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Buy America and BEAD

In the State of the Union speech earlier this year, President Biden made it clear that he wants to see the monies spent on infrastructure projects follow the Buy America rules. The Buy America rules were enacted in 1933. The Act says that purchasing funded by the U.S. government should have a preference for using American-made products. The rules allow for waivers from this provision, but the presumption is that without a waiver that American goods must be used.

The NTIA reacted to the president’s speech by writing a blog talking about the use of the Buy America rules in the upcoming $42.5 billion BEAD grants. The blog states, “The president made clear that while Buy America has been the law of the land since 1933, too many administrations have found ways to skirt its requirements. We will not.”

The NTIA requested waivers from Buy America rules when administering past grant programs, including the recent $1 billion middle-mile grants. The USDA sought a 6-month waiver of these rules that applied to some earlier rounds of the ReConnect grants. But the NTIA has made it clear that it doesn’t see any need for a waiver to buy American fiber optic glass or cable. The NTIA says there should be sufficient time for manufacturers to re-shore or expand U.S. manufacturing to meet the demands from the BEAD grants.

In the requested waiver for the Middle Mile Grant Program, the NTIA identified components of a fiber network that are sourced almost exclusively in Asia. This includes electronics like broadband switching equipment, broadband routing equipment, dense wave division multiplexing transport equipment, and broadband access equipment. It doesn’t seem likely that U.S. vendors are going to step up to create an American source for these components in time to meet the needs of the BEAD grants. And while the BEAD grants are substantial, they are not alone enough inducement to manufacture these goods in this country.

The market reality is that most of the costs of any broadband grant project will be spent on American inputs. The cost of labor is usually the largest component of network costs, and the grants require this work be done by American firms. As the NTIA points out, there are plenty of sources for American fiber and conduit. There are American sources of cabinets, huts, and enclosures. There are American vendors making handholes and pedestals.

But the sticky item is going to be electronics. If the NTIA plays hardball on fiber electronics, it will be nearly impossible that any ISP can fulfill the Buy American provision. I’m not as familiar with where wireless electronics are manufactured, but I assume that WISPs have a lot of the same concerns. Electronics are a relatively tiny slice of the total cost of a fiber network but a larger percentage for a new wireless network. .

The arbiter of the Buy American rules is the U.S. Office of Management and Budget (OMB), which recently solicited nationwide comments about how firmly the Buy American rules should be enforced for projects that will be funded by the Infrastructure Investment and Jobs Act. There is a possibility that the OMB will be stingy with waivers even if the NTIA asks for them, but that’s a bridge that can’t be crossed until it happens.

What’s most disturbing is that this joins a list of other issues that create a lot of uncertainty for ISPs considering the BEAD grants. If we don’t start clearing up the uncertainties, states might find that the ISPs they are hoping will request grants will sit out the BEAD grants. ISPs are naturally attracted to grants, but not if the hurdles are too hard to overcome.

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Regulation - What is it Good For?

Any Relief from Buy America Requirements?

The USDA recently filed a request for a six-month waiver from the Build America, Buy America Act (BABA) – more colloquially referred to as the Buy American rules. The IIJA legislation updated the BABA rules to apply to all projects that receive federal funding for infrastructure as of November 18, 2021, the date the IIJA was published in the Federal Register. In the broadband world, this means the updated Buy American rules apply to federal grant programs administered by NTIA, USDA, EDA, and any other agency that awards a broadband infrastructure grant or loan.

The updated Buy America rules include a specific list of materials and components that should be sourced to American companies, including steel, iron, manufactured products, non-ferrous metals, plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables), glass (including optic glass), lumber, and drywall. That list covers almost every component of building a fiber network. Fiber optic glass must be American-made, as must be the material used in fiber-optic sheaths. Conduit must be American-made. The definition of ‘manufactured items’ in the Act would cover all electronics.

The IIJA goes on to define the specific rules for defining American-made. For manufactured goods (like electronics), at least 55% of the cost of components must be American-made. For construction materials like fiber optic cable and conduit, 100% of the product must be made in the U.S.

For broadband purposes, the USDA 6-month waiver, if awarded, would relax the rules for any ReConnect grants awarded by the agency during that time frame. It’s worth noting that the USDA waiver request covers a lot more than just the ReConnect grants. The agency administers 49 different programs that awarded $40 billion in 2021 for almost 170,000 loans, grants, and loan guarantees – with 82% of the awards being loans or loan guarantees. The USDA has three major programs that involve infrastructure spending – the Rural Housing Service, the Rural Business-Cooperative Service, and the Rural Utility Service. The waiver would apply to all of these USDA programs.

