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Buy America Requirements for Federal Highway Projects (2020)

Chapter: V. SCOPE OF PROJECT COVERAGE

« Previous: IV. WAIVERS AND EXCEPTIONS
Page 36
Suggested Citation:"V. SCOPE OF PROJECT COVERAGE." National Academies of Sciences, Engineering, and Medicine. 2020. Buy America Requirements for Federal Highway Projects. Washington, DC: The National Academies Press. doi: 10.17226/25799.
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Page 36
Page 37
Suggested Citation:"V. SCOPE OF PROJECT COVERAGE." National Academies of Sciences, Engineering, and Medicine. 2020. Buy America Requirements for Federal Highway Projects. Washington, DC: The National Academies Press. doi: 10.17226/25799.
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Page 37
Page 38
Suggested Citation:"V. SCOPE OF PROJECT COVERAGE." National Academies of Sciences, Engineering, and Medicine. 2020. Buy America Requirements for Federal Highway Projects. Washington, DC: The National Academies Press. doi: 10.17226/25799.
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Page 38

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36 NCHRP LRD 80 that “it is in the public interest to waive the Buy America re- quirements for a manufactured product whose purchase is $5,000 or less.”434 This allows state transportation agencies and other NHTSA grant recipients to purchase “small manufactured products that are largely ancillary rather than central to the pur- poses of the highway safety grants”435 without seeking individual project-specific waivers for those products, eliminating the need for NHTSA to continue processing most of the types of waiver requests it received from 2013 to 2015. The only exception to the NHTSA Manufactured Products waiver is “the purchase of a motor vehicle,” as NHTSA does “not believe that the purchase of motor vehicles can be reasonably viewed as ancillary in the context of these highway safety programs.”436 As a result, most NHTSA waivers since June 2015 involve relatively expensive, highly specialized electronic equipment, such as “total stations”—optical surveying and mapping equip- ment used for forensic investigation and reconstruction of high- way crashes.437 The NHTSA Manufactured Products waiver has effectively eliminated the need for NHTSA to process individual waiver requests for most COTS products. V. SCOPE OF PROJECT COVERAGE A. Historically Applied only to FHWA-Funded Segments Historically, state transportation agencies could avoid applica- tion of the FHWA Buy America provision by segmenting a proj- ect into multiple prime contracts. For example, state transporta- tion agencies could divide a large highway construction project into FHWA-funded segments (to which the FHWA Buy America provision applied) and state-funded segments (on which for- eign steel could be used), issuing separate prime contracts for each segment. Even when all segments or prime contracts were funded in part by FHWA, segmenting a large project into mul- tiple prime contracts made it easier to satisfy both the Price Dif- ferential exception and the Minimal Use exception to the FHWA Buy America provision, facilitating the purchase of foreign steel or iron with FHWA funds. This is illustrated in Wampler v. Goldschmidt,438 an early 1980s case involving FHWA-funded construction of the Bong Bridge between Duluth, MN and Superior, WI. As discussed in Section IV.B.3, Minnesota Department of Transportation (MnDOT) and Wisconsin Department of Transportation ( WisDOT) seg- mented the construction project into fourteen prime contracts, 434 Id. 435 Id. 436 Id. 437 See, e.g., Notice of Buy America Waiver, 81 Fed. Reg. 50,054 (July 29, 2016); Notice of Buy America Waiver, 81 Fed. Reg. 12,780 (Mar. 10, 2016); Notice of Buy America Waiver, 80 Fed. Reg. 72,480 (Nov. 19, 2015). See also Notice of Buy America Waiver, 81 Fed. Reg. 35,118 (June  1, 2016) (granting Nonavailability waiver for liquid chromatography-tandem mass spectrometry instrument for analysis of drugs recovered in impaired driving cases). 