Buy American Act and Construction Projects

The Buy American Act (BAA) and the North American Free Trade Agreement (NAFTA) Chapter 10 explain how non-domestic products and services can be procured for U.S. government use. The following notes are intended to help Canadian manufacturers, their representatives and distributors, architects, engineers, prime and sub-contractors, and government officials understand:

• laws and regulations involved;
• conditions under which Canadian materials can be used in U.S. federal public works; and
• conditions under which use of Canadian products in U.S. federal public works, state and local contracts, and federally-funded transit, airport, and highway contracts is difficult or impossible.

These notes provide general guidance. Please remember that each contract is different and can involve exceptions and special rules that aren't covered in these few pages. For any specific contract, Canadian firms certainly may discuss their situation with the trade commissioner in their territory. However, the U.S. federal contracting officer decides how rules will apply to each contract, so his or her guidance is most valuable.

Procurement

Always research the specific contract opportunity carefully before making any business decision.

The Buy American Act (BAA) applies when a prime contract for construction service projects and for all materials used in those projects (either new building or renovation) is worth less than US$10,079,365. Guidance on BAA – Construction Materials, can be found at FAR Subpart 25.2.

NAFTA Chapter 10 provides that Canadian firms compete on an equal basis with U.S. firms in U.S. Federal government construction contracts awarded for:

• construction services (including all levels of subcontracts for required materials), if the prime contract is worth more than US$10,079,365. This is the most common situation, or;
• construction materials from a prime contractor, if the prime contract is worth less than US$3,500 or more than US$25,000^{Footnote 1}. This situation is less common; or
• other services related to construction (e.g. architectural services), if the prime contract is worth more than US$77,533; and
• the procurement is not set-aside for U.S. small business.

Canadian firms may also face Buy American restrictions on:

• contracts with U.S. state or local governments
• federally-funded contracts for transit, airports, or highways (even if state or local governments run the project)^{Footnote 2}

Canadian goods or services are ineligible for:

• any federal contract set aside for U.S. small business^{Footnote 3}.

When Canadian materials can compete equally

On U.S. federal construction contracts for which (a) the U.S. Federal government is the direct client; and (b) the prime contract is for construction services; and (c) the prime contract is estimated to be worth more than US$10,079,365, the provisions of NAFTA Chapter 10 permit the use of Canadian materials without special permissions or exceptions.

Supply contracts

Generally speaking, Canadian and U.S. proposals for construction materials compete on an equal basis for contracts that equal or exceed the dollar threshold. When construction material with costs exceeding US$25,000 are not part of a construction project, the non-discriminatory provisions of NAFTA apply. NAFTA would not apply if the procurement is over US$25,000 and is set-aside for purchase from U.S. small businesses. Buy American provisions would not apply to micropurchases under US$3,500.

For example, if the U.S. government says, "We want to buy a shipment of triple-layered high-tech insulated windows (or a computer-controlled thermostat system, or roofing membrane,…)," they want a supply (or goods) contract. NAFTA Chapter 10 applies.

Construction services contracts

Construction materials on a construction services contract are almost always purchased through subcontracts.In this way, the contractor can be held accountable for the material's quality. Normally, the U.S. government says something like, "We want to build (or renovate) a building." This construction services contract would be bid by general contractors who choose their own subcontractors and suppliers specific to contract requirements.

If the prime contract is worth more than US$10,079,365 Canadian products may be used with no special permissions or exceptions. The following section provides text from the FAR that supports Canadian access to these contracts. Interested readers are strongly advised to review all of FAR Part 25.

"Construction services" may include contracts for things like environmental cleanup or site restoration. A complete list of construction services is found in Annex 1001.1b-3 to NAFTA Chapter 10.

When Canadian construction materials and services may face barriers

The Buy American Act (BAA), or variations of it, apply:

• Below a trade agreement threshold: If the prime contract for construction services to be provided directly to a U.S. federal agency is worth less than US$10,079,365, BAA applies. NAFTA covers construction contracts worth more than US$10,079,365.
• On some state and local government contracts: State and local governments may have BAA provisions in their procurement regulations -- or they may not. The contracting officer in the state or local government will be able to tell you whether such restrictions exist.
  
