental Policy Act [NEPA], regardless of the funding source of such contracts if at least one contract for the project is funded with Federal-aid highway funds.”  In a letter to the American Association of State Highway and Transportation Officials (AASHTO), FHWA concludes that, in light of the amendments to 23 U.S.C. §313, “the application of Buy America cannot be narrowed to exclude utility work, even if such utility work is not reimbursed with Federal-aid highway funds.”  The sole case in which Buy America requirements would not apply to utility work is if such utility work cannot legally be reimbursed by the State.

Under the federal-aid highway program, Buy America applies to iron and steel projects used in federal-aid highway project.  Such products must meet the requirements for being American made, unless their use increases the total project cost by at least 25%, suitable American made products are not reasonably available, or it is not in the public interest.  These determinations or waivers are made by FHWA upon application of the state department of transportation.  Exceptions to the Buy America requirement are closely reviewed and have become increasingly difficult to obtain. 

Prior to the enactment of MAP-21, Buy America only applied to contracts actually funded at least in part with federal-aid highway funds.  Since it is typical that the project described in a NEPA document might be constructed with funds from a variety of sources, this substantially expanded the reach of Buy America provisions.  This is particularly true of utility relocation projects, which might be paid for with state funds or even by the utility by itself.  If such work is eligible for federal assistance, whether or not federal funds are used, Buy America applies.

FHWA’s December 21, 2012 Memorandum

FHWA’s current Buy America policy is based on the statutory provisions in the Surface Transportation Assistance Act of 1982, as implemented with a November 25, 1983, final rule.  The 1983 final rule, along with a 1997 clarifying memo, conclude that Buy America does not apply to all manufactured products; Buy America applies only to components made predominately of steel or iron.  FHWA deems a product to be manufactured predominantly of steel or iron if the product consists of at least 90% steel or iron content when it is delivered to the job site for installation. 

While FHWA’s general policy in this regard has not changed, the primary purpose of the December 21 Memorandum is to explain the change in view of FHWA towards waivers of the Buy America requirements.  Upon passage of the American Recovery and Reinvestment Act in 2009 (ARRA), FHWA formed national review teams to analyze the use of ARRA funding and provide recommendations for improvements.  This analysis brought up some questions, such as, does the scope of the 1983 waiver apply to off-the-shelf products?  FHWA states its concern in the memorandum that a broad reading of the statute to include off-the-shelf products “is not cost-effective to administer.”  However, FHWA ultimately concludes that “the scope of the waiver was intended to encompass miscellaneous steel or iron components and subcomponents that are commonly available as off-the-shelf products such as faucets, door hardware, and light bulbs.” 

This reflects a decision by FHWA that even when purchasing or specifying off-the-shelf iron and steel products for use in projects funded with federal aid highway funds, the state or other grantee must require that such products be manufactured in the United States.  The more expansive reading of the statute is policy based and follows the enactment of MAP-21.  It reflects both the Obama Administration’s focus on strengthening Buy America requirements and the broadening of Buy America in the new statute.  Although the MAP-21 amendment does not address the types of products to which Buy America applies, it clearly reflects a desire by Congress to expand the reach of the statute. 

The December 21 Memorandum may be found at the FHWA website

Conclusion

What does this mean for transportation projects?  Previously contractors could get around the Buy America requirements by splitting up contracts into pieces that would or would not be reimbursed by federal funding depending on whether or not the work involved non-compliant materials.  This work-around is no longer available.  FHWA has made clear that a broader reading of the Buy America requirements will now be followed. 

For additional Buy America information please see the FHWA website.

Edward Kussy co-authored this entry.