Biden’s 'Buy American' Proposal Could Mean 'Pay More American' for Construction Materials

During the State of the Union Address, President Biden mentioned the Buy American Act of 1933.

“But for too long, past administrations have found ways to get around it,” Biden said on Tuesday night. “Not anymore. Tonight, I’m also announcing new standards to require all construction materials used in federal infrastructure projects to be made in America. American-made lumber, glass, drywall, fiber optic cables. And on my watch, American roads, American bridges, and American highways will be made with American products.”

While it sounds new, Biden was referring to something that has been in the works since January 25, 2021, when he signed Executive Order 14005, Ensuring the Future is Made in All of America by All of America’s Workers. Following that was a proposed rule six months later to change how the country purchased anything, including construction materials.

Prior to the rule, companies’ products could qualify as domestically made if at least 55% of the value of their components were from the US. That would allow companies to source from geographic regions with cheaper materials to reduce expenses.

Instead, the administration started to increase the percentage of value from 55% to an intermediate 60%, in operation now, and then to 75%. At the same time, the Notice of Proposed Rulemaking started two other changes. One was the application of “enhanced price preferences to select critical products and components,”

As the Congressional Research Service later explained price preferences, “if a domestic offer is not the low offer, then the price of the lowest offer is increased by 20% or 30% depending on whether a large business or a small business, respectively, submitted the lowest domestic offer.” In other words, if the domestic supply of a product is within that additional amount, the government can still buy it instead of the cheaper imported product. For construction materials, among others, there would be an additional price preference added, making higher-priced goods more competitive.

Finally, there would be a “reporting requirement” so that instead of telling the government that the materials met the content requirement, contractors would have to report the actual percentage of domestic participation.

The transparency will put pressure on vendors to include more domestic material and attract the federal business. The enhanced price preferences will open the door to more expensive materials by raising the threshold for compliance. And the increased percentage of US material involvement will, if more expensive than what is available from other countries, made the blended price higher.

The likelihood is that federal construction will cost more and contractors will be able to pass that along. However, some thought suggests that the hikes may not stop at federal contracting.

Large firms will feel pressure not to let lucrative federal business go, so will probably boost domestic sourcing. But at what point does it become easier for them not to try supporting multiple versions of a product and instead have higher prices all around? Or at least increase lower-priced versions to help support the more expensive supply. If so, there’s a chance that additional costs will spill over to non-governmental construction, including for commercial real estate.