Last week, President Trump issued a new executive order, entitled “Strengthening Buy-American Preferences for Infrastructure Projects.”  This order serves as an extension of the President’s earlier April 2017 “Buy American and Hire American” executive order, which we have previously analyzed in this space.  The April 2017 order stated that “it shall be the policy of the executive branch to buy American and hire American,” and, among other things, directed agencies to “scrupulously, monitor, enforce, and comply with” domestic preference laws (referred to by the executive order as “Buy American Laws”) and to minimize use of waivers that would permit the purchase of foreign end products.

The President’s new order continues to emphasize the importance of “the use of goods, products, and materials produced in the United States,” but is specifically directed towards infrastructure projects that are recipients of federal financial assistance awards.  As we have reported previously, federally-financed infrastructure has also been a stated area of focus for the Trump administration, although the Administration’s “Legislative Outline for Rebuilding Infrastructure in America” released last year curiously lacked any domestic preference requirements.

The new executive order makes up for this previous omission and then some:  it has the potential to affect a vast number of programs and projects, and may in fact impose domestic sourcing requirements in areas—such as internet infrastructure—that are not typically targets for domestic preferences.

Statutory Background

The President’s new executive order plays out against a background of two different regulatory regimes for construction.  First, the federal Buy American Act (or “BAA”) applies to manufactured articles, materials, and supplies that are used in the construction of a federal building or federal work.  By its terms, the BAA does not apply to state or local construction that receives federal funds.

However, other federal laws (frequently referred to by the confusingly similar name of “Buy America” laws) provide for domestic preferences for certain types of construction projects that receive federal funding.  For example, the Surface Transportation Assistance Act of 1982, which governs the financing of highway and mass transit projects, includes several “Buy America” provisions that generally require the use of “steel, iron, and manufactured products . . . produced in the United States,” subject to certain waiver authorities.  See 23 U.S.C. § 313(a) (highway projects); 49 U.S.C. § 5323(j) (mass transit projects).

Format of the Executive Order

The Trump Administration’s new executive order is targeted at a third category: federal programs that provide financial assistance (e.g., grants, loans, cooperative agreements, etc.) to infrastructure projects, but do not currently include domestic preference requirements.  More specifically, the order applies to “covered programs,” which are defined as “any program for which a focus of the statutory authorities under which it is administered is the award of Federal financial assistance for the alteration, construction, conversion, demolition, extension, improvement, maintenance, reconstruction, rehabilitation, or repair of an infrastructure project in the United States,” but not including:

  • programs for which providing a domestic preference is inconsistent with law; or
  • programs providing Federal financial assistance that are subject to comparable domestic preferences.

The emphasis on domestic preference is accomplished by requiring the agencies that administer “covered programs” to “encourage recipients of new Federal financial assistance awards” to use certain products that are “produced in the United States” to the greatest extent possible. (emphasis added).

Agencies are required to begin “encouraging” the use of these products within 90 days of the date of the order (i.e., by May 1, 2019).  In addition, those agencies are required to identify, beyond encouragement, their strategy for maximizing the use of iron and aluminum as well as steel, cement, and other manufactured products produced in the United States in a report to be delivered to the President within 120 days of the issuance of the order (i.e., by May 31, 2019).

Importantly, the agency’s report must identify “whether [the] covered programs within the agency[’s] jurisdiction would support” the imposition of a “requirement” to use “iron and aluminum as well as steel, cement, and other manufactured products produced in the United States” through the use of terms and conditions on new financial assistance awards.  Thus, while the first effect of the order is to “encourage” the use of domestically-produced construction materials, the intended long-term effect is to generate new terms and conditions of grant and loan awards requiring the use of these materials.

Questions for Contractors

This new executive order raises several potentially thorny questions for members of the contracting community and other stakeholders.

What Projects Are Covered?

