Buy America Act and Highway Projects
Other Key Information
Most of the significant highway projects in the United States are funded by the Federal Highway Administration (FHWA) with funds from the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (known as SAFETEA-LU). This funding brings with it Buy America restrictions that require all steel and iron materials used to be U.S.-made. Read the SAFETEA-LU text.
Highway improvement monies come with certain stipulations. For example, SAFETEA-LU has an aggressive goal for contract support from U.S. small disadvantaged (minority) and woman-owned businesses.
The FHWA, part of Department of Transportation (DOT), is responsible for regulating and maintaining U.S. highway infrastructure. Canadian companies will generally interact with the FHWA in either a direct sale to the FHWA or as a subcontractor on an FHWA project.
Procurement by the FHWA (when the FHWA purchases something for its own use) is covered by NAFTA Chapter 10. On purchases of goods or services Canadian firms will be treated as U.S. firms when the prime contract is worth more than US$25,000 for goods, US$77,533 for general services, and US$10,079,365 for construction services. The FHWA is directly responsible for building and maintaining roads on federally administered lands like parks and Indian reserves. The FHWA generally encourages the participation of Canadian firms in its direct procurement. Be aware though that other programs, such as small business set asides, still may impede the participation of Canadian firms.
When the contract is less than these dollar thresholds or where the FHWA is purchasing a good or service not covered by NAFTA Chapter 10, the Buy American Act (BAA) (41 USC 10 a-d) applies. BAA requires the U.S. government to purchase goods made in the U.S. Generally speaking, exceptions to this requirement may be made if:
- doing so is in the public interest;
- buying U.S. made goods would be unreasonably expensive; or
- sufficient quantities of reasonable quality are not available.
Federally funded highway projects
The vast majority of significant highway projects in the U.S. are procured by state or local governments with 80% funding provided by the FHWA. Marketing efforts should be directed to local sources. To identify opportunities visit the FedBizOpps website.
Funding for any federal aid highway construction project must also comply with specific BAA requirements contained in Title 23, Part 635 of the U.S. Code of Federal Regulations (23 CFR Subpart 635.410). The Code requires that no Federal aid construction project be authorized unless:
- They do not incorporate steel or iron materials; or
- If steel or iron materials are to be used, all manufacturing processes, including application of a coating for these materials, must occur in the United States.
Individual states must comply with this requirement unless:
- They have standard contract provisions that require the use of domestic materials and products, including steel and iron materials, to the same or greater extent; or
- They elect to use procedures allowing alternate bids for foreign steel and iron materials with provisos that:
- All bidders must also submit a bid based on the use of domestic iron or steel; and
- The contract will be awarded to the bidder who submits the lowest total bid based on domestic iron and steel materials unless such total bid exceeds the lowest total bid based on furnishing foreign iron or steel materials by more than 25 percent.
These requirements do not apply if the cost of the iron and steel materials does not exceed one-tenth of one percent of the total contract cost, or US$2,500, whichever is greater.
More about Buy America restrictions
Since NAFTA Chapter 10 applies only to federal direct procurements, Canadian companies cannot rely on NAFTA provisions for equal treatment in this market. For your convenience, we have summarized below the related BAA restrictions listed at 23 CFR Subpart 635.410 which are most relevant:
- Applies to iron and steel products and their coatings. Raw materials were originally included; however, lack of adequate domestic supply resulted in a nationwide waiver (published in the Federal Register in March 1995) for iron ore, pig iron, reduced/processed/pelletized iron ore, and raw alloys.
- All manufacturing processes must take place domestically. Manufacturing begins with the initial melting and mixing, and continues through the bending and coating stages. If a domestic product is taken out of the U.S. for any process, it becomes foreign source material.
- The restrictions apply to permanently incorporated steel or iron materials.
- Minimal use of foreign source materials valued at the greater of US$2,500 or 0.1% of the total contract cost is permitted. Cost is based on the value of the steel and iron products "as they are delivered to the project site."
