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Supply vs. construction


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#1 ron vogt

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Posted 17 July 2009 - 03:34 PM

I guess I'll get this topic started. The 'Buy American' (BA) provisions in the Recovery Act are generating the most difficult issues for both grant recipients and contractors. Here is one issue that has no clear answer so far.

First some background. Here is the relevant language from the Recovery Act: "None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States."

My question will focus on the term "construction" as it applies to agency grants under the Recovery Act (not agency contracts, which would be subject to the FAR implementation of the Recovery At). Some agencies have responded to questions by stating that some purchases were actually supply actions, and thus not subject to the BA provisions. For example, DoE in its answers on the EECBG program, stated that a fluorescent lighting retrofit in a school was supply, not construction, and that the BA provisions did not apply. DoE gave similar answers to questions about an HVAC unit installation and street light replacements.

The question is -- if BA does not apply because the action is a supply action, not construction, is that an exception to the BA requirements or simply a decision that it is inapplicable? Here is why it is important. An exception requires a decision by the head of the granting department or agency, and publication in the federal register. In addition, an exception can only be granted on one of the three stated grounds in the Recovery Act and in the implementing regulations. A decision that the BA requirements are inapplicable would not seem to require any of this.

My opinion -- no exception and publication in the federal register is required if the action is a supply action. I'm interested in hearing what others think.

#2 Guest_carl r culham_*

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Posted 17 July 2009 - 08:14 PM

Ron - Okay I will stick my neck out.

I have done no research other than read your post and at this first reading it seems that the DoE is interpreting the ARRA language too narrow. Isn't buying the lights or the HVAC part of a either a "repair" or "maintenance" effort being performed with ARRA funds and therefore subject to the BA requirements? I say this noting that the Act says "or" not "and" after maintenance. Having read the legislation when first enacted it is my guess that Congress intended a broad application rather trying to narrow it to work around the requirement. I would not want to be in DoE shoes as they attempt to justify the actions as not applicable to BA considering the amount of scrutiny that use of ARRA funding is getting.

My opinion - every action that uses the ARRA funds that buys a product that will be used for a construction, alteration, maintenance OR repair project s subject to the BA requirements of the Act.

#3 ron vogt

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Posted 18 July 2009 - 07:35 PM

Carl, your point is valid, but it's not what I asked. Assuming that the agency does call it a supply action, is that an exception (thus requiring publication in the Federal Register) or is it simply a decision that the Buy American requirements are not triggered and do not apply?

It's not such a stretch to call some of the actions "supply" and not construction. For example, one project was for the retrofit of street lights with low-energy induction lights. Replacing lights may involve labor, but doesn't seem much like construction.

Nevertheless, I don't want to get this question bogged down in the definition of construction.

#4 Guest_carl r culham_*

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Posted 18 July 2009 - 07:58 PM

Ron - Let me try again by example. I purchase with ARRA funds lights for a retro-fit, by defnition of FAR it is a supply, however by read of ARRA it is money expended for maintenance. ARRA is applicable. It seems by your question that you are trying to tie a definition of FAR to applicablity of ARRA since ARRA does state not "supply". ARRA is not trying to define construction, supply etc. it is stating that if you exepnd funds for certain work - construction, alteration, maintenance or repair - then BA of ARRA applies.

#5 Vern Edwards

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Posted 19 July 2009 - 07:49 AM

Here is the relevant language from the Recovery Act: "None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States."

Some agencies have responded to questions by stating that some purchases were actually supply actions, and thus not subject to the BA provisions. For example, DoE in its answers on the EECBG program, stated that a fluorescent lighting retrofit in a school was supply, not construction, and that the BA provisions did not apply. DoE gave similar answers to questions about an HVAC unit installation and street light replacements.

The question is -- if BA does not apply because the action is a supply action, not construction, is that an exception to the BA requirements or simply a decision that it is inapplicable? Here is why it is important. An exception requires a decision by the head of the granting department or agency, and publication in the federal register. In addition, an exception can only be granted on one of the three stated grounds in the Recovery Act and in the implementing regulations. A decision that the BA requirements are inapplicable would not seem to require any of this.


