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How Buy American Is Hurting U.S. Construction Companies

The idea of laws that dictated that companies in the United States buy American made products started in 1933 at the beginning of the Great Depression. Ever since then, severe economic hardships in the United States have inspired additional Buy American laws, or they have caused American lawmakers to alter the government regulations that dictate how companies spend.

The general criteria for the Buy American laws is that federal money must be spent on finished goods that were at least 51 percent crafted in the United States from materials secured in the United States. These general guidelines hold for government procurement contracts for office supplies and cleaning materials. However,  there is a whole different set of rules for construction materials and those rules could be strangling construction projects all over the country.

The Three Buy American LawsMetalworking welding

There are three primary Buy American laws and each applies to a different part of the construction industry.

Buy American Act of 1933This was the first Buy American act and it stipulates that any materials or components used in a project funded by federal monies must be 51 percent made in the United States from materials found in the United States. The product must also be manipulated in some way by American workers. For example, a block of steel purchased from China must be forged and formed in the United States.

Surface Transportation Assistance Act of 1982 – This is one of the Buy American laws that has caused the most problems for construction projects, especially attempts to expand the modern rail system. This law says that all materials and components used in federally funded projects must be completely made in the United States using materials found in the United States.

State Revolving Fund American Iron And Steel Requirement – This is a very specific EPA regulation that only applies to projects funded under this requirement. It usually involves public works projects such as water system upgrades or clean-ups. It requires that certain materials must be 100 percent American made, and then provides a list for each project.

The Fall Of The Steel Industry Has Hurt The Most

When these laws were put into effect, they were done at strategic moments to help certain portions of the American economy. For example, the Surface Transportation Assistance Act of 1982 was put into place at a time when Americans were looking to upgrade their railroads, but also at a time when foreign steel was just starting to be introduced into the American market. Back in 1982, American companies had the capability to meet the needs of construction firms, but not anymore.

StreetsBlog.org tells the story of how a Japanese company (Nippon Sharyo) was awarded a $352 million contract as part of a large rail system upgrade. Nippon Sharyo had to deliver 130 double-decker light rail trains by 2018 in order to fulfill the project, and it even built a $100 million factory to get the job done.

The reason Nippon Sharyo built the factory was to satisfy the Buy American requirements that stipulated the cars be built in the United States. The problem that has come up is that the supply of steel the company needs cannot be found in the United States, and the federal government will not allow the company to import the steel from Japan. Now Nippon Sharyo projects that they will not be able to start production until 2018 because it must wait to get the steel it needs from American suppliers. The federal contract for the cars runs out in 2018, and the government has given no indication that it will award an extension.

The Other Problem With The Laws

If foreign suppliers are not allowed to sell their products to construction companies in the United States, then that may cause foreign countries to respond in kind. Construction companies in Japan may be forbidden to purchase equipment from the United States in response to the Buy American laws. At that point, the Buy American laws will handcuff construction companies in the United States and American construction equipment manufacturers trying to do business overseas.

Are There Other AlternativesConstruction site with men wearing hard hats

The Federal Highway Administration indicates that it offers waivers to contractors who could be harmed by the Buy American laws. The waivers must be submitted by the entity administering the contract, and they can completely waive the Buy American provision as long as it can be shown that the Buy American laws are “inconsistent with the public interests.” This could be interpreted to mean that the Buy American laws could be waived if they significantly increase the price of a project, but such waivers are rarely granted.

Back when the Buy American laws were created, they were created with good intentions. But times have changed, and now those laws no longer reflect the world we live in. American construction companies are losing money and projects because of these Buy American laws, which may force lawmakers to re-visit these laws and make changes.

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