  The solicitation document, the prime contract, and sub-contracts may also contain restrictive provisions. Sometimes these provisions are stated explicitly in the solicitation; other times they are incorporated only by reference. They still are binding. The contracting officer is generally the best source of information about which rules apply, as he or she has the responsibility to ensure that the rules are followed.
• On federally-funded projects not directly contracted by the Federal government: BAA applies if the prime contract is for construction of facilities related to airports, transit systems, highways, bridges, ferries or other transportation infrastructure. Almost all large transportation contracts in the United States are administered by state, local, or private sector organizations -- none of which is covered under NAFTA Chapter 10. Furthermore, most projects receive federal funds that restrict expenditures to only American goods and components. There are different rules for airports, highways, and transit contracts, but in general, the products must be completely made in the United States and have a high percentage (more than 60%) of their content be of American origin.

Regulatory references and definitions concerning exceptions

Please note that this section refers only to federal public works contracts on which the U.S. Federal government holds the contract with the prime contractor.

FAR Subpart 25.104 lists articles determined to be unavailable in sufficient quality or quantity in the United States. Note that foreign material may only be treated as domestic upon a determination by the individual agency.

Requesting waivers and exceptions to BAA

Each contract under Free Trade Agreement thresholds will contain a clause titled "Buy American Act-Construction Materials." This clause (FAR Subparts 52.225-9), in addition to furnishing a number of definitions, also explains the process for obtaining both preaward and postaward determinations that BAA does not apply. This clause in its entirety contains a wealth of information, however, since FAR clauses may change from time to time, contractors should check the latest versions that apply to their areas of interest prior to making a business decision.

Public Buildings Service

The Public Buildings Service (PBS) is responsible for construction, renovation and repair of a large number of federal buildings across the United States. PBS programs are administered through nine regions and, a directory of planned building projects is available through the PBS website.

Department of Veterans Affairs

The Department of Veterans Affairs is responsible for the construction and renovation of many medical facilities across the United States.

How Canadian industry can compete

This is a very difficult market. Firms are urged to consider seriously whether they wish to pursue these opportunities at all, and to plan carefully before they begin. To succeed, a Canadian firm typically must demonstrate superior technology or significant price advantage of its product over its American competitors to several, if not all, of the following:

• its distributors or representatives;
• subcontractor(s) involved;
• the prime, or general, contractor;
• the consulting engineer that the agency probably employed to write the statement of work and specifications used by the prime contractor;
• the project engineer in the government agency;
• the contracting officer in the government agency;
• that contracting officer's management, which has the authority to waive BAA -- for a specific project, for specified products.

If a Canadian firm has any doubt about whether its products may be used in a public contract, the firm or its U.S. representative should contact the government contracting officer and ask. The word of the contracting officer is what counts.

Know the rules

Construction materials that are 100% manufactured in the U.S. and with greater than 50% U.S. content must be used in contracts of less than $10,079,365 unless:

• the cost would be unreasonable, unless the agency head determines otherwise. (When evaluating offers contracting officers will add 6% to the cost of foreign materials contained in the offer.); or
• there are not sufficient reasonably available commercial quantities of a satisfactory quality; or
• the agency head determines that it would be impracticable; or
• the agency head determines it would be inconsistent with the public interest.

Prime contractors can request a waiver from the contracting agency based on one or more of these exceptions.

A Canadian supplier should confirm that a waiver of BAA has been requested and is likely to be approved before it supplies products for use in a U.S. federal contract. Canadian firms typically have relationships with American distributors who supply many kinds of projects to private and public (federal, state, and local) sectors without considering restrictions on whether Canadian product can be included. In several cases, American distributors have cancelled orders upon realizing that waivers would be needed to use the Canadian product.

Canadian firms should be certain their sales personnel in Canada and in the United States are aware of BAA and how it applies. They should be ready to explain the rules to potential buyers and contractors. Most of all, Canadian representatives should do all they can to make the waiver process as straightforward as possible. That might include:

• talking to contracting officers who might be involved in a request for waiver;
• finding out who would have to recommend and approve the waiver request;
• if possible, meeting with contracting agency officials to determine whether they would be willing to consider a waiver to use the Canadian product;
• working with the contracting agency to draft correct language and justification (as provided by the FAR) for a waiver request; and
• preparing a draft letter, on blank paper, for use by the prime contractor and others as required to make the request.