For the benefit of other readers, here is Section 1605 of the American Recovery and Reinvestment Act of 2009, Public Law 111-5:

SEC. 1605. USE OF AMERICAN IRON, STEEL, AND MANUFACTURED
GOODS. (a) None of the funds appropriated or otherwise made
available by this Act may be used for a project for the construction,
alteration, maintenance, or repair of a public building or public
work unless all of the iron, steel, and manufactured goods used
in the project are produced in the United States.
(b) Subsection (a) shall not apply in any case or category
of cases in which the head of the Federal department or agency
involved finds that?
(1) applying subsection (a) would be inconsistent with the
public interest;
(2) iron, steel, and the relevant manufactured goods are
not produced in the United States in sufficient and reasonably
available quantities and of a satisfactory quality; or
(3) inclusion of iron, steel, and manufactured goods produced
in the United States will increase the cost of the overall
project by more than 25 percent.
? If the head of a Federal department or agency determines
that it is necessary to waive the application of subsection (a) based
on a finding under subsection (b), the head of the department
or agency shall publish in the Federal Register a detailed written
justification as to why the provision is being waived.
(d) This section shall be applied in a manner consistent with
United States obligations under international agreements.


Is a fluorescent lighting "retrofit" a supply action or a "construction, alteration, maintenance, or repair" action? Absent some official definition or guidance, who knows? I don't. But let me ask you this: Suppose the GAO comes in to audit Recovery Act compliance and finds that you had a contractor come in and remove old lighting and replace it with new lighting. What do you think GAO would call that? Might they be inclined to call it alteration or maintenance? Or suppose that somebody goes to this webpage: http://www.recovery.gov/?q=content/act, and clicks on the Fraud, Waste and Abuse button to report "misuse of Recovery funds"?

People should be smart. In the absence of clear policy guidance, call it an exception, get the decision, and publish in the Federal Register. Is it a nuisance? Yeah, so what?

If the action is clearly a supply action, then I say the Act is inapplicable and no exception is needed.

#6 Guest_carl r culham_*

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Posted 19 July 2009 - 10:52 AM

Some added information from 2 CFR 176 found here http://ecfr.gpoacces...176_main_02.tpl

From 2 CFR 176.160

Public building and public work means a public building of, and a public work of, a governmental entity (the United States; the District of Columbia; commonwealths, territories, and minor outlying islands of the United States; State and local governments; and multi-State, regional, or interstate entities which have governmental functions). These buildings and works may include, without limitation, bridges, dams, plants, highways, parkways, streets, subways, tunnels, sewers, mains, power lines, pumping stations, heavy generators, railways, airports, terminals, docks, piers, wharves, ways, lighthouses, buoys, jetties, breakwaters, levees, and canals, and the construction, alteration, maintenance, or repair of such buildings and works.

#7 joel hoffman

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Posted 19 July 2009 - 12:49 PM

Well. I would venture to say that refitting lights and replacing A/C would probably classified as maintenance or repair within the scope of a normal facilities maintenance contract.

I don't understand why one would want to tharwt the intent of Congress, anyway. The quality A/C units are generally made in the US. I'm not sure about lighting fixtures but most standard CFL bulbs seem to be made in China, Mexico or somewhere else.

#8 joel hoffman

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Posted 19 July 2009 - 12:54 PM

Well. I would venture to say that refitting lights and replacing A/C would probably classified as maintenance or repair within the scope of a normal facilities maintenance contract. If you are replacing the existing lighting fixtures, that is clearly an alteration of the facility

I don't understand why one would want to tharwt the intent of Congress, anyway. The quality A/C units are generally made in the US. I'm not sure about lighting fixtures but most standard CFL bulbs seem to be made in China, Mexico or somewhere else. Why is your organization seem to be intent not to apply the BA Act to this action? What is in the best Pubic Interest here? The President and Congress made it clear that the intent is to provide or protect American jobs.

