For decades, the U.S. watched manufacturing jobs overseas, but now the government has new regulations to promote domestic production.
Although companies are reshoring manufacturing in the U.S., the government is spurring the move through regulations. From strategic uses of the Defense Production Act and other incentives to buy American-made goods, the goal is to bolster manufacturing while creating hundreds of thousands of well-paying jobs.
One law quickly gaining traction in the construction and infrastructure industries is the Build America, Buy America Act (BABA). Tucked into President Biden’s 2021 Infrastructure Investment and Jobs Act (IIJA), BABA has applied to all federal financial assistance programs since May 2022. It’s a complex program, but outlines regulations for projects using federal funds.
BABA overlaps a couple other current programs, including American Iron and Steel (AIS) rules, which require U.S.-produced iron and steel to be used in federally funded projects. For its part, BABA goes one step further by requiring all U.S. manufactured goods, products, and raw materials.
According to several federal agencies, including the Environmental Protection Agency (EPA), BABA is one of several critical programs designed to protect national security and grow the U.S. domestic manufacturing industry.
The hope is that federal funding for these projects, which rely on taxpayer dollars, gets reinvested into American companies, spurring more manufacturing jobs. U.S. materials and products must be used for projects when available to receive federal funding, though waivers and exceptions are available in certain situations.
Projects have to meet several guidelines to follow BABA.
All construction materials, including iron, steel, and manufactured products, must be produced in the United States, but what does that mean?
Let’s use steel as an example to illustrate the requirement. If it’s BABA compliant, the entire process has to occur in the United States, from initial melting through the final preparations. If you’re familiar with AIS regulations, BABA overlaps these requirements quite a bit.
While AIS only covers iron and steel used in projects, BABA goes much further. Among the many products and materials covered under BABA’s umbrella are:
Domestic products don’t have to hit a specific threshold to count under BABA. It all comes down to availability, cost, and product makeup to determine whether something meets the requirements.
There are several exceptions to the rules, though. For example, foreign-made materials can be used if they aren’t available in the United States, or the quality isn’t as good domestically. The same exceptions apply to U.S.-sourced products that include some foreign materials. In this case, if most of the product was American-sourced, it may still be domestically produced.
The law also allows for foreign materials if the cost of U.S.-made products increases the project’s total overall cost by more than 25%. To claim this, the company in charge of the project would have to file an “unreasonable cost” waiver.
From manufacturers and distributors to end users, every step in the supply chain is impacted by BABA.
Although the law is applied differently for each touchpoint, the rules are clear:
Essentially, BABA rules support American manufacturing by requiring companies and government agencies to use domestically produced goods before receiving federal funds. The goal is to allow the rules to generate more high-paying manufacturing jobs as companies ramp up domestic production and grow the economy.
For manufacturers like Kris-Tech, following BABA means finding and working alongside U.S.-based raw material suppliers to get what we need.
Some materials are easy to source domestically, while others, like critical minerals, must come from overseas. According to the White House, for a product to count under the act, “the cost of the components of the manufactured product that are mined, produced, or manufactured in the United States is greater than 55 percent of the total cost of all components of the manufactured product.” With that said, the rule could change in the future.
BABA makes sense for manufacturers because it potentially opens the door for more government-backed infrastructure projects as the act eventually becomes the prevailing law. The law also allows BABA-compliant manufacturers to get a leg up on the competition, including foreign companies that may produce comparable products.
If the manufacturers making the products and materials are athletes, the distributors are the referees.
Distributors should be aware of what manufacturers are doing, reaching out to confirm the products they’re receiving and selling are BABA compliant. The rules are tricky, but the manufacturer must prove their products adhere to the regulations.
Updates to the law may force distributors to look for other options or different vendors. Distributors should track rule changes to maintain product compliance for customers’ projects.
It sounds like a lot of work, but there is a silver lining to all the studying, tracking, and confirmations. Because of all the new rules, the expectation is more built-in demand for U.S.-made materials. Federal projects will always use U.S.-made products and construction materials unless there is a legitimate reason they can’t.
BABA is critical for companies and contractors forced to adhere to the rules to receive federal funding, but it has several pros and cons.
Buying U.S.-made goods is more expensive than buying those made overseas with low-cost labor. Construction management and budgeting must stay on top of costs to ensure the additional costs are worked appropriately. On the upside, workers use higher quality products made in America, unlike foreign-made ones that might not have the same processes.
It also falls on end users to keep track of the materials they use and whether they qualify for BABA. To that end, all iron, steel, manufactured products, and construction materials must be American made, unless there’s an exception.
Depending on the size, cost, and amount of non-compliant materials used, waivers are available to help contractors contend with the regulations. For example, the unreasonable cost waiver is available if using U.S.-made iron, steel, manufactured products, or construction materials would increase overall project costs by more than 25%.
Other waivers and exemptions include the small project waiver, which covers projects under federally funded infrastructure projects under $250,000, and the de minimis waiver, which allows contractors to exclude less than 5% of products used in the total project from BABA compliance. In other situations, projects may get federal funding even with a small number of BABA-compliant materials.
As you can see, the regulations are enough to make anyone’s head spin. That’s why it’s always best to work with a professional who understands the rules so you can fully meet the requirements. You don’t want to think you’ve done everything right only to be told the materials don’t meet BABA standards.
When the IIJA was initially passed in 2021, the Made in America Office (MIAO) and Office of Management and Budget (OMB) knew BABA would need tweaks over time.
Keeping track of changes, additions, and waivers is critical to staying compliant and making the most of all federal funds. Despite many hurdles, BABA keeps jobs, manufacturing, and money in the United States – and that’s good for everyone.
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