Market – in advance – to get waivers

The prime contractor must either certify that all materials to be used in the project meet the requirements of BAA or to list exceptions that are proposed. The prime contractor guarantees compliance with BAA, and is responsible for all exceptions. The government agency has no contractual relationship with subcontractors or suppliers and cannot deal with them on this matter.

Therefore, the prime contractor must apply to the contracting agency to get BAA waived. A waiver must be obtained before an otherwise ineligible product may be used in the project.

Successful marketing to use a Canadian product or system in a public work can begin in the design phase of the project, with the engineering firm that is hired to write the specifications. That means some sophisticated selling at all levels. Many contractors and contracting officers do not want to be involved in exceptions to BAA because they fear complications or unwanted senior management attention.

The waiver process takes time. It is not likely to succeed if a distributor panics upon realizing that several hundred thousand dollars worth of Canadian products were purchased, were committed to supply, and that the federal project must go through a complicated waiver process that nobody is familiar with.

If, as often happens, the Canadian firm is selling to a distributor who is supplying a subcontractor to the electrical contractor that is subbing to the general (prime) contractor who won the bid for the overall project... the rule is the same: only the general contractor may apply for the waiver. The whole chain of contractors has to want to use the Canadian product more than any other American product (typically on the grounds of significant price or technological advantage) and to convince the prime contractor to apply for the waiver.

Even if the consulting architect or engineer specifies a Canadian product, the prime contractor must still obtain a waiver in order to use that product in the project. Obviously, if the consulting engineer specified a Canadian building product, system, or component, that would strengthen the argument a prime contractor could make to the government agency in a waiver request.

Avoid risks

Using a Canadian product in a federal public work without a BAA waiver is risky. Post-construction audit teams have often inspected a project, identified Canadian material used without a waiver, and ordered those materials replaced with American components -- even if the Canadian supplier and its distributor were unaware of the law or waiver requirements. American competitors have been known to bring illegally installed Canadian products to the attention of audit teams and contracting officers. Violators of BAA, including the prime contractor and its subcontractors and suppliers, are barred from contracts for three years after the findings are made public.

Many Canadian firms find it unwise to produce or ship goods destined through their distributors for public works contracts until they receive confirmation from the procuring agency that Canadian products may be used in those projects.

A Canadian firm may choose not to inform its distributors or representatives about BAA requirements. In the short run that may mean continued orders, if the Canadian materials are illegally used in a public work. In the longer run, discovery of illegally-used materials can damage relations with both distributors and potential customers. The Canadian firm should make every effort to fully inform its suppliers and distributors about the way BAA works, and develop a sales strategy designed to take maximum advantage of waiver provisions.

Canadian Government assistance

The Canadian Embassy and consulates in the United States can make representations on behalf of Canadian firms to ensure that the rules are being followed correctly. Such representations cannot change the law. The embassy and consulates provide informal interpretation of law and regulation, recommend attorneys with experience in procurement, and make inquiries of government officials to ensure that every proper consideration is given to the use of Canadian products.

Buy American provisions in State and Local public works

State and local governments are not covered by the procurement provisions of NAFTA Chapter 10, nor are Canadian jurisdictions. Sometimes Buy American legislation enacted by these governments mirrors federal regulations. In other cases, it is even more restrictive. Many limit the use of foreign steel. Others simply apply the federal statute. Some states have no restrictions on foreign goods. Nevertheless, such restrictions do not circumvent current international trade agreements between Canada and the United States.

For more information:

• State and Local Government Opportunities: which includes detailed provisions on State Procurement Preferences.
• Leadership Directories produces a directory that includes state procurement and program officials.
• The Council of State Governments has a broad range of helpful publications on doing business with state governments, including notes on other preference programs for small business and local suppliers.

For marketing to U.S. public sector markets, and for assistance with business development strategies or market intelligence, contact your nearest Canadian Trade Commissioner – In Canada or Abroad.