Often federal construction projects are subject to domestic content laws which impose additional requirements on contractors. Such laws include the Federal Buy America Act and Buy American Act. Other domestic content laws such as the Jones Act also have a huge impact on contractors. These are not new legislation. However, President Trump’s “Buy American Hire American” Executive Order (EO) has put renewed emphasis on preferences for American products and compliance with these existing laws. Contractors must be proactive in understanding their obligations under these domestic preference laws.
Due to the president’s Buy American Hire American EO, contactors can anticipate renewed emphasis on, and strengthening of, domestic content laws. Indeed, such emphasis is already affecting projects tied to Alaska. Entire projects have been scrapped or placed in limbo due to these requirements, so contractors would do well to pay close attention to any compliance with American product preferences in their public contracts, whether state or federal.
All told, the U.S. Department of Commerce reports that there are over 2,000 rules and regulations concerning requirements to “Buy American” for contractors and the government to meet that fall under the president’s order. Due to this volume of regulation, when a contractor is asked to certify to the government that its products comply with domestic content laws, the answer is seldom straightforward.
The consequences of non-compliance with the domestic con-tent laws are serious and include, for example: civil or criminal False Claims Act violations, suspension or debarment from contracting, contract terminations and other claims against a contracting business by the government. In the case of the Jones Act, it can mean ships are prohibited from operating in U.S. waters. In fact, in June the Department of Defense issued a memo highlighting the convictions of contractors for violations of the Buy American laws.
The Buy America Act generally applies to the U.S. Department of Transportation’s issuance of federal grants to states for transportation projects — highways, busses, ferries, etc. Buy America requires steel, iron and manufactured products to be U.S.-sourced for any project on which federal funding is used. While there are regulatory provisions in place for waivers on certain projects, no waivers have been granted since the start of the current administration. This is likely in large part due to the EO’s mandate that all agencies assess and report on compliance with Buy American Laws. Under the EO, a final report is due to the president by the end of November 2017. Formal impacts of that report will be felt beginning in the winter of 2018.
The Buy American Act, rather than deal with government grants, addresses purchases directly by the federal government. The Buy American Act prohibits the federal government from acquiring material or supply for public use that is not a domestic end product. It further only allows for domestic construction materials on federal projects. There are a substantial number of exceptions to the Buy American Act, in particular where there are trade agreements with foreign countries, such as the TAA and NAFTA. Again, President Trump’s EO has a big impact, as it requires a review of these international agreements to see if the U.S. is treated the same way that the U.S. treats foreign countries.
The Jones Act applies to vessels going between U.S. ports or fishing in U.S. waters. Among other requirements, vessels intending to operate in between U.S. ports or in U.S. waters must be constructed with U.S. steel (foreign steel is allowed up to 1.5 percent). Exceptions have been made by the current administration — President Trump waived Jones Act requirements for a few weeks to provide emergency aid to both Texas and Puerto Rico — but such short exceptions are likely only to occur during extreme circumstances like natural disasters.
M/V Tustumena hit by Buy America requirements: The Alaska Marine Highway System (AMHS) must replace the 50-year-old M/V Tustumena ferry, which was laid up this past summer. AMHS was set to do so with a grant from the U.S. government paying 90 percent of the cost, thus making the replacement of that vessel subject to Buy America requirements.
AMHS can only get around the law by requesting a waiver from the administrator of the Federal Highway Administration. According to press reports, building the new Tustumena is estimated now to require 75 waivers — and that figure is down tremendously from the 1,250 waivers that were originally planned. Yet, due to the heightened scrutiny and enforcement brought about by the EO, the AMHS is having no luck getting any waivers. The M/V Tustumena replacement project is therefore dead in the water — for now.
America’s Finest may be fishing in foreign waters: Under the Jones Act, in order for fishing vessels to fish in U.S. waters, including the Gulf of Alaska and the Bering Sea, ship hulls must be constructed primarily of U.S. steel (only 1.5 percent of the steel may be foreign). A recently built ship has run afoul of this requirement and puts at risk the plan to use the fishing vessel in U.S. waters. According to press reports, the 262-foot “America’s Finest,” scheduled for completion in November 2017 and being constructed by Dakota Creek Industries for fishing company Fisherman’s Finest, apparently wound up using 7 percent of foreign steel in its construction.
In order to get around the Jones Act requirements, Dakota Creek submitted a waiver request to Congress that was approved by the House as part of a Homeland Security bill (HR 2825) in July. Later, the Coast Guard refused to certify the vessel as compliant pursuant to 46 CFR § 67.97 (United States built regulation) for fishery or coastwise endorsements. Without this document, the vessel is not eligible to fish in U.S. waters. Thus, the only hope for certification is the waiver, which is languishing away in the Senate’s Committee on Homeland Security and Governmental Affairs, with no clear timetable on a vote that will likely determine the fate of this vessel.
Contractors would do well to pay close attention to any compliance with American product preferences in their contracts, whether state or federal. Contractors would be wise to be up to date on Buy American requirements on existing contracts and recognize the significance of these requirements going forward based on the results of the President Trump’s EO. In order to not run afoul of civil and criminal penalties, the best advice to contractors is to do a review of their compliance programs now.
Howard Roth is Of Counsel at Oles Morrison Rinker & Baker LLP, where has 27 years of experience handling federal procurement matters and construction law. He is a knowledgeable advisor in all stages of federal contract law and litigation, including terminations, procurement disputes, protests, procurement integrity, rights in technical data, internal investigations and contract cost issues. Mike Schmidt is an attorney at Oles Morrison Rinker & Baker LLP and advises contractors on government and commercial contracts, insurance coverage issues and litigation matters. Contractors and sub-contractors rely on him for guidance on a wide array of contract questions, including bid and proposal efforts, drafting terms and conditions, FAR compliance and pre-litigation dispute resolution. Mike also frequently advises clients on bond and insurance coverage and recovery in the construction industry. This column provides information about the law designed to help users safely cope with their own legal needs. However, legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.