#9 ron vogt

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Posted 19 July 2009 - 03:00 PM

Thanks everyone for your opinions. I'm not disagreeing with anyone's view of the scope of the terms "construction, alteration, maintenance, or repair." I think people can reasonably disagree over whether a simple retrofit is construction. I'll just note that DoE has taken the position that some things are supply actions, and leave it at that.

A more important question is: if the agency does that, is there any risk to the contractor? To keep these threads focused, I'll start that in a new one. Please feel free to continue this discussion on whether it is appropriate to characterize an action as "supply" when something is funded by the Recovery Act.

Just to be clear, I think this will be an issue only under agency-funded projects, not agency contracts. Agency contracts funded by the Recovery Act would be subject to the new FAR Subpart 25.6, which implements the Recovery Act BA requirements. If a CO decides a Recovery Act project is supply, not construction, then the standard Buy American Act would still apply, which includes provisions for both supply and construction contracts. In fact, I would rather have the Recovery Act BA provisions, since those do not include a 50% content test.

For an agency-funded project (grants, loans, etc. to state and local governments and other entities) under the Recovery Act, you have the OMB regulations at 2 CFR 176 implementing the Recovery Act, in addition to the standard grant regulations.

#10 joel hoffman

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Posted 20 July 2009 - 01:41 PM

I'm still wondering why one would WANT to classify the contract as supply, rather than a service or construction? Is it because DOE has done it? Pretty "FAR fetched" if referring to replacements of lighting fixtures or HVAC systems. Replacing light bulbs? Okay, perhaps.

But replacing fixtures would been an alteration to the electrical system. It involves significant labor. I replaced exterior flourescent fixtures at our church with new CFL type fixtures and the labor would not have been cheap.

Same with replacing HVAC units with a higher efficiency units. That involves alteration or repair and replacement work. There is a significant amount of labor effort involved. One normally must replace or modify the other end of the system within the building in addition to the outside unit. Hooking up and possibly replacing electrical, supply and return lines, recharging the system, etc.

Also, there is demolition and waste removal involved.

Besides, this isn't the Foreign Recovery and Reinvestment Act.

#11 Vern Edwards

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Posted 20 July 2009 - 06:59 PM

Ron:

I don't know why you focus on "construction." What about alteration, maintenance, and repair?

#12 ron vogt

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Posted 21 July 2009 - 01:25 PM

Shorter.

#13 ron vogt

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Posted 23 July 2009 - 07:35 PM

As for why someone would want to classify a project as supply rather than construction -- I can think of several reasons, but that wasn't my point. I was concerned with the impact of that decision.

Interestingly, the FAR definition of "construction material" states: "Materials purchased directly by the Government are supplies, not construction material." So the very same item, when bought by a contractor and brought to the construction site, is construction material, but when bought directly by the government is an item of supply. Given the large difference in the trade agreement thresholds between supply and construction contracts (approx. $200,000 vs. $7,000,000), could that be used to "thwart" the intent of congress? Perhaps, but it seems to be allowed by the FAR.

#14 Vern Edwards

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Posted 23 July 2009 - 08:50 PM

Interestingly, the FAR definition of "construction material" states: "Materials purchased directly by the Government are supplies, not construction material." So the very same item, when bought by a contractor and brought to the construction site, is construction material, but when bought directly by the government is an item of supply. Given the large difference in the trade agreement thresholds between supply and construction contracts (approx. $200,000 vs. $7,000,000), could that be used to "thwart" the intent of congress? Perhaps, but it seems to be allowed by the FAR.


I'm not sure what you're getting at, but the distinction is made in order to implement 41 USC 10b(a).

#15 ron vogt

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Posted 24 July 2009 - 07:48 PM

I'm afraid I don't see what in 41 USC 10b(a) compels that distinction in the FAR definition. If you could point me to it I would appreciate it.

My reading is that 41 USC 10a is the Buy American Act for supplies, and 41 USC 10b is the Buy American Act for construction materials, and they are separate provisions. But the FAR definition allows some construction materials to be treated as supplies if they are bought by the government directly. That means that for the same construction project, the same item could fall under different rules if the government buys it direct. More specifically, under the supply rules, a foreign product becomes allowable under a much lower threshold. Yet neither the project nor the item changed, just the method of acquiring the item. That doesn't seem to be what congress had in mind in 10b when it said (I'm paraphrasing) that all construction materials on a construction project must be manufactured in the US.

