Buy American, Hire American: How This Executive Order Could Impact the Construction Industry
Contractors that Work on Federally Fund Projects
Need to Know What to Expect
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President Trump signed Executive Order Buy American, Hire American (No. 13788) on April 18, 2017. This Executive Order states that all federal projects will be constructed with American-made materials and that these products must be “substantially transformed” by the American workforce.

While meant to create jobs, increase manufacturing in the U.S., and stimulate the economy, this Executive Order also has potential repercussions. Some experts claim that the construction industry will be impacted by: 

  • Increasing project and materials costs.
  • Delaying projects due to material shortages.
  • Requiring more systems and processes to ensure American-made products are used.
  • Increasing the number of fraudulent American-made product certifications.
  • Reducing the number of skilled workers available to work on projects because of their immigration status.
  • Straining trade agreements with foreign countries. 
  • Creating greater uncertainly in the construction industry.

Buy American 

While several Buy American rules are already in place, the Trump Administration’s Executive Order places further restrictions on the materials used in federally funded projects. The Buy American Act of 1933 requires that 51% of the constituted components of a given product must be made in the U.S. Furthermore, the product must be “substantially transformed” in some way by American labor. All federally funded projects must comply with the Buy American Act of 1933. Even so, since the U.S. is a signatory to the World Trade Organization’s Agreement on Government Procurement (GPA) there is an exception. GPA allows signatory countries to treat products made in other signatory countries as being made in their own provided the contract in question meets a minimum value threshold ($5 million or more in the U.S.).

All projects funded by the Department of Transportation (DOT) must comply with the Surface Transportation Assistance Act of 1982. Although this law typically covers the purchase of steel and iron, it also includes manufactured goods. The definition of American-made under this law means that 100% of all the components, products and processes must be done in the U.S. Trump’s Executive Order added that American-made steel is produced in the U.S. from the melting phase forward. The concern is that there are only 11 integrated steels mills in the U.S. that can melt, pour, shape and coat steal. These facilities are located east of the Mississippi River and some do not produce construction materials.  Furthermore, contractors can no longer use steel products produced by “slab reheater” facilities. Reheated steel comes from numerous sources, including foreign countries. 

The Buy American, Hire American Executive Order bars contractors from using GPA products on DOT transportation projects. Since these projects are typically funded by state and local governments, international trade law does not apply. Even if it did, GPA excludes transportation projects. 

Hire American

The Hire American provision of the Executive Order states that to create higher wages and protect the economic interests of workers, [the Administration can] enforce and administer laws governing workers from abroad.

Construction workers could be impacted even if they have a visa and are authorized to live and work in the U.S. or granted asylum. While it is not expected that their residency status would change, the Executive Order could make it difficult for foreign born workers to find a job. Since there is already a shortage of qualified construction workers, contractors should plan accordingly. 

Even though the Executive Order mentions H-1B visas, the construction industry does not employ too many technical and specialty-focused workers with this type of visa. 

Plan for Change

Although nothing has changed yet because of the Buy American, Hire American Executive Order, contractors should plan-ahead. Contractors will have to look at each project and decide which rules are applicable. Procurement process will have to be updated, job estimates adjusted, and compliance controls put in place. 

Experts anticipate an increase in fraudulent American-made certifications.  Contractors will have to pay close attention to what materials are in the products they buy, where they were manufactured, and by whom. Contractors will also have to resist the temptation to use a product that is readily available, but not in compliance with the Executive Order. Although a contractor can apply for a Buy American waiver, they will have to make a strong case to be granted one.

Please contact me if you have questions or need guidance at 610.828.1900 or I am always happy to help.

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code.  We strongly advise you to seek professional assistance with respect to your specific issue(s).  

Martin C. McCarthy, CPA
Managing Partner
McCarthy & Company, PC