438 486 F. Supp. 1130 (D. Minn. 1980). car seats424 and motorcycle helmets,425 as well as standard com- puter equipment and accessories, such as tablets,426 printers,427 and projectors.428 NHTSA also granted Price Differential waiv- ers to allow grant recipients to purchase foreign manufactured training motorcycles, on the grounds that domestic motorcycles would be more than 25 percent more expensive.429 On June 30, 2015, NHTSA announced a nationwide Pub- lic Interest waiver for manufactured products whose purchase price is $5,000 or less per unit.430 The NHTSA Manufactured Products waiver, which applies to grant funds administered by NHTSA, is not to be confused with the FHWA Manufactured Products waiver, which applies to grant funds administered by FHWA, even though both are waivers from the same Buy America statute. In announcing the waiver, NHTSA noted that the original focus of the FHWA Buy America provision was “on purchases of materials used in construction and large-scale fabrication,” whereas “NHTSA grant funds may not be used for construction.”431 As justification for the waiver, NHTSA identi- fied the burden for state transportation agencies and other grant recipients to “demonstrate through a market analysis that the item for which it seeks a waiver is not available in the United States or will cost 25 percent more than a comparable non- domestic item,”432 as well as the burden on NHTSA to “perform an additional independent review and market analysis to con- firm that the item meets either the non-availability exemption or the high cost differential exemption of Buy America.”433 In order “to address these delays and burdens,” NHTSA con cluded 424 See, e.g., Notice of Buy America Waiver, 80 Fed. Reg. 21,797 (Apr. 20, 2015); Notice of Buy America Waiver, 80 Fed. Reg. 9,849 (Feb. 24, 2015); Notice of Buy America Waiver, 79 Fed. Reg. 74,811 (Dec. 16, 2014); Notice of Buy America Waiver, 78 Fed. Reg. 54,726 (Sept. 05, 2013). 425 See, e.g., Notice of Buy America Waiver, 80 Fed. Reg. 21,800 (Apr. 20, 2015); Notice of Buy America Waiver, 79 Fed. Reg. 18,408 (Apr. 1, 2014). 426 See, e.g., Notice of Buy America Waiver, 80 Fed. Reg. 21,799 (Apr. 20, 2015). 427 See, e.g., Notice of Buy America Waiver, 80 Fed. Reg. 9,851 (Feb. 24, 2015). 428 See, e.g., Notice of Buy America Waivers, 79 Fed. Reg. 60,233 (Oct. 6, 2014); Notice of Buy America Waivers, 79 Fed. Reg. 55,529 (Sept. 16, 2014). 429 See, e.g., Notice of Buy America Waiver, 79 Fed. Reg. 74,812 (Dec. 16, 2014); 79 Fed. Reg. 60,233 (Oct. 6, 2014); Notice of Buy Amer- ica Waivers, 79 Fed. Reg. 55,529 (Sept. 16, 2014). See also 80 Fed. Reg. 26,142, 26,143 (May 6, 2015) (granting a Nonavailability waiver for training motorcycles rather than a Price Differential waiver “because American motorcycle manufacturers do not produce a motorcycle designed specifically with a smaller engine displacement (250 CC)”); Notice of Buy America Waiver, 81 Fed. Reg. 9,933, 9,935 (Feb. 26, 2016) (granting a Nonavailability waiver for training motorcycles rather than a Price Differential waiver because “no domestic manufacturer pro- duces a motorcycle with 250 CC engine displacement”). 430 Notice of Buy America Waiver, 80 Fed. Reg. 37,359 (June  30, 2015). 431 Id. at 37,361 (citing 23 U.S.C. § 402(g) (2014)). 432 Id. at 37,360. 433 Id. at 37,361.