#16 Vern Edwards

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Posted 25 July 2009 - 07:10 AM

I'm afraid I don't see what in 41 USC 10b(a) compels that distinction in the FAR definition. If you could point me to it I would appreciate it.


10 USC 10a expressly covers "unmanufactured articles, materials, and supplies" that the government buys directly. 10 USC 10b(a) covers the same stuff, but only for "construction, alteration, or repair of any public building or public work in the United States..." and that are bought by a contractor, subcontractor, supplier, or material man. The rules applicable to each are slightly different. Read the statutes. That's why the different definitions. As to why the Trade Agreement Thresholds are different--I don't know. Ask the U.S. Trade Representative. I don't see any effort to thwart Congress. How likely do you think it is that Congress would sit still for that, given how touchy they are when it comes to "buy American" principles?

#17 ron vogt

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Posted 26 July 2009 - 02:13 PM

Of course the definitions are different -- that's the point. If a contractor buys it for a construction project, it's construction material. If the gov't buys it for the same project, it's supply. Same product, same project, different rules.

Let me ask it this way. Do you think that on a construction project, a CO can directly buy a product that is needed on the project, like an HVAC unit? If yes, isn't that a way for the gov't to obtain a foreign product that it might not be able to get if it was "construction material"? Better yet, are there any COs out there who have done this? Just curious.

I don't think it's "thwarting" at all - it's just following the wording of the statute. Was that what congress had in mind? Who knows? Other "Buy American"-type statutes, such as the Transit Administration statute and the Recovery Act, simply say "used on a project...." That seems to be a better way to word it if you want all the materials to be made in the US.

#18 joel hoffman

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Posted 26 July 2009 - 04:55 PM

I've seen where the government buys equipment to be installed in buildings and provides it to a construction contractor as government furnished property. Its not that uncommon. GFP is often a pain in the Gazoo, though. Either we have to take delivery and store it or use "just in time" acquisition methods. Read that as "never on time" (late or early). Or some of it will invaraiably be damaged or missing, resulting in arguments or change orders.or what comes in is configured differently than what we represent to the contractor. The government isn't a good construction integrator, so we tend to want to put all that responsibility on a general contractor.

Is it done to get around the BAA? Not in my experience. Most of the contracts I work with exceed both the construction and supply thresholds for Trade Agreement Act and NAFTA application. For us, there are usually other reasons for providing GFP.

#19 Vern Edwards

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Posted 26 July 2009 - 07:17 PM

ron:

I'm confused. This is what you said a few days ago:

Interestingly, the FAR definition of "construction material" states: "Materials purchased directly by the Government are supplies, not construction material." So the very same item, when bought by a contractor and brought to the construction site, is construction material, but when bought directly by the government is an item of supply. Given the large difference in the trade agreement thresholds between supply and construction contracts (approx. $200,000 vs. $7,000,000), could that be used to "thwart" the intent of congress? Perhaps, but it seems to be allowed by the FAR.

Emphasis added. Now you say:

I don't think it's "thwarting" at all - it's just following the wording of the statute.

What is your point? That it seems odd? Is that it?

#20 outsidelegalguy

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Posted 27 July 2009 - 08:38 AM

Ron,

Can you provide a linke to where DOE says the Buy American provision doesn't apply to replacing lights/HVAC?

As to your question, my thinking is that, if the Buy American provision is inapplicable, then you don't have to go through the publication process. The agency isn't waiving the provision or deciding to invoke an exception. The provision is merely inapplicable by its terms.

By the way, note that the Buy American provision only applies if the construction, alteration, etc. is to a public building or a public work. A school certainly would be a public building, assuming it's a public school, not a private one, and street lights probably are public works, unless perhaps if on a privately-owned street. Construction, alteration, etc. on a non-public building or non-public work also would seem to be outside the scope of the provision.

OLG




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