The order is aimed at federal assistance programs supporting “infrastructure projects” that currently are not subject to “comparable” domestic preferences, a category that could encompass a vast array of projects.  The term “infrastructure projects” is broadly defined in the order to include any project to provide or support services to the general public in the following sectors:

  • surface transportation, including roadways, bridges, railroads, and transit;
  • aviation;
  • ports, including navigational channels;
  • water resources projects;
  • energy production, generation, and storage, including from fossil-fuels, renewable, nuclear, and hydroelectric sources;
  • electricity transmission;
  • gas, oil, and propane storage and transmission;
  • electric, oil, natural gas, and propane distribution systems;
  • broadband internet;
  • pipelines;
  • stormwater and sewer infrastructure;
  • drinking water infrastructure;
  • cybersecurity;
  • and any other sector designated through a notice published in the Federal Register by the Federal Permitting Improvement Steering Council.

From this list, it appears that any number of federal programs could be affected by the order’s domestic preference requirements.  To take just one example, several federal programs allow financial support for the provision of broadband internet to underserved or rural areas—these programs may soon be subject to domestic preference requirements.

What Does It Mean to Be “Produced in the United States”?

In addition to applying to a wide variety of projects, the executive order also applies to a potentially broad array of products that must be “produced in the United States.”  The order applies to iron and aluminum, steel, cement, and other “manufactured products.”  And the order defines “manufactured products” to include “items and construction materials composed in whole or in part of non-ferrous metals such as aluminum; plastics and polymer-based products such as polyvinyl chloride pipe; aggregates such as concrete; glass, including optical fiber; and lumber.”

But despite the broad array of products within the scope of its coverage, the order defines the term “produced in the United States” only with respect to iron and steel.  Left unaddressed is how the government will determine whether the remaining covered products are “produced in the United States.”  For instance, the order does not attempt to explain what is required for, say, fiber-optic cable or polymer-based products, to be considered to be “produced in the United States.”  Absent some clarification, this ambiguity may result in considerable uncertainty at the implementation stage.

How Will New Domestic Preferences Be Imposed?

The order clearly contemplates that future financial assistance awards for “covered programs” will incorporate domestic preferences for “iron and aluminum as well as steel, cement, and other manufactured products.”  The order is unclear, however, how the Administration believes it can impose such preferences.  The order is directed at Executive Branch agencies with no mention of Congress, but it is Congress that has created current domestic preferences for assistance programs in construction, such as the Surface Transportation Assistance Act.  This could set up another battle over the power of the Executive Branch to “legislate.”

Alternatively, it is possible that the Administration intends for the executive order to be implemented on a purely contractual basis “through terms and conditions on new federal financial assistance awards.”  Yet in that case, the metes and bounds of any domestic preference requirements would be determined entirely by the negotiations of the parties to any financial assistance agreement.  Of course, absent some underlying statutory or regulatory authority, that approach could engender substantial inconsistency and uncertainty.

Conclusion

The new Executive Order could lead to considerable constraints on all types of contractors. On its face, it applies to a wide variety of projects and a potentially even wider variety of products—some of which will be new to the imposition of domestic preferences.  However, the order also raises a number of significant questions that undoubtedly will affect the scope and nature of any new domestic preference requirements.  Stakeholders in industries that utilize federal financial assistance would be well-advised to closely monitor developments in this area as the government begins to implement this latest order in the coming months.

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Photo of Sandy Hoe Sandy Hoe

Sandy Hoe has practiced government contracts law for more than 45 years.  His expertise includes issues of contract formation, negotiation of subcontracts, bid protests, the structuring of complex private financing of government contracts, preparation of complex claims, and the resolution of post-award contract…

Sandy Hoe has practiced government contracts law for more than 45 years.  His expertise includes issues of contract formation, negotiation of subcontracts, bid protests, the structuring of complex private financing of government contracts, preparation of complex claims, and the resolution of post-award contract disputes through litigation or alternative dispute resolution.  His clients include major companies in the defense, telecommunications, information technology, financial, construction, and health care industries.

For several years, Sandy also practiced telecommunications regulatory law, appearing before numerous state public utility commissions in hearings to open the local exchange markets for new entrants under the Telecommunications Act of 1996.

