By: Christopher W. Morog and Robert T. Ferguson, Jr.

The new Infrastructure Investment and Jobs Act (the “IIJA”) is expected to create new opportunities for existing and fledgling contractors by investing billions of dollars in federal funds in a wide array of projects. According to the White House, the new law “will rebuild America’s roads, bridges and rails, expand access to clean drinking water, [and] ensure every American has access to high-speed internet.” As contractors take steps to compete for anticipated projects, it is critical to remember that federal funding imports additional requirements and risks on construction projects.

The federal government has power to impose certain requirements when it holds the purse-strings. In addition, the Federal Acquisition Regulation (“FAR”) requires extremely high standards of conduct when it comes to federal contracting:

Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none. Transactions relating to the expenditure of public funds require the highest degree of public trust and an impeccable standard of conduct.

In furtherance of this policy, the FAR requires federal contractors to have a written “Code of Business Ethics and Conduct” within 30 days after award of a government contract which is expected to exceed $6 Million and which has a performance period of 120 days or more. The code must be made available to each employee engaged in the performance of the contract. Not only that, the contractor must also “exercise due diligence to prevent and detect criminal conduct” and “promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” In these circumstances, careful attention to compliance issues is not just good business practice, it is a legal requirement.

In addition, as many of you are aware, federal government contracts and federally-funded contracts also implicate various “Made in America” laws and requirements, depending on the situation. These domestic content laws are generally designed to ensure that items purchased with federal funds are mined, produced, or manufactured in the United States. Unfortunately, the legal landscape when it comes to “Made in America” laws is detailed, complex, and oftentimes confusing.

For example, the “Buy American Act” applies only to direct contracts with federal agencies. However, the “Buy American Act” is different from “Buy America” requirements, which apply to federal assistance contracts. Unlike the Buy American Act, there is no single “Buy America” statute. Rather, “Buy America” refers to several statutes and regulations applicable to federally-funded infrastructure projects, including highways, public transportation, airports, aviation, rail, and certain water-related infrastructure projects. There are differing “Buy America” requirements applicable to various modes of transportation and administered on an agency-by-agency basis.

The President’s Administration has increased focus on Buy American/Buy America requirements. During his first week in office in January, 2021, the President signed Executive Order 14005: “Ensuring the Future is Made in All of America by All of America’s Workers.” This executive order kick-started a review of Buy American policy and established a new “Made in America Office” to implement federal policy and centralize the process for waivers of domestic content requirements.

On March 7, 2022, the Federal Acquisition Regulatory Council published a Final Rule increasing the 55% domestic content threshold on a gradual basis, starting later this year. That is, effective on October 25, 2022, the cost of domestic components of a manufactured item must exceed 60% of the cost of all components of the item in order for the item to be deemed to have been made in America. This threshold will increase to 65% in 2024 and 75% in 2029.

The IIJA also “expands Buy America coverage” to additional projects funded by federal grants, including transmission facilities, structures and equipment of electric utilities, broadband infrastructure, and real property and buildings. The IIJA also broadens Buy America requirements to include nonferrous metals (such as copper), plastic- and polymer-based products, glass and optical fiber, and other construction materials, including lumber and drywall. Congress intentionally did not include cement and aggregate in light of indications that transportation of these materials from within the United States could actually be more costly than if the materials are transported from Mexico or Canada.

In short, in order to successfully pursue federal government contracting opportunities – be it a direct government contract or a federal assistance contract – contractors must be aware of and comply with a host of complex federal laws, rules, regulations, and other requirements. With federal funding comes the risk of federal liability. As a result, a misstep when it comes to compliance with federal requirements can result in exposure to civil and, in some cases, criminal liability under a variety of broad and powerful federal laws, including – without limitation – the federal False Claims and False Statement acts, and federal Mail and Wire Fraud statutes.

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