The USDA noted that immediate implementation of Buy American would have negative impacts on rural communities and the economy, such as:

  • Delayed deployment of critical broadband, water, and community infrastructure.
  • Reduced access to capital for rural businesses and critical community investments such as
    schools, hospitals, and first responder facilities.
  • Decreased investment for rural clean energy projects and transition away from fossil
  • Slowed participation in the new USDA food supply chain programs resulting in
    continued food supply chain gaps for the country.
  • Underinvestment in the upkeep and upgrading of multi-family housing facilities that
    house rural America’s most vulnerable residents.
  • Creation of significant barriers to the use of RD programs by socially vulnerable,
    distressed and high-poverty rural communities, including communities of color and Tribal

The six-month delay is interesting, and the agency explains the requested delay to provide time for the USDA to work with grant and loan participants to understand how to meet the Buy American requirements. The USDA is not seeking a permanent waiver from Buy American rules, and the White House made it clear earlier this year that it did not want to see a lot of waivers.

If the USDA is granted this waiver, then any winners of the last round of ReConnect (which should be awarded soon) might get some breaks from the Buy American rules. But the USDA waiver makes it clear to me that folks need to be braced for Buy America to apply to the upcoming BEAD grants. I’ve heard folks on industry panels predicting waivers for broadband projects, and my bet is that isn’t going to happen.

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Regulation - What is it Good For?

Buy American and Federal Grants

Near the bottom of the Infrastructure Investment and Jobs Act, starting on page 2315, is a requirement that any infrastructure funded from federal funds must comply with the Build America, Buy America Act. This applies to the $42.5 billion in broadband infrastructure included in the IIJA, but also applies to all other infrastructure projects that includes federal funding. The IIJA says as of the date of enactment of this Act, domestic content procurement preference policies apply to all Federal Government procurement and to various Federal-aid infrastructure programs.

I think this clearly means that Buy American rules apply to federal infrastructure projects awarded after November 18, 2021, the date the IIJA was published in the Federal Register. This would include RDOF funding, ReConnect grants, the NTIA grants, and anything else awarded after that date. I’ll have to leave this up to the lawyers, but this also could apply to state and local grants awarded before that date but not yet constructed, such as CARES or ARPA projects.

The concept of buying American has been around since 1933, when the original Buy America Act was passed by Congress that applied specifically to federally-funded projects to build roads and railroads. That specific law was aimed at making sure that railroads used American-made iron and steel for rails, train engines, and railcars.

The Buy America concept was first applied to telecom in the 2009 ARRA stimulus grants. Those grants required that a substantial amount of the raw materials used to build broadband networks complied with the Buy America Act. At that time, it was nearly impossible to buy electronics that complied with the Buy America Act, and I recollect that the NTIA issued a blanket pardon from parts of the Buy America rules (but that’s subject to verification).

This new IIJA legislation puts a major emphasis on buying American. One of the intentions of the Act is to provide incentives for manufacturers to bring factories and jobs back to the U.S. Consider the following language from the IIJA:

United States taxpayer dollars invested in public infrastructure should not be used to reward companies that have moved their operations, investment dollars, and jobs to foreign countries or foreign factories, particularly those that do not share or openly flout the commitments of the United States to environmental, worker, and workplace safety protections; in procuring materials for public works projects, entities using taxpayer-financed Federal assistance should give a commonsense procurement preference for the materials and products produced by companies and workers in the United States in accordance with the high ideals embodied in the environmental, worker, workplace safety, and other regulatory requirements of the United States;

The Act lists specific materials and components that should be sourced to American companies, including steel, iron, manufactured products, non-ferrous metals, plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables), glass (including optic glass), lumber, and drywall.

That list covers almost every component of building a fiber network. Fiber optic glass must be American-made, as must be the material used in fiber-optic sheaths. Conduit must be American-made. The definition of ‘manufactured items’ in the Act covers all electronics.

The IIJA goes on to define the specific rules for defining American-made. Construction materials like fiber optic cable and conduit must be 100% made in the U.S. At least 55% of the cost of the components for manufactured goods must be American-made. This last requirement is going to cause consternation for equipment vendors which are going to somehow disclose the source and what they pay for each component of electronics. In today’s complex supply chain this isn’t going to be easy. This gets even more complex for supply houses that buy and assemble various components into ready-to-use electronics assemblies. This will mean more paperwork for the industry – everybody that builds a project that uses federal funding must be ready to prove they comply with the law.

There are ways for federal agencies to get waivers from these rules – but the legislation makes it clear that waivers need to be exceptions and not routinely or easily granted. The intention of this law is to force vendors to change procurement practices and to buy raw materials and components from American sources. Since the law specifically called out the components of fiber optic networks, it’s not going to be easy to get waivers.

This is likely to cause disruptions in the short run as electronics manufacturers scramble to meet the 55% rule. It’s not hard to imagine that these rules might further disrupt the current supply chain problems as vendors scramble to meet these requirements. But in the long run, these rules are great. We need to buy from American companies, support American jobs, and move manufacturing back to the U.S.

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