NCHRP LRD 80 37 2002, however, concerns arose that the FHWA Buy America provi- sion would increase the reconstruction cost by $200,000,000 (due to higher prices of domestic steel).442 In 2003, in part to invoke the Price Differential exception, Caltrans announced bidding requirements that would factor “delay costs” for steel delivery into the bid price.443 The design for the bridge called for very large girders, and it was be- lieved that no single domestic manufacturer had the existing facili- ties to manufacture the girders.444 By imposing a “delay cost” penalty on the domestic bids, the delay-adjusted domestic bids were more likely to be 25% higher than the bids using foreign steel, enabling the lower foreign bids to qualify for the Price Differential exception. In response to these bidding requirements, a number of domestic steel fabricators formed a unified consortium to invest in a new facility (to eliminate delay costs) and pursue the steel delivery subcontract.445 If prime contract bidders proposed to supply foreign steel, Caltrans required the bidders to also include an alternative price for the use of domestic steel.446 Presumably the prime contractor would have to issue a subcontract to the domestic steel consortium if required to use domestic steel. In May 2004, Caltrans received just one bid for the eastern span. The bid was $1.4 billion for the use of foreign steel, with an alternate bid of $1.8 billion for the use of domestic steel.447 The domestic alternative was about 28% more expensive than the $1.4 billion bid for “foreign steel,” appearing to justify the Price Differential exception. However, a legal challenge was anticipated, as domestic steel manufacturers sus- pected that the bidder deliberately overstated the consortium’s costs to supply domestic steel (or that the bidder deliberately overstated the “delay costs” associated with supplying domestic steel). There was also controversy over whether the twenty-five percent Price Differential was satisfied—although the $1.8M “domestic bid” was twenty-eight percent higher than the $1.4M “foreign bid,” calculated alternatively the $1.4M “foreign bid” was only twenty-three percent less than the $1.8M “domestic bid.”448 Caltrans had significant concerns that its ac- ceptance of $237,000,000 in federal funds would now require it to pay an additional $400,000,000 for domestic steel.449 Caltrans began look- ing at “de-federalizing” the eastern span by using no federal funds for it, so that the FHWA Buy America provision would not apply to the eastern span contract.450 442 Id. (“Department sources privately say the use of American steel will cause a $200 million increase.”). 443 Lisa Vorderbrueggen, Bay Bridge Work Delayed Again; Rising Costs Blamed: Caltrans, Citing a Weak U.S. Steel Market, Changes Bid Rules for Construction, Contra Costa Times, Oct. 22, 2003, available at 2003 WLNR 3089738. 444 Paul Rosta, Caltrans Steels Up For Big Bid Changes: Rejecting a Sole Bid that Came in Too High, California Agency Makes Changes for Bay Crossing, Engineering News-Record, Nov. 3, 2003, available at 2003 WLNR 3250864. 445 Allan Brettman, Steel Fabricators Join Hands for Bid, Portland Oregonian, Mar. 12, 2004, available at 2004 WLNR 20412567. 446 Id. 447 Michael Cabanatuan, Lone Bid for Bay Bridge Way Over Estimate: $1.8 Billion Offer More than Double Caltrans’ Hope, San Francisco Chronicle, May 27, 2004, available at 2004 WLNR 7638950. 448 Michael Cabanatuan, Sacramento Caltrans May Be Able to Take Lower Bid for Bay Bridge: State Agency Says It Can Use Foreign Steel to Build Span, Although That’s Still Double the Original Construction Cost Estimate, San Francisco Chronicle, May 28, 2004, available at 2004 WLNR 7640706. 449 Sean Holstege, “Freeway on Stilts” Begets Costly Span, Oakland Tribune, May 28, 2004, available at 2004 WLNR 17168291. 450 Sean Holstege, Questions May Delay Bay Bridge Call, Oakland Tribune, Dec. 6, 2004, available at 2004 WLNR 13146721. one of which was for the main span. The lowest bid price for the main span contract was $6,825,886.10 using Japanese steel. A competitor, proposing to use only domestic steel, submitted the next lowest bid price at $7,764,683.26. The use of foreign steel was thus deemed to result in 13.75 percent savings compared with the use of domestic steel for the main span contract, invok- ing the Price Differential exception. However, plaintiffs repre- senting the domestic steel industry sought to enjoin execution and performance of the main span contract, contending that MnDOT and WisDOT improperly segmented the bridge con- struction project into smaller prime contracts to avoid applica- tion of the FHWA Buy America provision. The savings achieved by using Japanese steel on the main span contract would only be approximately 2 percent of the $60 million bridge project, so the Price Differential exception could not be invoked if the FHWA