- Under an alternate bid procedure that the states are permitted to use, foreign source materials may be proposed for use along with domestic materials and the foreign materials offered may be accepted by the state if the total project bid using foreign materials is 25% less than the lowest total bid using domestic materials.
- Project specific waivers may be approved by the Regional Federal Highway Administrator.
- A specific exemption can be found at NAFTA Chapter 10 (Article 1001) for grant programs such as the Federal aid highway program.
- In 1994, a nationwide waiver for specific ferryboat parts came into effect.
- State restrictions may include additional products but must allow any U.S. domestic source.
Canadian suppliers may find it difficult to provide iron and steel products for use in highway projects. Canadian products could be used if:
- the value of the foreign materials is minimal, i.e.: the greater of US$2,500 or 0.1% of the prime contract; OR
- the use of the U.S. product would be inconsistent with the public interest; OR
- steel and iron materials/products are not produced in the U.S. in sufficient and reasonably available quantities of a satisfactory quality.
In the latter two cases, a waiver must be obtained by the prime contractors via the grantee from the regional federal highway administrator.
A waiver of the above requirements may be requested by a state if it is sought "sufficiently in advance of the need for the waiver." The state may request such a waiver when it believes doing so is in the public interest or that there is not sufficient and reasonably available quantity of sufficient quality domestically produced iron or steel. Waivers may be granted on a project basis, or for certain materials or products on a geographic basis, or both. Further, as explained above, states receiving federal funds may accept alternate bids including foreign source iron and steel if the total bid including foreign materials is 25% cheaper than the lowest bid using U.S. iron and steel.
Waiver determinations are generally made as part of the grant application. The grantee (i.e.: state or local government receiving the FHWA funds) agrees to comply with BAA requirements of the grant, and then lists any products for which an exception to these requirements, known as a determination of non-availability, is sought. The FHWA evaluates the proposed use of foreign materials, and decides whether or not it will issue the waiver.
Approaching the original recipient of FHWA grant money to apply for an exception to BAA requirements is difficult for a Canadian subcontractor, particularly if several layers of subcontractors are involved. Doing so involves more work, and possibly a delay, for the grant application. Nevertheless, the waiver determination is essential if the Canadian products are to be used.
In making a determination, FHWA's engineers consider the specific project, and may look at issues such as:
- what the product is made of (percent of iron or steel);
- the percent of American materials used;
- what percent of the value of the funded project the foreign product would comprise;
- the manufacturing processes and where they occur; and
- the point at which the Canadian components are combined with any larger products or systems by an American manufacturer in the United States.
The FHWA does execute procurements for highway projects on federal lands, research and development projects, and for normal supplies and services (including information technology) needed for its own use. In these procurements, FHWA generally follows rules set forth in the Federal Acquisition Regulations (FAR) and implementing instructions contained in the Department of Transportation Acquisition Regulations (TAR). NAFTA and BAA provisions would apply as appropriate.
In addition to administering grants for highway projects, the FHWA is responsible for directly maintaining some roads on federal lands. Any materials and services purchased for this purpose by the FHWA are considered direct procurement and are covered by NAFTA Chapter 10. Canadian companies are welcome to bid on these contracts
FHWA engineers and general counsel are often willing to discuss ways in which companies can meet its requirements. In preparation for such a discussion, companies may forward technical information about the product as well as information about manufacturing processes to the FHWA. Firms may find it productive to discuss issues with the FHWA in advance of submitting a formal written question, so the formal question is framed in a way that FHWA can respond. Firms may also want to ask whether FHWA requires a determination for every single project on which foreign products are proposed, or whether it might issue a more general agency ruling on the use of a single product in all its funded projects. Be forewarned that such blanket rulings are not usually forthcoming.
For more information:
- Visit the Department of Transportation (DOT) Buy America webpage
- Visit the Federal Highway Administration website for opportunities, regulations, and "Doing Business with the FHWA".
- Arrange a meeting with the FHWA to discuss how your company can meet FHWA's Buy America requirements.
- For additional assistance on individual circumstances, please contact your nearest Canadian Trade Commissioner – In Canada or Abroad
- Date Modified: