Buy America is a tough sell

Considering the current marketplace, FHWA needs to grant a nationwide waiver

Article August 16, 2004
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The current international steel crisis makes it very difficult for highway contractors to satisfy the Buy America requirements on federal-aid projects. This is because of the worldwide shortage in scrap and resulting shortage in domestic steel plate used to fabricate iron and steel products for highway projects.

FHWA faced a similar shortage of raw materials in 1995. In response, FHWA issued a nationwide waiver allowing the use of foreign pig iron and processed, pelletized and reduced iron ore in iron and steel products. Today we need a nationwide waiver allowing domestic fabricators to use foreign steel slab and plate to fabricate iron and steel products.

Buy America is one of two domestic preference programs affecting contractors working for state and federal agencies, but sometimes they are confused. The first program was created in 1933 as the Buy American program and involves direct federal procurements. For example, the FHWA’s Federal Lands highway program is governed by the Buy American program. A second program was created in 1982 as the Buy America requirement for the federal-aid highway program managed by state departments of transportation. Buy America focuses on iron and steel products, while Buy American affects procurement of approximately 100 products.

The Buy America regulation requires that all manufacturing processes for iron and steel products take place domestically. The regulations allow bidders and the contracting agency some latitude through minimum use, waivers and alternative bids. Manufacturing includes any process that modifies the chemical content, the physical size or shape, or the final finish. These processes include the initial melting and mixing, rolling, extruding, machining, bending, grinding, drilling and coating.

For example, shapes produced domestically from foreign-source steel billets are not acceptable under Buy America. This is because the initial melting and mixing of alloys to create the steel occurred in a foreign country. Back in the mid-1990s, FHWA recognized that insufficient quantities of certain domestic raw materials existed to satisfy the Buy America requirements. FHWA granted a nationwide waiver in 1995, allowing the use of foreign pig iron and processed, pelletized and reduced iron ore to be incorporated into domestic steel and iron products that are used in federal-aid projects.

A raw deal

Another shortage of raw material exists today. Mini-mills use scrap as the raw material for their manufacturing process. They cast scrap into near net shape products, including steel plates. It is well-known that the Asian market has consumed a significant portion of the U.S. scrap supply. This has placed additional limitations on the availability of domestic steel plate because steel shapes are produced in mini-mills.

Steel pipe piles, bridge steel and other fabricated steel shapes are generally fabricated using steel plate or near net shapes. Today’s shortage of certain domestic steel products exists due to a serious shortage of domestic steel plate. Three companies produce almost all the domestic steel plate manufactured in the U.S.

Unfortunately, because of the current steel and scrap shortage, domestic plate producers are under a self-imposed allocation process. Some manufacturers refer to this allocation as “restricted order entry.” In other words, certain domestic manufacturers do not accept every order placed. The very nature of an allocation system demonstrates that domestic demand exceeds domestic supply.

Domestic mini-mills cannot satisfy Buy America requirements or demand for steel plate because of the allocation process and diversion of available domestic steel plate to nonhighway uses. FHWA has faced this situation before. The reasons for issuing the 1995 nationwide waiver is analogous to the current shortage of domestic steel plate. In both situations, the domestic supply of certain materials is not adequate to permit full compliance with the Buy America Act. Also, in both situations, the majority of the manufacturing processes will take place in the U.S. While the purpose of the Buy America requirement is to utilize domestic iron or steel products for all federal-aid highway projects, the requirement is impractical in the current marketplace, just as it was in 1995. I strongly urge FHWA to once again grant a nationwide waiver.

About the author: 
Dirik is an associate of Jenkens & Gilchrist. He focuses his practice on construction and government law.
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