Buy America provision considered the overall project cost. The U.S. District Court for the District of Minnesota, con- struing the language of the 1978 FHWA Buy America provi- sion, disagreed with the plaintiffs and agreed with WisDOT and MnDOT that the FHWA Buy America provision should be evaluated with respect to each individual prime contract, or seg- ment, and not for the overall bridge project. The court reasoned that FHWA did not obligate funds for the overall project at one time, but rather that FHWA obligated funds for the individual segments after the state transportation agencies approved the individual bids for each prime contract, justifying the evalua- tion of the FHWA Buy America provision with respect to each individual prime contract. The court further reasoned that ap- plying the FHWA Buy America provision to the overall proj- ect, rather than individual segments, would effectively prohibit foreign steel from ever being used in an FHWA-funded bridge project.439 The Wampler court did not conclude that the Bong Bridge project had been segmented in a deliberate effort to circumvent the FHWA Buy America provision. “Segmenting one large proj- ect into separate contracts is not only reasonable, it is the only economically feasible method of approach.”440 The remainder of this section is principally excerpted from Timothy R. Wyatt, Buy America Requirements for Federally Funded Rail Projects, National Academies Press, 2015, pp. 42-46. The remainder of this section is principally excerpted from Timothy R. Wyatt, Buy America Requirements for Federally Funded Rail Projects, National Academies Press, 2015, pp. 42-46. Over the years, however, segmentation came to be viewed as a strat- egy to avoid application of the FHWA Buy America provision, high- lighted by controversy over the reconstruction of the Bay Bridge between San Francisco and Oakland. In 2000, Caltrans accepted $237 million in FHWA grant funds to help fund the project.441 By 439 See id. at 1137 n.8. 440 Id. at 113738. 441 Greg Lucas & Lynda Gledhill, Cost to Rebuild Bay Bridge Could Soar: Federal Rule Requires Use of Expensive Steel, San Francisco Chronicle, July 7, 2002, available at 2002 WLNR 6856056.

38 NCHRP LRD 80 the foreign steel suppliers could.463 The steel shipments from China were finally completed in 2011, resulting in unfavorable publicity for Caltrans and its decision to forego federal funding to avoid the FHWA Buy America requirements.464 At a Congressional hearing in December 2011, a number of members of Congress reiterated to the Secretary of Transportation that application of the Buy America pro- visions for transportation grants needed to be strengthened, pointing specifically to the Bay Bridge as an example of bad practices by grant recipients.465 B. Expanded to all Contracts in a Project In order to address its concerns about segmentation, Congress amended the FHWA Buy America provision as part of the 2012 USDOT appropriations bill known as the Moving Ahead for Progress in the 21st Century Act (“MAP-21”).466 Under this amendment, the FHWA Buy America provision now applies “to all contracts eligible for assistance” from FHWA, regardless of the actual funding source of those contracts, as long as at least one contract on the “project” is funded with FHWA funds.467 For the purposes of this amendment, the “project” is defined to be any federal action that is subject to the National Environmental Policy Act (“NEPA”). NEPA addresses segmentation by requiring consid- eration of the cumulative impact of all past or present federal, state, and local government contracts that are reasonably related so as to comprise a single development project.468 NEPA requires FHWA to account for environmental impacts of any such project, including the direct impacts, indirect or secondary impacts, and cumulative impacts.469 The cumulative impact of the federal action is “the incre- mental impact of the action when added to other past, present, and reasonably foreseeable future actions regardless of what agency (Fed- eral or non-Federal) or person undertakes such other actions.”470 One purpose of the cumulative impact requirement is to prevent govern- ment agencies from “segmenting” large projects into multiple smaller contracts, each of which (standing alone) may have an insignificant environmental impact, in order to circumvent NEPA environmental review for the overall project.471 The cumulative impact requirement effectively extends the NEPA environmental review beyond a single federal contract, to all federal, state, and local government contracts that are reasonably related so as to comprise a single development 463 Frank Haflich, Steel Fabricators Lash Out at Bay Bridge Sugges- tions, American Metal Market, Dec. 18, 2009, available at 2009 WLNR 26714047. 