For many years, he has been active in the Public Contract Law Section of the American Bar Association, where he was an author of the section’s original publication of “Subcontract Terms and Conditions.”  From 1999 to 2011, Sandy co-chaired the Section’s committee on Privatization, Outsourcing and Financing Transactions and from 2005 to 2008 served on the Section Council.  Prior to his service in the ABA, for six years he was on the Steering Committee of the Section on Government Contracts and Litigation of the District of Columbia Bar, including three years as co-chair.

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Photo of Michael Wagner Michael Wagner

Mike Wagner represents companies and individuals in complex compliance and enforcement matters arising in the public procurement context. Combining deep regulatory expertise and extensive investigations experience, Mike helps government contractors navigate detailed procurement rules and achieve the efficient resolution of government investigations and…

Mike Wagner represents companies and individuals in complex compliance and enforcement matters arising in the public procurement context. Combining deep regulatory expertise and extensive investigations experience, Mike helps government contractors navigate detailed procurement rules and achieve the efficient resolution of government investigations and enforcement actions.

Mike regularly represents contractors in federal and state compliance and enforcement matters relating to a range of procurement laws and regulations. He has particular experience handling investigations and litigation brought under the civil False Claims Act, and he routinely counsels government contractors on mandatory and voluntary disclosure considerations under the FAR, DFARS, and related regulatory regimes. He also represents contractors in high-stakes suspension and debarment matters at the federal and state levels, and he has served as Co-Chair of the ABA Suspension & Debarment Committee and is principal editor of the American Bar Association’s Practitioner’s Guide to Suspension & Debarment (4th ed.) (2018).

Mike also has extensive experience representing companies pursuing and negotiating grants, cooperative agreements, and Other Transaction Authority agreements (OTAs). In this regard, he has particular familiarity with the semiconductor and clean energy industries, and he has devoted substantial time in recent years to advising clients on strategic considerations for pursuing opportunities under the CHIPS Act, Inflation Reduction Act, and Bipartisan Infrastructure Law.

In his counseling practice, Mike regularly advises government contractors and suppliers on best practices for managing the rapidly-evolving array of cybersecurity and supply chain security rules and requirements. In particular, he helps companies assess and navigate domestic preference and country-of-origin requirements under the Buy American Act (BAA), Trade Agreements Act (TAA), Berry Amendment, and DOD Specialty Metals regulation. He also assists clients in managing product and information security considerations related to overseas manufacture and development of Information and Communication Technologies & Services (ICTS).

Mike serves on Covington’s Hiring Committee and is Co-Chair of the firm’s Summer Associate Program. He is a frequent writer and speaker on issues relating to procurement fraud and contractor responsibility, and he has served as an adjunct professor at the George Washington University Law School.

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Photo of Peter Terenzio Peter Terenzio

Peter Terenzio routinely advises clients regarding the multiple regulatory regimes that apply to federal contractors. His practice also extends outside of traditional government procurement contracts to include federal grants and Other Transaction Authority (OTA) research, prototype, and production agreements.

Among other things, Peter…

Peter Terenzio routinely advises clients regarding the multiple regulatory regimes that apply to federal contractors. His practice also extends outside of traditional government procurement contracts to include federal grants and Other Transaction Authority (OTA) research, prototype, and production agreements.

Among other things, Peter regularly helps clients with the constantly evolving domestic-preference requirements promulgated pursuant to various federal laws, including, for example, the Buy American Act (BAA) and Trade Agreements Act (TAA), but also including more recently the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA). He also has particular experience with helping clients navigate the complicated prevailing wage rules imposed by the Davis Bacon Act (DBA) and Service Contact Act (SCA). Peter has used this regulatory knowledge to help clients negotiate the specifics of their contracts, grants, and OTA agreements.

Peter also has significant experience with the disputes that may arise during the execution of government prime contracts. He knows how to work closely with the client’s subject matter experts to prepare and submit detailed requests for equitable adjustment (REAs) in order to secure much-needed price or schedule relief. Where necessary, he has assisted clients with converting their REAs into certified claims, and when disputes cannot be resolved at the Contracting Officer level, he has helped clients vindicate their contractual rights in litigation before the Boards of Contract Appeals.

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