Buy America spells uncertainty for wastewater projects in 2023

Jan. 16, 2023
Utilities should engage with federal funding agencies now to understand how the Buy America requirements will affect shovel-ready and future projects.
When the historic Infrastructure Investment and Jobs Act (IIJA) passed in 2021 the future looked positive for the water and wastewater sectors.

However, accompanying the IIJA was another Act – the Build America, Buy America Act (BABA) – which will begin to impact projects this year and potentially hamper the goals of the IIJA.

The Requirements

The BABA provisions are wide-reaching.

The Act applies to all federally funded infrastructure projects in the U.S. It applies to the purchase of products and materials for any form of construction, alteration, maintenance, or repair of infrastructure. The requirements also apply to an entire project, even if the project is funded by both federal and non-federal funds under one or more awards.

For manufactured products, the Act requires that (a) the product is manufactured in the U.S.; and (b) the cost of the product components that are mined, produced, or manufactured in the U.S. is greater than 55% of the total cost of all components.

In summary, every project receiving federal financial assistance is subject to BABA, unless an exemption applies.

The Realities

Until now, the full effect of BABA has not been felt – largely due to these exemptions.

Waivers have been available where (1) applying the requirement would be inconsistent with the public interest: (2) where the required products or materials are not available in the U.S. in sufficient quantities or to a satisfactory quality; and (3) where adhering to the requirements will increase the overall project cost by more than 25%.

The implementation of the BABA requirements was also delayed by some agencies through the adoption of “adjustment periods” using the public interest waiver authority.

However, January 2023 brings a much-changed landscape. Many waivers have already expired or are set to expire. These include a general applicability public interest waiver from the Federal Emergency Management Agency (expired in December 2022), and a six-month general applicability waiver from the U.S. Department of the Interior (expiring January 2023).

Unintended consequences

In place since 2021, the shrinking pool of available waivers and expired adjustment periods means 2023 is the year in which the consequences of BABA – many unintended – will begin to become apparent.

Cost increases, project delays, and project deferrals will be inevitable. The realities of assessing compliance, applying for waivers, sourcing materials, and developing supply chains are just a handful of the tasks that will eat into resources.

The BABA requirements will add substantially to an already complex regulatory environment. For many state and local government bodies facing large volumes of work to access funding, this added complexity will be a deterrent and may limit uptake of funding.

The requirements could also hinder some of the IIJA goals. For example, although IIJA purports to assist underserved communities, the burden of becoming BABA compliant could make accessing funding even more difficult and for many - out of reach. The requirements could also put innovative technologies or products from different markets – particularly innovations for the water sector from Europe - out of reach, hindering the development of a future-fit water infrastructure system in the U.S.

A call for clarity and inclusion

For every player in the water sector faced with complying with BABA requirements, uncertainty abounds.

The EPA recently issued additional guidance on implementation. However, they have acknowledged that definitional concerns remain, and more guidance is to come. Uncertainly also surrounds the topic of waivers – if projects and entities are eligible and how to calculate components to ensure compliance.

For many, what is a simple question – “is a product or project BABA compliant?” – does not have a simple answer. Mired in complexity, the answer can vary depending on a multitude of factors including funding sources, project timing or changes, and eligibility for waivers. The lack of clarity is also hindering manufacturers in making the adjustments necessary to become compliant.

Some hail learning from the past as an opportunity to improve implementation. Domestic content provisions are not new and stretch back to the 1930s. Lessons can be gleaned from similar provisions that can smooth implementation and minimize unintended consequences.

The water sector as a whole is calling for an opportunity to discuss these challenges and help develop solutions to ease implementation. A letter from the industry, submitted in September 2022, highlighted the challenges being encountered and called for more time to implement the Act. Closer collaboration would yield greater insights and perspectives on supporting implementation and maximizing the impact of this one-in-a-generation legislation.

Understanding the implications

As teams navigate the requirements and await greater clarity, there is great value in working closely with federal funding agencies to understand how the Buy America requirements will affect shovel-worthy and future projects.

Conversations with funding agencies can also offer clarity on impacts to projects already underway which could be impacted by funding changes, new scopes of work, and funding renewals – all which could trigger the application of BABA provisions.

Amongst federal agencies, engagement can shed light on the different approaches to BABA compliance. It can also yield insights into whether new approvals, certifications or other actions are necessary to meet the requirements.

Engagement can also provide opportunities to discuss waiver(s) for critical products manufactured outside of the U.S. through federal partners, as well as support planning for delays and cost increases as a result of requirements.

A path to progress

While the bulk of projects initiated in 2022 escaped the BABA requirements, projects in 2023 will not. Greater insights, planning and collaboration with partners can minimize the inevitable challenges faced and offer smoother pathways to successful project outcomes.

About the Author

Josh Mahan | Director of Government & Industry Relations, Xylem

Josh Mahan is Director of Government and Industry Relations at Xylem, a leading global water technology company. Xylem is committed to "solving water" by creating innovative and smart technology solutions to meet the world's water, wastewater, and energy needs.