464 Donald L. Barlett & James B. Steele, Big Boost for Chinese Steel, Philadelphia Inquirer, Oct. 16, 2011, available at 2011 WLNR 21440404; David Barboza, Bridge Comes to San Francisco With a Made- in-China Label, N.Y. Times, June 26, 2011, available at 2011 WLNR 12698943. 465 The Federal Railroad Administration’s High-Speed and Intercity Passenger Rail Program: Mistakes and Lessons Learned: Hearing Before the H. Comm. on Transportation and Infrastructure, 112th Cong. 17, 25 (Dec. 6, 2011). 466 Pub. L. No. 112–141, § 1518, 126 Stat. 405, 574 (2012) (codified at 23 U.S.C. § 313(g)). 467 Id. 468 40 C.F.R. § 1508.7 (2018). 469 40 C.F.R. § 1508.8 (2018). 470 40 C.F.R. § 1508.7 (2018). 471 Coal. on Sensible Transp. Inc. v. Dole, 642 F.  Supp. 573, 591 (D.D.C. 1986), aff ’d, 826 F.2d 60 (D.C. Cir. 1987) (“NEPA does not per- mit agencies to avoid review of cumulative effects by dividing projects into components.”). Congress responded in the 2005 USDOT appropriations bill known as the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (“SAFETEA-LU”) by stating the “Sense of Congress” that the FHWA Buy America provision “needs to be ap- plied to an entire bridge project and not only to component parts of such project.”451 This legislation reiterated that domestic steel must be used “unless there is a finding that the inclusion of domestic materials will increase the cost of the overall project by more than 25 percent.”452 The legislation also stated that uncertainty over how to apply the Price Differential exception “for major bridge projects threatens the domes- tic bridge industry.”453 SAFETEA-LU was enacted on August 10, 2005, just a couple of weeks after Caltrans approved a rebid package for the eastern span using no Federal funds and no FHWA Buy America provision.454 On October 5, 2005, FHWA published a memorandum reiterating that its practice was to apply the FHWA Buy America pro- vision only to the individual contracts funded with FHWA funds, and not to the overall project.455 In 2006, Caltrans moved forward with its rebid procedures (including no FHWA Buy America provision and no domestic steel alternative bid price requirement),456 and in March 2006 accepted a low bid of $1.4 billion.457 Although Caltrans was not using FHWA funds for the eastern span in order to avoid the FHWA Buy America provision, Caltrans intended to use the $237,000,000 in FHWA funds for other parts of the bridge construction project.458 Some in Congress viewed this as a deliberate attempt by FHWA and Caltrans to circumvent the FHWA Buy America provision.459 In June 2006460 and again in April 2007,461 the FHWA Administrator testified before Congress that the FHWA Buy America provision applied only to the specific contracts that received FHWA funding, and that the FHWA Buy America pro- vision was not violated on the Bay Bridge project. The Bay Bridge controversy was renewed in late 2009, when delivery of steel from China was over one year late.462 During the bidding pro- cess, a persistent factor in assessing the higher cost of domestic steel had been the perception that domestic steel manufacturers could not satisfy the delivery schedule demands of the Bay Bridge project but 451 Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 1928, 119 Stat. 1144, 1484 (2005). 452 Id. 453 Id. 454 Sean Holstege, Mood is Upbeat as Bridge Tower Cleared for Bids, Alameda Times-Star, July 28, 2005, available at 2005 WLNR 24119473. 455 Holley Gilbert, Cost, Law Figure in California Decision on Bridge Project, Portland Oregonian, Mar. 24, 2006, available at 2006 WLNR 4916576. 456 Contractors Anticipate Rebidding of Signature Span, Engineer- ing News-Record, Jan. 23, 2006, available at 2006 WLNR 1650880. 457 Gilbert, supra note 455. 458 Id. 459 Id.; J.T. Long, This Time, Controversial Bay Area Span Brings in Two Bids, Engineering News-Record, Apr. 3, 2006, available at 2006 WLNR 6027151. 460 Implementation of SAFETEA-LU: Hearing Before the Subcomm. on Highways, Transit and Pipelines of the H. Comm. on Transportation and Infrastructure, 109th Cong. 11, 22–23 (June 7, 2006). 461 Buy America: Hearing Before the Subcomm. on Highways and Transit of the H. Comm. on Transportation and Infrastructure, 110th Cong. 3–4 (Apr. 24, 2007). 462 Frank Haflich, Bay Bridge Steel Delay Puts Completion Date in Question, American Metal Market, Nov. 2, 2009, available at 2009 WLNR 26488935.

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The Federal Highway Administration's “Buy America Act” requires federally funded highway projects to use only steel, iron, and manufactured products produced in the United States.

The TRB National Cooperative Highway Research Program's NCHRP LRD 80: Buy America Requirements for Federal Highway Projects summarizes the intent and application of the provision. It also summarizes the procedure that FHWA has implemented for granting waivers and the impact that court interpretation of such waivers has had on the industry.

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